Recent gas price trends have impacted the standard mileage rate allowed by the IRS. Small business owners should be aware of the latest adjustments and take full advantage of all available deductions.

The IRS normally updates the mileage rates once a year in the fall for the next calendar year. However, because of recent gas price trends, the IRS and Treasury Department recently announced an increase to the optional standard mileage rates for the final four months of 2005. The rate will increase to 48.5 cents a mile for all business miles driven between Sept. 1 and Dec. 31, 2005. This is an increase of 8 cents from the 40.5 cent rate in effect for the first eight months of 2005, as set forth in Rev. Proc. 2004-64.

For small business owners, this does provide some relief, but business owners should proceed with caution and talk with their tax advisors to decide which accounting method provides the most accurate vehicle deduction.

In most cases, the actual costs of gasoline, especially in current times, outweighs what the IRS offers. While gasoline is a major factor in the mileage figure, other items enter into the calculation of mileage rates, such as the price of new vehicles and insurance.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of the extra burden of tracking actual costs, and often times, is the preferred method for expediency.

FYI, a standard mileage rate is just used as a benchmark by the federal government and many businesses to reimburse their employees for mileage. It does not necessarily mean that such a benchmark accurately represents every business. I recommend all businesses owners discuss this overlooked item with their accountant or tax advisor.

It could make a big difference in what you owe to Uncle Sam.

Sharon Claar, CPA is the managing partner of JTB Associates LLC. With over fifteen years experience in accounting, information technologies, and business management, she is known for using cutting edge resources, tools, and innovative management consulting knowledge. Sharon enjoys rolling up her sleeves and working with her clients to solve their everyday business problems. Prior to founding JTB Associates, Sharon held various positions including: Information Technology Controller with National Australia Bank, along with providing accounting services to subsidiary companies; Finance Manager for the American Medical Association and General Binding Corporation, Auditor and Tax staff for Price Waterhouse Coopers, several years at Jackson National Life Insurance, evaluating the effectiveness of their accounting procedures and computer systems. A graduate of Michigan State University, with a Bachelor of Arts in Accounting and a minor in Spanish, Sharon has also undertaken graduate studies in business management and taxation at the Eli Broad College of Business at Michigan State University

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