The Internal Revenue Service announced this week an increase in the optional standard mileage rates for the final six months of 2011.
Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.
The rate will increase to 55.5 cents a mile, a 4.5 cent increase, for all business miles driven from July 1, 2011 to December 31, 2011. The previous rate was 51 cents per mile.
This is abnormal for the IRS to make such an adjustment mid-year as typically they wait until the fall and update the mileage rate for the next calendar year.
"This year's increased gas prices are having a major impact on individual Americans. The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices," said IRS Commissioner Doug Shulman. "We are taking this step so the reimbursement rates will be fair to the 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 new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.
Although this is a rate move mid-year, the Obama administration has been actively seeking ways to help the American economy. Due to the high gas prices, President Obama has felt increased political pressure.
On Thursday, the Obama administration said it will release 30 million barrels of oil from the country's emergency reserve as part of an international response to lost oil supplies caused by turmoil in the Middle East and Libya.
"We are taking this action in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries and their impact on the global economic recovery," Energy Secretary Steven Chu said Thursday.
So, the question remains, is it pertinent to continue to fund money into oil and oil reserves, or should we be funding research for other energy resources? We would love to hear your comments!
Until then, what do you plan on doing with your 4.5 cent increase?
Stop in at your local Liberty Income Tax professional to see how we can help you with your strategic tax planning.