By Alice Magos, Toolkit Staff Writer
The IRS has released new figures for determining the cost of vehicle use in a business.
Starting January 1, 2007, the optional standard mileage rate of 48.5 cents per mile will be used to calculate the deductible costs of operating personal cars, vans, pickups and panel trucks, for business use only. The new rate is a hike from the 2006 rate of 44.5 cents per mile to compensate for rising gas prices.
In addition, 20 cents per mile is deductible for moving or medical purposes in 2007, up from the 18 cents per mile for 2006. And 14 cents per mile remains the deductible rate for vehicles driven in service of charitable organizations. (For 2006 only, Katrina-related charitable rates were 32 cents per mile for deduction purposes, and 44.5 cents per mile for reimbursement purposes.)
If you use the standard mileage rate (SMR) method, you calculate the fixed and operating costs of your car, pickup or van by multiplying the number of business miles traveled during the year by the business standard mileage rate (SMR).
And take note of this very beneficial change for many small businesses! Taxpayers who use no more than four vehicles at the same time for business purposes may use the standard mileage rate in 2006 and 2007. Prior to 2004, those using more than one vehicle could not use the standard rate at all, leaving them to track the actual expenses for each vehicle.
The SMR can be used for vehicles that you lease, not just those that you own, provided that you continue to use this method for the entire lease term. But you cannot use the SMR method for taxis or fleets of vehicles.
Also, a taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS), after claiming a Section 179 deduction for that vehicle, for any vehicle used for hire, or for more than four vehicles used simultaneously.
SMRs for business mileage and moving and medical transport are based on an annual study of the fixed and variable costs of operating a vehicle as determined for the IRS by consultant Runzheimer International, and are adjusted annually as necessary. The charitable rate is set by statute.
For detailed information on this and alternative methods of computing expenses, see our discussion.
- Related items:
- Social Security, Self-Employment Taxes Set for 2007
- Tax Rate Projections for 2007
- IRS Announces Long-Distance Telephone Tax Refund Amounts
- IRS Outlines Taxpayer Protections in Private Debt Collection Program
Added to the news on November 13, 2006.
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