IRS Adjusts Revenue Procedure on Mileage

The IRS normally updates the mileage rates once a year in the fall for the next calendar year. However, because of recent gas price trends, the IRS and Treasury Department recently announced an increase to the optional standard mileage rates for the final four months of 2005. The rate will increase to 48.5 cents a mile for all business miles driven between Sept. 1 and Dec. 31, 2005. This is an increase of 8 cents from the 40.5 cent rate in effect for the first eight months of 2005, as set forth in Rev. Proc. 2004-64.

For small business owners, this does provide some relief, but business owners should proceed with caution and talk with their tax advisors to decide which accounting method provides the most accurate vehicle deduction.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of the extra burden of tracking actual costs, and often times, is the preferred method for expediency.

FYI, a standard mileage rate is just used as a benchmark by the federal government and many businesses to reimburse their employees for mileage. It does not necessarily mean that such a benchmark accurately represents every business. I recommend all businesses owners discuss this overlooked item with their accountant or tax advisor.

It could make a big difference in what you owe to Uncle Sam.