The Internal Revenue Service has raised the standard-mileage-reimbursement rate for the final six months of 2008, citing recent increases in gasoline prices.
The IRS normally updates the mileage rates once a year in the fall for the next calendar year.
The rate will increase to 58.5 cents a mile for all business miles driven from July 1, 2008, through December 31, 2008. This is an increase of 8 cents from the 50.5-cent rate in effect for the first six months of 2008.
"Rising gas prices are having a major impact on individual Americans," says said IRS Commissioner Doug Shulman. "Given the increase in prices, the IRS is adjusting the standard mileage rates to better reflect the real cost of operating an automobile, We want the reimbursement rate to be fair to taxpayers."
While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.
The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.
The new six-month rate for computing deductible medical or moving expenses will also increase by eight (8) cents to 27 cents a mile, up from 19 cents for the first six months of 2008. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.
Employers who use the IRS standard mileage rate to reimburse employees may deduct the reimbursement as a business expense. If employers use the approved rate (or a lower rate), the IRS considers that requirements to substantiate and adequately account for the expense are satisfied without extensive documentation of actual expenses.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.