Many employers use the IRS’s official rate for vehicle costs for reimbursements to their employees.  With the steep rise in fuel costs this year, it is obvious that the IRS’s current 2005 rate of 40.5 cents per business mile, which they actually established last November, is behind the times.

According to this article about Arkansas government employees, they have been paid 37 cents per mile driven for work purposes, and will now have it raised to 39 cents. 

Historically, when there is a huge increase in the cost of fuel, the IRS big-wigs takes take their time to see if it is a fluke or something that will last for a while. Since everything I have seen indicates that $3.00 per gallon will soon be the norm, I am betting that there will be a mid-year change in the IRS’s official rate for 2005.  The last time they did this was in 1999, with a reduction in the standard rate as of 4/1/99 from 32.5 cents per mile down to 31.0 cents.  This year’s change will probably be effective as of October 1, 2005. 

As always, this kind of situation points out the importance of keeping records of your actual operating costs so that, at tax time, your preparer can use them to deduct the higher of the standard rate or pro-rated actual costs.  Of course, some vehicles, such as those that used Section 179, don’t have the option of which method to use.  They must stick with the actual costs.

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 8/21/2005 10:37:00 AM Send this post: