If driving is a requirement of your job, you can claim a tax deduction. This deduction is known as the IRS mileage allowance.
The IRS mileage allowance is designed to give people a
break when they are required to commute as part of their job.
Importantly, this does not mean you can write-off driving to and from
your home to work. The write-off is only applicable to driving done for
business purposes. For instance, if you drive to a business meeting, you
can write off the mileage.
The IRS mileage allowance is determined on a per mile basis.
Essentially, you get to multiply each business mile by a monetary
figure, total them up and deduct that amount. You will need to report
the mileage figure on your vehicle at the beginning of the year and end
of the year as well as the number of miles you drove for non-business
matters. You will also need to keep a diary or journal of your mileage.
It should indicate where you went, what for and the miles driven. You
may need to produce this if the IRS audits you, so keep it in a safe
place. The following IRS mileage allowances are for miles driven during the time period:
- 2004: 37.5 cents per mile
- 2005: January through August – 40.5 cents per mile
- 2005: September through December – 48.5 cents per mile.
- 2006: 44.5 cents, but may change as gas prices change during the year.
- 2007: 48.5
- 2008: January through June – 50.5 cents per mile
- 2008: July through December – 58.5 cents per mile
- 2009: 55 cents
- 2010: 50 cents
Why do 2005 and 2008 have split rates? The answer has
to do with unique circumstances. We had Hurricane Katrina in 2005 which
wiped out gas refineries and caused prices to shoot through the roof.
Given this, the IRS upped the rates in the middle of the year which was
actually very magnanimous given the fact the agency did not have to do
that.
The 2008 bump was a reflection of massive price
increases for oil. This was the year oil shot up into the $140 dollar
range. The IRS once again showed is magnanimous side by greatly
increasing the write-off in the middle of the year. It actually
increased the rate by the largest amount ever.
Following 2008, we’ve seen the rate drop. The
question is why? Well, one needs only look at the economy. Although
people blame the housing market, fuel is what really drives this
economy. When prices exploded, the economy imploded. This meant demand
for fuel dropped way off. Supplies built up and that meant much lower
prices. In setting the yearly rates, the IRS took that into account and
reduced the rate used for two consecutive years. You can expect it to
start going back up in the not to distant future.