‘Tis the Season to think about the Federal Mileage Rate…

April is coming.  Unless you plan on dying soon, you’ll need to take care of your taxes.  If you do pass away, someone else will need to pay them on your behalf.  Rimshot.  That’s my only tax joke for this post.

It also means that many people are interested in finding out about the standard federal mileage rate so that they can deduct the costs of using their cars for work, medical or charity purchases.  Hey, every deduction counts and no one wants to overpay Uncle Sam, right?

Looking at the Numbers

The federal mileage rate was at fifty-five cents per mile in 2009.  While the cost of living seems to be going up, the rate won’t.  The Internal Revenue Service recently announced the 2010 federal mileage rate–it’s actually dropping back to fifty cents for this year.  Charity driving will only be work fourteen cents per mile and eligible medial and moving miles will only be reimbursed at 16.5 cents, down from the previous twenty-four cent rate.

That’s not just an effort to stuff more cash into the government’s coffers, though.  It’s also a reflection of reality.  While we may not feel like we’re all doing better than we were last year, the price of operating  vehicle has dropped.  We’re not paying five bucks per gallon for gas these days and there’s little reason to anticipate a return to the sky-high prices in the near future.  Thus, the feds feel as though it only makes sense to let the federal mileage rate take a dip.

Claiming the Mileage Rate Deduction

Here are a few things you should know about claiming the mileage deduction.

First, you don’t need to do it to recover the costs associated with eligible vehicle use.  The IRS gives taxpayers the option to eschew the mileage rate and of determining the real cost of vehicle use as an alternative.  Look into all  options to see which makes better financial sense for you.

Second, the miles aren’t the only thing that matters.  The federal mileage rate is only a piece of the puzzle.  You can also deduct things like tolls paid, parking fees and other transportation-related expenses, consistent with the tax code.

Third, you need to have good records.  This isn’t a good area for eyeballing, especially if the vehicle in question is used for something other than eligible work.  A Wall Street Journal piece reminds us of that:

When the open road is your second office, it may be worth the effort to track mileage on your passenger vehicle or lightweight truck, says Fran Coet of Coet & Coet CPAs in Westminster, Colo. “If you use the IRS standard mileage rate, you have to keep a log, especially if it’s for mixed use,” she says.

Fourth, don’t try to double-dip.  Calculating your deduction based on the federal mileage rate is one of a few different options, but that doesn’t mean you can use more than one system.  The IRS states that a “taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recover System (MACRS) or after claiming a Section 179 deduction for the vehicle.”  Plain English:  No double-dipping!

Be Careful or Call in the Professionals…

The federal mileage rate and its impact on your taxes is one of many different factors that may influence your tax bill or refund.  However, it’s important to use it correctly.  In other words, consult the code and the supplemental material provided by the IRS if tax time is a “do it yourself“ matter in your household.  Alternatively, fork over the cash to hire a good accountant who can make sure you find all of the deductions to which your properly entitled.  While all of the information provided in this post is believed to be accurate and correct, seek out the opinion or a professional and/or do your own homework in official materials regarding the federal mileage rate.