Mileage Deductions Increased for Last Third of 2005

Mileage Deductions Increased for Last Third of 2005

You can deduct for business transportation using your car, at a flat rate per mile. Recognizing the big hike in gas prices, IRS has increased the rate. The 2005 rate of 40½¢ per mile is now the ceiling only for January 1 through August 31, 2005. It's 8¢ per mile more--to 48½¢--for September 1 through December 31, 2005.

Employers who reimburse employee business driving expenses can also use these rates. The employer can deduct reimbursement at these rates, and the employee pays no tax on the reimbursement, if the employee substantiates time, place, business purpose and mileage for each trip.

The rates are for miles driven in those periods; you're not supposed to prorate it by taking the total miles of 2005 business travel and allocating one-third of the mileage to 48½¢ and two-thirds to 40½¢.

NOTE: While this mileage increase is welcome, it was announced after September 1 when the 48½¢ rate had begun, so many won’t have a record of their exact post-August mileage.

NOTE: The flat rate covers all expenses for maintenance, but you can deduct related tolls and parking fees in addition. Using the flat rate is optional. You can instead deduct specific expenses for gas, oil, insurance, upkeep, repairs, depreciation or lease payments, registration and other cost elements (including tolls and parking), to the extent allocable to business use.

TIP: Deducting specific expenses, though less convenient, could give a larger deduction. And it might be preferable where you can’t show what mileage fell before September and what fell after August in 2005.

The mileage rate for medical transportation (to and from doctors, etc.) is 15¢ for January 1--August 31 and 22¢ for September 1--December 31. The rate for charity-related volunteer driving is fixed by statute at 14¢ a mile for all of 2005 and not changed.

IRS hasn't yet decided on mileage rates for 2006.