In a nod to higher gas prices, the IRS has increased the business mileage rate deduction to 55.5 cents per mile. The new rate becomes effective July 1 and raises the rate 4.5 cents. The deduction for medical and moving expenses also increases 4.5 cents to 23.5 cents per mile.
According to AAA, the current average price of gasoline is $3.61 a gallon – about a dollar more than it was this time last year. The Department of Energy has also decided to release 30 million barrels of oil from its Strategic Petroleum Reserve to combat higher gas prices.
The IRS typically announces mileage rate increases in the fall of the year, but cited this year’s increases in gas prices as an impact that needed quicker action. “We are taking this step so the reimbursement rate will be fair to taxpayers,” said IRS Commissioner Doug Shulman.
Governments and many companies also use the mileage rates to determine how much to reimburse employees for fuel costs. Mileage reimbursements by employers are not reported as income for tax purposes unless they exceed the IRS’s payment limit. If an employee is not reimbursed by this or her employer for work-related travel, a limited deduction is available on the employee’s federal income tax return.
Taxpayers will see the increase when they deduct mileage on their 2011 federal taxes next April. Taxpayers need to make sure they clearly document what part of the year the mileage expenses were incurred in order to claim the appropriate reimbursement rate. The IRS noted that in 2008 taxpayers deducted $32 billion in business-related fuel costs.