800,000 More Businesses Eligible For Car Deductions

The Internal Revenue Service has released the optional standard mileage rates to use for 2011 in computing the deductible costs of operating an automobile for business, charitable, medical or moving expense purposes.

To reduce a record keeping burden, the IRS also announced that taxpayers who use no more than four vehicles at the same time for business purposes may use the standard mileage rate, starting in 2011. Currently, those using more than one vehicle at a time cannot use the standard rate at all, leaving them to track the actual expenses for each vehicle.

The IRS predicts that with this change, more than 800,000 businesses will become eligible to use the standard mileage rate. This will help reduce the burden for businesses to comply with the tax laws.

Although many taxpayers may still claim actual vehicle expenses for various reasons, the IRS estimates that small businesses will save 8-10 million hours a year in record keeping with this expansion of the standard rate option.

A taxpayer may not use the 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, or for any vehicle used for hire.

Beginning Jan. 1, 2011, the standard mileage rates for the use of a car (including vans, pickups, or panel trucks) will be:

  • 51 cents per mile for business miles driven
  • 19 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

Members of Congress welcomed the change.

Senator Olympia J. Snowe of Maine, chair of the Senate Committee on Small Business and Entrepreneurship, said, “This change will allow certain small businesses to put a stop to the time- consuming, costly and inconvenient practice of maintaining detailed paper records and, instead, use a simpler, standard mileage rate for business travel expenses when preparing their taxes. This is “relief that small business owners critically need: relief that allows them to cut the time spent complying with tax laws while expanding the time left over to do what they do best, namely running their businesses and creating critical jobs for this economy.”

Rep. Don Manzullo of Illinois, chairman of the House Small Business Committee, said, These changes “will provide additional needed tax relief to our struggling small businesses… More than 800,000 small businesses will benefit from these changes. In addition to the tax reductions, they will save eight to 10 million hours a year in record-keeping burdens so that they can now focus on their businesses.”

Rep. Doug Ose of California, Chairman of the House Government Reform Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs, which has principal oversight over paperwork reduction, said, this initiative “will result in a 8-10 million hour burden reduction for small businesses. The paperwork burden on small business is enormous. This reduction in tax record keeping is a step in the right direction.”

The standard mileage rates for business, medical and moving purposes are based on an annual study of the fixed and variable costs of operating an automobile. The primary reason for the mileage rate increases is the rise in fuel prices during the study period, which ended on June 30. The charitable standard mileage rate is set by law.