IRS Raises Rates for Business Mileage Deductions

WASHINGTON, D.C. The Internal Revenue Service today released the optional standard mileage rates that business owners may use for 2005 in computing the deductible costs of operating an automobile for business, charitable, medical or moving expense purposes.

Beginning Jan. 1, 2005, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:

• 40.5 cents a mile for all business miles driven, up from 37.5 cents a mile in 2004;
• 15 cents a mile when computing deductible medical or moving expenses, up from 14 cents a mile in 2004; and
• 14 cents a mile when giving services to a charitable organization.

The 3-cent rise in the business mileage rate was the largest one-year increase ever. The IRS cited increased fuel and vehicle prices for the year ending Sept. 30 as the primary reasons for raising the rate. The charitable standard mileage rate is set by law.

The standard mileage rates for business, medical and moving purposes are based on an annual study of the fixed and variable costs of operating an automobile. An independent contractor, Runzheimer International, conducted the study for the IRS.

Business owners should keep in mind that taxpayers may not use the business standard mileage rate for a vehicle if:

• They have used any depreciation method under the Modified Accelerated Cost Recovery System (MACRS),
• They claimed a Section 179 deduction for that vehicle,
• The vehicle is used for hire, or
• For more than four vehicles used simultaneously.

According to recent Lawn & Landscape research, 53 percent of contractors currently operate one to three vehicles for business, making them eligible for the new mileage rates, assuming they meet the other criteria as outlined.

For more information on the 2005 mileage rates and making deductions, visit the IRS Web site.