IRS Increases Mileage Rate Through the End of 2005

The Internal Revenue Service (IRS) and Treasury Department on Friday announced an 8 cent per mile increase to the optional standard mileage rates for the final four months of 2005. Between September 1 and December 31, 2005, the rate will increase to 48.5 cents for all business miles driven.

“This is about fairness for taxpayers,” said IRS Commissioner Mark W. Everson in announcing the increase. “People are entitled to deduct the real cost of operating a vehicle. We’ve responded to the recent gas price increases by making this adjustment so taxpayers get the tax benefit they deserve.”

This increase is a special adjustment for the final months of 2005. The IRS normally updates mileage rate once a year in the fall for the next calendar year. The fact that this increase is temporary may indicate the IRS recognizes the difficulty high gas prices pose for consumer but that the agency also believes the existing 40.8 cent per mile rate is appropriate when gas prices return to a more normal price range. The IRS also uses the price of new vehicles and insurance along with gasoline prices in calculating the mileage rate.

The optional business standard mileage rate is used to compute the deductible costs of operating a vehicle for business in lieu of tracking actual costs. This rate is also used as a benchmark for reimbursing employees for mileage by the federal government and many businesses.

The four-month rate for computing medical or moving expenses has also been increased from 15 cents to 22 cents a mile. Only the rate for proving services for charitable organizations, which is set by statute, remains unchanged.

The annual Revenue Procedure includes limitations on who is not eligible to use the standard deduction rates.

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