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.

IRS Announces 2010 Standard Mileage Rates

In their newest press release the IRS announced the standard mileage rates for 2010. These rates are used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

50 cents per mile for business miles driven

16.5 cents per mile driven for medical or moving purposes

14 cents per mile driven in service of charitable organizations

The new rates for business, medical and moving purposes are slightly lower than last year’s. The mileage rates for 2010 reflect generally lower transportation costs compared to a year ago.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

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) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Revenue Procedure 2009-54 contains additional details regarding the standard mileage rates.