Professional Services Accounting ARTICLE -
IRS Increases Standard Mileage Rate for Auto Expense Deduction
Target Audience: Deducting Auto Expenses, Consulting Services, Speaking Engagements, Law Firm Professionals, Lawyers, Law Firm Associates
With today’s high gas prices, you’ll want to be sure you’re deducting auto expenses when you can. Fortunately, earlier this year the IRS increased the standard mileage rate that you can use when calculating your business auto expenses deduction.
You may deduct expenses for any business use of a vehicle or use in connection with an income-producing activity, such as consulting services or speaking engagements. But generally commuting doesn’t count as business use.
You can use one of two methods to calculate the deduction:
- Mileage rate method. Under this method, you multiply the number of business miles driven by the standard mileage rate. To that amount you can add parking fees and tolls. For 2008, the mileage rate is 50.5 cents per business mile driven through June 30, and
58.5 cents per business mile driven from July 1 through Dec. 31.
- Actual cost method. Under this method, you simply multiply the total amount of your actual expenses by the business use percentage. So if you have $10,000 of expenses — such as lease payments, gas, oil, repairs and insurance — and 80% of the time you drive the vehicle for business purposes, you can deduct $8,000 this year.
The rules are more complex if you own the vehicle, because you must depreciate the purchase cost. To claim accelerated depreciation, you must have used it more than 50% of the time for business. For vehicles purchased this year and used 100% for business, depreciation is limited in the first year to $2,960 for cars, $3,160 for vans and light trucks, and $25,000 for heavy SUVs.
The luxury auto rules, however, limit annual depreciation to an amount specified by the IRS. (The term “luxury” is a misnomer because these limits generally apply to vehicles costing slightly more than $15,000.) First-year bonus depreciation — reintroduced in 2008 — now allows an additional $8,000 first-year deduction, plus the normal first-year depreciation of $2,960 for cars or $3,160 for vans and trucks. Note that some larger SUVs are outside of the luxury auto limits and can enjoy larger deductions.
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