IRS Increases 2005 Standard Business-Use Mileage Rate - 12/20/2004 - Insurance Lawyers Taxes

IRS Increases 2005 Standard Business-Use Mileage Rate

Some people find it easier to record the miles they drive for business and then use the Internal Revenue Service’s standard mileage rates to figure the business vehicle-usage deduction for their tax returns. Others prefer to track and tally actual business vehicle expenses like fuel, tolls, maintenance and insurance to calculate the vehicle-usage deduction.

Two Ways to Calculate Usage, But…

Here’s something you may not know. The first year that a personal vehicle you own is available for business use, you must use the standard mileage rate to calculate your business vehicle-usage deduction.

In later years, you can use the standard mileage rate or actual vehicle expenses. If you decide to use the standard mileage rate for a vehicle you lease, you must use that rate for the entire lease period. You can’t switch to actual vehicle expenses during any year of the lease.

Last month, the IRS released the optional standard mileage rates to use for 2005 when computing the deductible costs of operating an automobile for business, charitable, medical or moving expense purposes.

Beginning Jan. 1, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:

• 40.5 cents a mile for all business miles driven, up from 37.5 cents a mile in 2004
• 15 cents a mile when computing deductible medical or moving expenses, up from 14 cents a mile in 2004
• 14 cents a mile when providing services to a charitable organization

The standard mileage rates for business, medical and moving purposes are based on an annual study of the fixed and variable costs of operating an automobile. The study is conducted by an independent contractor. (The charitable standard mileage rate is set by law.)

The three-cent increase in the business mileage rate was the largest one-year rise ever and was based on higher vehicle and fuel costs recorded during the year ending September 2004.

Vehicle Depreciation vs. Mileage Deduction

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

For more information on standard mileage rates and other tax issues, visit the IRS Web site at www.irs.gov. For information about business use of a car, click here.