August 22, 2008, Newsletter Issue #130: Mileage Expenses and Reimbursement

Tip of the Week

Allowable mileage rates for your vehicle depend upon the usage. For instance, is it for business, medical, or volunteer? Personal usage is never deductible under IRS rules.

If you use your vehicle during a volunteer service for a charitable organization, the IRS allows you to take a $.14 per mile deduction for the tax year 2006. This applies for non-Katrina related activities. For Hurricane Katrina related activities, the mileage rate deduction allowed changes to $.32 per mile. This special Katrina rate mileage rate will not apply after 2006 – for your information.

If you lease your vehicle and use it for business purposes, the IRS allows the standard mileage allowance of $.445 per mile for tax year 2006. You must use the rate for the entire lease period or not at all.

Whenever you use your vehicle for business use, you have your choice of taking either a standard mileage allowance (standard fixed rate of $.445 per mile) or the actual operating costs of your vehicle. Operating costs include mileage, gas, and repairs – among other items. NOTE: It is important to note that if you choose to use the actual method in the first year you put your car into business use, you cannot change to the standard mileage allowance rate in later years. You must choose to use the standard allowance mileage rate in the first year you put your vehicle in business use to use the method in later years.

Also, you may not claim the standard mileage allowance rate of $.445 per mile if any of the following situations are met by you:

You have a fleet operation of vehicles whereby more than 5 vehicles are used simultaneously. You have used the ACRS or MACRS methods of depreciation. (The standard mileage allowance rate includes depreciation). You claimed first year expensing You use your vehicle for hire. This means you carry passengers who pay you (i.e. a taxi).Mileage reimbursement applies to employees who use their car for their employer’s benefit. If you work as an employee and have unreimbursed vehicle costs, you must report them as a miscellaneous deduction on Schedule A. Also, you must file Form 2106 to report your actual expenses, allowance, business mileage, and commuting expenses.

Self employed persons need to file their mileage costs (business expense) on Form C.

Tax Tip: Keep a mileage log to organize your expenses and actual mileage. Record your starting mileage, expenses incurred, and ending mileage for the entire time you use your vehicle for business purposes. If you incur mileage on one day that includes both personal and business, break it down. This mileage record log is a necessity if you choose to use the actual costs of operating your vehicle.

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