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IRS Helps Small Businesses Deal with Higher Prices

by: IRSHelpsBusinessPeopleDealWithFuelPrices
Total views: 3 | Word Count: 447

The IRS is an agency that has a reputation that is somewhere between Attila the Hun and baby seal hunters. While deserved, the agency actually is very responsive to current events that impact taxpayers. This includes the increase in gas prices.

The United States is home to tens of millions small businesses. One of the favorite deductions of these businesses is the business mileage deduction. You get to deduct a certain dollar figure for every business mile you drive.

The cost of fuel would seem to be a major factor considered when the IRS sets the figure and it is. There are others however. They include things such as insurance, vehicle depreciation and other issues.

The IRS sets the numerical figure that can be used for the tax deduction at the beginning of each year. For 2008, the figure declared was 50.5 cents a business mile. If you drive 1,000 miles in 2008 for business, you would be able to deduct $505.00.

Every so often something happens that makes the IRS review the business mileage deduction. A classic case was Hurricane Katrina. Damage to refineries results in a jump in gas prices. The IRS reacted by raising the business mileage deduction.

As you well know, 2008 has been a brutal year for gas price increases. In many parts of the country, we are closing in on five dollars a gallon for fuel. In 2005, the average cost was $2.30. Ah, for the good old days!

To say that gas prices have spiked this year is a slight understatement. The IRS has recognized as much and is adjusting the business mileage deduction according. For miles incurred in the last six months of 2008, the deduction figure is now 58.5 cents.

So, how do you calculate all of this? Well, it is actually pretty simple. Any business mileage you undertake from January 1 through June 30 is deductable using the 50.5 figure. Mileage after that is done at the 58.5 percent rate. Just add the two totals for your deduction.

Business miles are not the only transportation deduction getting a bump. You can deduct mileage incurred for moving for a job. The rate for the first six months of 2008 is 19 cents, but the final six months now have a rate of 27 cents.

The tax code also contains a provision for a deduction for mileage incurred while helping a charity. The IRS does not control this deduction. Only Congress can modify it. As such, there is no change for fuel prices.

Fuel prices are projected to only go higher for the foreseeable future. While the bump in the mileage deduction helps, it may not be the last one in 2008. Keep an eye out for more changes.

About the Author

Richard A. Chapo writes about calculating payroll tax deductions for BusinessTaxRecovery.com.

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