IRS mileage allowance
UNDERSTANDING IRS MILEAGE ALLOWANCE
Mileage allowance is a special type of allowance that is paid to an employee for using his vehicle for the performance of business or official duties . Since most of employers are not able to provide vehicle to their employees for performance of their duties, they compensate them by way of mileage allowance. United States in no exception and there are many employers here, government as well as private, that give away mileage allowance to their employees. Most of employers provide this allowance on the basis of per mile . That is, the employee is given a fixed allowance per mile like 44 cents per mile etc . The organization that determines this rate of mileage allowance is IRS or Internal Revenue Services . There are some aspects regarding IRS mileage allowance that have to be understood first.
SOME RELATED ASPECTS
For getting IRS mileage allowance, a person is required to note down the reading shown by odometer of his vehicle in the start of year and at the end of year. The difference between the two gives the total miles covered by him during the year. The number of miles arrived at as per above method is multiplied by the IRS mileage allowance rate. The amount arrived at is then deducted from the taxable income of the person as per IRS rules and regulations . The reader may be interested in knowing if the total number of miles calculated by noting the reading on odometer at the start and end of year also includes miles covered for personal reasons. As an answer to this question, it can be said that a person is required to provide details of the business miles covered by him out of total miles . No doubt, a person can manipulate this reading but it is advised here that this practice should never be resorted to, as penalties are quite heavy. Similarly, a person is required to note the reading on odometer when he goes out of station for any business tour and when he is back home. IRS allows a person to deduct the amount equivalent to the mileage allowance from his income tax calculations.
THE IRS MILEAGE ALLOWANCE CRITERIA
IRS generally announces the mileage allowance rate at the beginning of each year . These rates vary each year as price of gasoline fluctuates . The deduction made in the income tax return on the basis of mileage allowance is called as IRS Mileage Allowance . Thus, a person is not reimbursed the sum paid by him in covering miles in IRS mileage allowance and rather, he becomes eligible for the deduction. The IRS mileage allowance or write off is applicable in cases of business miles coverage only or in relation to miles covered for the official purpose. In the year 2004, the mileage allowance announced by IRS was 37 .5 cents per mile. In the year 2005, from January through August, the mileage allowance declared by IRS was 40 .5 cents per mile. Thus, there was in increase of about 8% and this increase was basically due to increase in the gasoline prices . From September to December 05, the mileage allowance declared by IRS stood at 48.5 cents per mile. It is important to note here that 2005 was an altogether different year so far the IRS mileage allowance is concerned. This is because the rates for the IRS mileage allowance have to be revised due to large increase in the gasoline prices. The mileage allowance announced by IRS for the year 2006 stood at 44.5 cents per mile.
In present times, that is, from 1st January 2007, the mileage allowance declared by IRS is 48.5 cents per mile for all the business miles covered . These rates were announced on 1st November 2006 and these rates can change during any time of year if there is a sharp increase in the gasoline prices. It is very important to note here that the rates announced by IRS for mileage allowance for business, medical, charitable and moving purposes are different. Thus, a person can get the mileage allowance at a rate of 20 cents per mile when miles are covered for medical purposes or for moving purposes . In case of miles covered for any charitable organization, the mileage allowance stands at 14 cents per mile. The mileage allowance rates mentioned above are the rates pertaining to Vans, Pickups, and Panel Trucks etc. From the above discussion, it is clear that mileage allowance rates have increased as compared to those for the year 2006. This increase is applicable to all the categories viz. business, moving, medical and charitable. In the year 2006, the mileage allowance rate for medical and moving purposes stood at 18 cents per mile . Apart from increasing prices of gasoline, increase in prices of vehicle in United States also resulted in increase in mileage allowances declared by IRS .
There are some related aspects of IRS mileage allowance that must be understood by a reader. First of all, the standard mileage allowances rates mentioned above are based upon variable as well as fixed cost of operating of vehicle. This study is conducted by independent sources. For example, for the IRS mileage allowance rates for the year 2007, Runzheimer International conducted the study, which is an independent contractor in U .S. So far the charitable mileage allowance rate is concerned, it is not based upon any study and rather is determined by statute. Next aspect that must be clearly understood by the reader is that a person should never use the business IRS mileage allowance rates for miles covered by his vehicle if he is using any depreciation method under the MACRS, Modified Accelerated Cost Recovery System . This is applicable when the vehicle used for the business was taken for hire or when business has used more than four vehicles for achieving business goals . There are also some mileage allowance software available in the market that allow a person to ascertain the IRS mileage allowances for a given year in an easy way . For all the business organizations etc that use IRS mileage rate or rate lower than this for mileage allowance, there is no requirement of including the payment in the income of the employee .
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