Tax News E-Alert

July, 2008

Business standard mileage rate increases for last half of 2008

IRS has announced that the optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) will increase 8¢ from 50.5¢ to 58.5¢ per mile for business travel from July 1, 2008 to Dec. 31, 2008 to better reflect the real cost of operating an auto in this period of rapidly rising gas prices.  This rate can also be used by employers for tax-free reimbursements to employees who supply their own autos for business use under an accountable plan.  The rate for using a car to get medical care or in connection with a move that qualifies for the moving expense will also increase 8¢ for the last half of 2008 from 19¢ to 27¢ per mile.

Background. The mileage allowance deduction replaces separate deductions for lease payments (or depreciation if the car is purchased), maintenance, repairs, tires, gas, oil, insurance and license and registration fees.  The taxpayer may still claim separate deductions for parking fees and tolls connected to business driving.  IRS generally adjusts the standard mileage rate annually, based on a yearly study of the fixed and variable costs of operating an automobile.

Employers that require employees to supply their own autos may reimburse them at a rate that doesn't exceed the business mileage allowance for employment-connected business mileage, whether the autos are owned or leased.  The reimbursement is treated as a tax-free accountable plan reimbursement if the employee substantiates the time, place, business purpose, and mileage of each trip.

A separate rate applies for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction.  The mileage rate for driving an auto for charitable use (14¢ per mile) is a statutory rate that's not adjusted for inflation.

When the new rates are effective. The revised standard mileage rates (58.5¢ for business; 27¢ for medical or moving expenses) apply to deductible transportation expenses paid or incurred for business, medical, or moving expense purposes on or after July 1, 2008, and to mileage allowances that are paid both (1) to an employee on or after July 1, 2008; and (2) with respect to transportation expenses paid or incurred by the employee on or after July 1, 2008.

However, the standard mileage rates in Rev. Proc. 2007-70, 2007-50 IRB 1162 (50.5¢ for business; 19¢ for medical or moving expenses), continue to apply to deductible transportation expenses paid or incurred for business, medical, or moving expense purposes before July 1, 2008, and to mileage allowances paid: (1) to an employee before July 1, 2008, or (2) with respect to transportation expenses paid or incurred by the employee before July 1, 2008.

Please feel free to contact me at 310-697-1505 or jchung@rwac.com if you have any questions.

Best regards,

James Chung

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