Tuesday, December 29, 2009

IRS to Reduce Mileage Deduction for 2010: Will You Owe More?

From WalletPop.com:

The IRS made an announcement this month that is a matter of pennies but could significantly affect some taxpayers' 2010 amount owed; by reducing the allowance for mileage deductions.

Claiming the mileage traveled for business is, after all, one of the favorite ways to rack up deductions, which you must declare on Schedules A and Form 2106 or 2106-EZ. For outside salespeople, pizza delivery people, and others who spend a lot of time on the road for work, it's huge, and it adds up fast; with 2009 rates at 55 cents per mile for business travel (anything done for pay -- going on appointments, taking your boss to the airport, going to the post office, etc. -- except your commute) an average employee who drove 10,000 miles for work could save $1,000 in taxes. The deduction rates for driving for medical purposes or moving, at 24 cents a mile, weren't shabby, either, and meant that many taxpayers could make a big reduction in their taxes owed simply by writing down mileage.

But for 2010, the standard rates will fall considerably, down to 50 cents for business miles and 16.5 cents for medical miles or moving, affecting that sample average taxpayer by more than $200 in taxes owed at the end of the year. For serious road warriors, it could be a huge impact, increasing taxes owed by more than a thousand dollars.

The IRS didn't explain why it made such a relatively big change in medical and moving mile rates; down from 24 cents to 16.5 cents, a 33% decline, compared to a 9% decrease for business miles. For the taxpayer who moves across country for work in 2010, it will mean a difference of $200 or thereabouts in gross income; not an enormous difference in taxes owed. This leaves me to wonder how much this rate affects the IRS' revenues, and why the agency decided to make such a big change to what seems a far less important deduction for the average American worker.

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