IRS Announces Standard Mileage Rate For 2007

Yesterday, November 1, the IRS announced that the 2007 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes.

The standard mileage rate deduction for business-related driving in 2007 will be 48.5 cents per mile, up from 44.5 cents for 2006. This brings the standard mileage rate back up to match the record high rate for the last four months of 2005.

Usually, the IRS adjust the mileage rate once per year, but in 2005 it raised the rate a substantial 8 cents right after Hurricane Katrina hit.

The IRS said that fuel prices are again a factor in its decision to raise the rate.

The standard mileage rate is very important for anyone who does any business-related driving, but especially important for self employed people. Using the standard mileage rate gives the self-employed a straight forward way of calculating driving expenses. Basically, the self-employed person figures up the amount of his business related driving and then multiplies the number of business miles driven by the rate to calculate his business driving deduction.

The other way to figure one’s business driving deduction is to use actual costs. But this method can be more difficult to use as it involves keeping track of all vehicle expenses, including insurance, and repairs, etc. Plus, the taxpayer also has to figure depreciation on his vehicle. And, if a vehicle is used for both business and personal driving, all the vehicle’s expenses have to be prorated between business and personal use.

Many taxpayers track both actual costs and mileage and then use the method which benefits them the most.

The standard mileage rate is also important for those who do business related driving for an employer. For many companies, the standard mileage rate is a benchmark used to figure reimbursement rates for employees’ driving expenses.

The IRS also raised the mileage rate for medical expenses and moving expenses to 20 cents per mile, up form 18 cents per mile. Vehicle mileage for charitable work remains at 14 cents. Only Congress can change this rate.

As a reminder, if you are planning on taking the standard mileage rate deduction, be sure to keep accurate mileage logs. The IRS in an audit would most likely disallow any unsubstantiated business mileage.