In response to the record high gas prices, the IRS has raised the business standard mileage reimbursement rate from 50.5 cents-per-mile to 58.5 cents-per-mile. This new rate is effective for business travel beginning July 1, 2008 through December 31, 2008. While the increase is much needed, businesses should evaluate whether the IRS has done enough, or whether a switch to the actual expense method of calculating vehicle expense deductions may make more sense for 2008.

Comment. Not only did the IRS raise the standard business mileage reimbursement rate eight cents, to 58.5 cents-per-mile, it also increased the standard mileage rate for medical and moving expenses from 19 cents-per-mile to 27 cents-per-mile. These new rates are also effective July 1, 2008 through December 31, 2008. The charitable standard mileage rate remains at 14 cents, since it is fixed by the Tax Code.

Two reimbursement methods

There are two basic methods that business taxpayers may choose to compute their deduction for the business use of automobiles (including vans and light trucks): the IRS's standard mileage rate (SMR) and the actual expense method. The method a business chooses in the first year the vehicle is placed in service is important, as it affects whether a change in method can be made in later years.

Taxpayers may use the higher rate for business use of an automobile for the period starting July 1, 2008 through December 31, 2008. Travel before July 1 must be computed using the previous rate of 50.5 cents-per-mile. A business cannot split use of the actual method for one period and the standard mileage rate for the other - it is either one or the other for the entire 2008 tax year (The same rules apply to the medical and moving mileage rates of 19 cents for expenses before July 1 and 27 cents for the remainder of the year).

...click here for more...