Tax Update: IRS Makes Mid-Year Adjustment to Mileage Rates

So, the IRS has announced new mileage rates for the remainder of 2011 for taxpayers using the optional standard rates to calculate the costs of operating an automobile for business and other purposes.

tax mazeThe rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through December 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011, as set forth in Revenue Procedure 2010-51.

Uncle Sam claims to have made this special adjustment for the final months of 2011 because of the recent increase in gasoline prices.  The IRS normally updates the mileage rates once a year in the fall for the next calendar year.

While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation, insurance and other fixed and variable costs.

The standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage

The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

You can read more on the rate changes in  Announcement 2011-40.

Mileage Rate Changes

Purpose Rates 1/1 through 6/30/11 Rates 7/1 through 12/31/11
Business 51 55.5
Medical/Moving 19 23.5
Charitable 14 14

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

In my special report 17 Tax Deductions and Strategies the IRS Hopes You Don't Know,  I discuss how to claim expenses for the business use of your automobile. (If you haven't read it yet, you can grab a copy HERE.

Any-who, as already mentioned, there are two methods for claiming expenses:

  • actual expense method
  • standard mileage rate method

Regardless of the method you choose, if your auto is used for both business and pleasure, only the business portion can be deducted.  This means you must keep up with how often you use the vehicle for business by maintaining a mileage log.

If you don't have a form you are using, feel free grab one of these:


Click here to download the spreadsheet

Adobepdfr_icon Click here to download the pdf version

Here's to a tax deductible lifestyle!

Until next time, thanks for reading!  Your comments and questions are welcomed below.