This just in over at the IRS Web site, IRS Increases Mileage Rates through Dec. 31, 2008

As of July 1st, 2008, the Business Mileage Rate as calculated by the IRA is increasing to $.585 cents per mile. That’s an increase of 8 cents per mile, and an overall increase of 10 cents per mile from a year ago.

For those of you that drive for business and get reimbursed (or those that write-off business mileage on their taxes) it means a break for you.

What is this Business Mileage You Speak of?

Business mileage is any miles that you drive for a business, yours or your employer’s. If you use your vehicle in your business, it means you can use mileage to calculate deductible business expenses for your vehicle. (An alternate way is to use the actual cost of operating the vehicle, whichever is greater).

Also, most businesses pay their employees for employee-operated vehicles based on this rate. As an example, if you use your personal car to travel to a client site like I do, the pay reimbursement is based on $.585 cents per mile as of 1 July 2008. If you have a company car, or are renting a vehicle for work and the business picks up the tab, you won’t see any of this money.

Why Do We get Mileage?

The IRS has always allowed businesses to deduct expenses for assets used in a business. For major assets like real estate, they have depreciation rates that are applied, for smaller items like computers and other quickly depreciating items, they have a calculated ‘accelerated depreciation’ rate. This is to offset the expense of acquiring, operating, and replacing equipment used in business.

For cars, the two main expenses are fuel and maintenance/replacement costs. With gas prices topping $4.00 and still going up, the government has made a mid-year change to the mileage rate to help businesses cope with the new higher price of fuel. Normally the rates are changed once a year, in January or so.

How Does this Affect You?

It can help you out in a couple of ways.

Drive for Work – If you drive to work, and it’s farther than what is considered a ‘normal’ driving distance by the IRS (somewhere about 50 miles one-way), you might talk with your company about having them pay mileage. Most businesses move lock-step with the IRS rates, as they ‘pass through’ this deduction. Additionally, this is also tax free money, as it’s a deduction/reimbursement by the company for using your own vehicle for work, not considered as INCOME by the IRS.

Use of a Vehicle in a Business – If you own a business, or have a side business, you can write off some or all of the mileage you use on vehicles used IN that business. The increase means that there’s a bigger deduction this year than before. You can either deduct the actual costs of the vehicle or the mileage used for business purposes for the vehicle. Either way you need to keep good records to be able to prove to the IRS how much of the vehicles use was for business.

See, the Government is Your Friend!

Ok, maybe, maybe not. But this is a nice little break to help out a little until we get the electric, no-maintenance flying cars that were promised to us in all those 1950’s newsreels. Expect the rate to increase further if gas goes up significantly more as well. If gas goes to $5.00/gallon (a distinct possibility) I’d expect another $.10 increase to offset that as well.

Do you have any tax tips to share with the readers?? Leave us a comment and help out.