The Internal Revenue Service is increasing the tax deduction motorists can take for using private vehicles for business, a rare midyear move sparked by high gas prices.
Starting July 1, motorists who use their personal vehicles for business will be able to deduct 55 1/2 cents a mile from their taxable income, the agency announced Thursday. That's an increase of 4 1/2 cents from the first six months of the year.
The rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage. Workers who receive the reimbursement don't have to report it as income, as long as the payments don't exceed the IRS benchmark.
High gas prices have hit consumers, slowed the economic recovery and put increased political pressure on President Barack Obama. On Thursday, the Obama administration said it will release 30 million barrels of oil from the country's emergency reserve as part of an international response to lost oil supplies caused by turmoil in the Middle East and Libya.
The average gas price is about $3.61 a gallon, up from $2.74 a year ago, according to AAA.
"This year's increased gas prices are having a major impact on individual Americans. The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices," said IRS Commissioner Doug Shulman. "We are taking this step so the reimbursement rate will be fair to taxpayers."
The IRS normally updates the mileage rates once a year in the fall for the next calendar year.
"This is a great victory for small-business owners," said Rep. Sam Johnson, R-Texas, a senior member of the tax-writing House Ways and Means Committee. "The mid-year correction has been a long time coming."
Johnson has been lobbying the IRS to increase the mileage rate since March.
Motorists have the option of deducting the actual expenses of using their private vehicle for business, or they can use the IRS benchmark, which is often easier to document.
The IRS is also increasing the rate for calculating deductible medical or moving expenses.
Starting July 1, the rate will go from 19 cents a mile to 23.5 cents a mile.
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