Adjustments Made to the 2011 Standard Mileage Deduction Rate

July 22, 2011 by  Filed under: Taxes 

In June 2011, the IRS announced a mid-year standard mileage deduction adjustment to provide some relief for the continually rising fuel prices. The IRS traditionally provides mileage deduction rates once, around fall time, to cover the preceding tax year. However, very rarely, the IRS does provide mid-year adjustments if the prices of fuel remain high within a year. This was the case for 2011. The IRS had been under pressure to make the mid-year adjustment as many lawmakers and activists made formal requests to the IRS for this amendment. However, the IRS had been consistently and constantly reluctant to make these adjustments, hoping that the fuel prices would reduce as they claimed that the mid-year adjustments would lead to more administrative work, especially for payroll operations. However, the fuel prices have remained at a high rate, above the $3.50 a gallon throughout the first half of 2011. These high prices have prompted the IRS to make adjustments in spite of their earlier arguments and reluctance.

What is the Standard Mileage Deduction?

The standard mileage deduction rates are used by taxpayers to compute the mileage deductions for business and medically related transportation. These rates are used in lieu of the actual costs incurred. Therefore, you can either use the actual fuel and car maintenance expenses incurred against your incomes for tax purposes or simply apply the rate against the mileage covered. The two processes produce different deduction costs so it may be wise to calculate both figures to determine which of the two methods would lead to the most tax advantage for you.

The Adjustments Made

The mid-year adjustments were made for business transport costs and medical transport costs, but there were no rate adjustments made for travel costs for charitable organizations. The rate for business related transport expenses was adjusted from 55 cents a mile to 51 cents a mile. For medical transport costs, the rate was reduced from 23.5 cents to 19 cents a mile. The non-profit organization rate remains at the 14 cents a mile rate. The new rates apply for the period of July through December 2011.

The High Fuel Costs Numbers

Gas prices started at a season high of $4.00 a gallon in January 2011 and have remained high. At the time of the adjustments, towards the end of June 2011, the gallon rate was at $3.61. The high prices of fuel have caused a widespread and significant impact on the U.S. economy, including high retail prices for commodities and a drop in the stock market, owing to low demands of stocks. The disposable income of taxpayers has also been reduced, leading to less unrestricted spending. In May 2011, the average U.S. driver spent $392.57 on fuel, which accounted for 9.5% of the U.S. median income. This percentage comes pretty close to the rate in 2008, just after the recession, where fuel expense averaged 10.2% of the median income. The high prices are mainly attributed to the war in Libya, a major global oil contributor. The government is seeking to release some of the oil reserves in an attempt to curb the high and rising fuel prices in the country.

Rob L Daniel and partners of Limon Whitaker & Morgan, for years have helped businesses and individuals Nationwide, with their delinquent IRS & State tax problems. The firm is based in Los Angeles, California USA. / Tel:888.321.6188

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