Starting July 1, 2008, the standard mileage rate for business miles is being increased to 58.5 cents per mile. The rate is currently at 50.5 cents per mile. Over the years, the IRS has somewhat tried to keep up with increasing fuel costs, but they're probably a little behind at this point.
The standard mileage rate is important because it's used by a lot of businesses to reimburse employees for their miles driven for company purposes. Self-employed people also use this rate for their business mileage.
With rapidly rising fuel costs, however, some taxpayers may be better off using "actual expenses" for claiming their auto expenses on their taxes. Using this method requires the taxpayer to track information in addition to the miles driven. They have to track the cost of the vehicle, fuel, service, repairs, and insurance. Those actual expenses are then allocated to personal miles and business miles. While this method is more of a hassle, it can often yield a bigger deduction for the taxpayer.
There is a catch though: If you start using the actual expenses in the first year you put your car "in service" for business purposes, you can't switch to the standard mileage rate in later years.
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
Tax Tips: Standard mileage rate deduction skyrockets