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- IRS Reacts To Higher Gas Prices The IRS is an agency that has a reputation that is somewhere between Attila the Hun and baby seal hunters. While deserved, the agency actually is very responsive to current events that impact taxpayers. This includes the increase in gas prices. Under the tax code, many taxpayers can deduct mileage accrued for business purposes. The deduction is represented as a numerical figure per miles. A taxpayer simply multiplies their total business mileage by this figure to get their deduction for the year. There are many factors that go into the business mileage deduction. They include vehicle depreciation, insurance and other variable costs. One of these is, obviously, the cost of fuel to get around. The IRS sets the numerical figure that can be used for the tax deduction at the beginning of each year. For 2008, the figure declared was 50.5 cents a business mile. If you drive 1,000 miles in 2008 for business, you would be able to deduct $505.00. Every so often something happens that makes the IRS review the business mileage deduction. A classic case was Hurricane Katrina. Damage to refineries results in a jump in gas prices. The IRS reacted by raising the business mileage deduction. As you well know, 2008 has been a brutal year for gas price increases. In many parts of the country, we are closing in on five dollars a gallon for fuel. In 2005, the average cost was $2.30. Ah, for the good old days! To say that gas prices have spiked this year is a slight understatement. The IRS has recognized as much and is adjusting the business mileage deduction according. For miles incurred in the last six months of 2008, the deduction figure is now 58.5 cents. So, how do you calculate all of this? Well, it is actually pretty simple. Any business mileage you undertake from January 1 through June 30 is deductable using the 50.5 figure. Mileage after that is done at the 58.5 percent rate. Just add the two totals for your deduction. There are two other mileage deductions you may be aware of. If you must move because of a new job, you can deduct your mileage as well. That rate for 2008 was 19 cents a mile. It has been bumped for the final six months to 27 cents. The tax code also contains a provision for taxpayers to deduct mileage incurred while helping a charity. The rate for 2008 is 14 cents a mile. This IRS does not have discretion to change this rate, so it has not been adjusted. It is unclear if Congress will act on it. The spike in gas prices is certain having an effect on everyone. The new deduction figures set by the IRS aren’t the answer to high prices, but at least the higher deductions will help take some of the bite out of the cost when tax time comes.
- IRS Adjusts Mileage Deductions As Fuel Prices Spike We are from the IRS and we’re here to help you. Most people would smirk at such a statement, but the agency is actually very proactive when taxpayers face a universal issue like the current spikes in gasoline prices. One of the great deductions available in the tax code is the business mileage deduction. If you drive on business matters, you can deduct the mileage at the end of the year by multiplying your total miles by a figure set by the IRS. How does the IRS determine the business mileage deduction rate? It is a hodge podge of factors including car insurance, vehicle depreciation and fuel costs. When one of these goes up, the IRS reacts to its credit. The IRS uses projections to come up with a figure before each year begins to let taxpayers know what to expect. This year, the deduction rate was set at 50.5 cents for every business mile incurred. Although the milege deduction rate is usually not changed, there is precedent for doing so. When prices are serious effected, the IRS can act on its own as it did during Katrina when gas prices shot up do to gas shortages in the South. Whether it is profiteering, a weak dollar, peak oil or some other reason, oil prices have shot up in 2008. In San Diego, we are closing in on $5 a gallon. This is in comparison to 2002 when we were paying only $1.75 for the same gas. While the rest of the government twiddles its collective thumbs, the IRS is doing something to help people. Who would’ve guessed it? The agency has cranked the business deduction rate up to 58.5 cents for the remainder of 2008. How do I come up with a total deduction if there are two rate amounts? Split your mileage for the year into before and after June 30th figures. Multiply by the corresponding rate. Add the totals together and you have the deduction. Business miles are not the only transportation deduction getting a bump. You can deduct mileage incurred for moving for a job. The rate for the first six months of 2008 is 19 cents, but the final six months now have a rate of 27 cents. The tax code also contains a provision for a deduction for mileage incurred while helping a charity. The IRS does not control this deduction. Only Congress can modify it. As such, there is no change for fuel prices. Fuel prices are projected to only go higher for the foreseeable future. While the bump in the mileage deduction helps, it may not be the last one in 2008. Keep an eye out for more changes.
- IRS Helps Small Businesses Deal with Higher Prices
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