IRS Raises Mileage Rate to 55.5 Cents

June 23, 2011

Joseph Bishop-Henchman

Joseph Bishop-Henchman

Reversing a previous hint that they oppose mid-year increases due to logistical challenges and other complications, the Internal Revenue Service (IRS) announced today that the optional standard mileage rate will rise to 55.5 cents per mile, an increase of 4.5 cents, effective July 1, 2011.

From the press release:

Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.[…]

“This year’s increased gas prices are having a major impact on individual Americans. The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices,” said IRS Commissioner Doug Shulman. “We are taking this step so the reimbursement rate will be fair to taxpayers.”

While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

Mileage Rate Changes

Purpose

Rates 1/1 through 6/30/11

Rates 7/1 through 12/31/11

Business

51

55.5

Medical/Moving

19

23.5

Charitable

14

14

Topics

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A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

The Internal Revenue Service (IRS) is part of the U.S. Department of the Treasury and is responsible for enforcing and administering federal tax laws, processing tax returns, performing audits, and offering assistance for American taxpayers.

Depreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and discouraging investment.