IRS raises mileage deduction July 1st

As gas prices hit $5 per gallon for the first time, IRS makes mileage deduction for gas costs more generous in rare mid-year move

© Getty ImagesAs gas prices hit $5 per gallon for the first time, IRS makes mileage deduction for gas costs more generous in rare mid-year move

TAXWATCH

The federal tax deduction that businesses and self-employed taxpayers can use for their work-related miles on the road is suddenly getting more generous, in a nod to gas prices that keep breaking records.

The optional standard mileage rate for business-related driving is increasing to 62.5 cents a mile, starting in July, the Internal Revenue Service announced Thursday. That’s up from the 58.5 cents-a-mile rate first announced in December.

It’s a tax administration tweak that will not apply to everyone, but it’s a notable development.

When it’s time to calculate the standard mileage rate, the IRS normally comes up with its numbers once a year. 2011 was the last time the IRS made a mid-year adjustment to the rate.

The four-cent rate increase is meant “to better reflect the recent increase in fuel prices,” said IRS Commissioner Charle Rettig. The IRS announcement arrived the same day that national gas averages breached the $5-a-gallon mark, according to GasBuddy.

The new 62.5 cents-a-mile rate applies for eligible road travel from July 1 to Dec. 31. The 58.5 cent rate applies for eligible miles logged from Jan. 1 to June 30.

Four extra cents might not sound like a lot, but with so many rising costs, any extra bit can help.

Keep in mind these rates aren’t mandatory, the IRS said. “Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates,”.

But that may involve even more documentation than what’s required for taxpayers taking the standard mileage rate. And the taxman is already going to be expecting records when it comes to the rate, including mile counts, destination and purpose.