Driving for business? IRS raises standard mileage rate

Bowing to pressure from Congress and recognizing that gas prices have increased dramatically since the first of the year, the IRS has announced an increase in the optional standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of driving their personal cars for business and other purposes.

The rate will increase to 55.5 cents a mile for all business miles driven from July 1 through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of the year.

Because the rates for the first and second halves of the year will be different, taxpayers must be diligent about keeping good mileage records, including the dates of travel.

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.

The mid-year increase is unusual, as the IRS normally updates the mileage rates once a year in the fall for the next calendar year.

"This year's increased gas prices are having a major impact on individual Americans," said IRS Commissioner Doug Shulman. "We are taking this step so the reimbursement rate will be fair to taxpayers."

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

The optional business 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.

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

Mileage Rate Changes