Rising gas prices have prompted the IRS to increase the optional standard mileage rates for the second half of 2011. The rate is used to calculate the deductible costs of using a car for business, and is also used as a benchmark for reimbursing employees for mileage.
The new rate of 55.5 cents per mile will apply to miles driven from July 1, 2011, to December 31, 2011. The rate of 51 cents per mile is in effect for the first six months of the year.
The rate for computing tax deductions for medical and moving expenses for the second half of 2011 will also increase by 4.5 cents to 23.5 cents per mile. The rate for volunteering for charitable organizations will remain at 14 cents per mile. Statute, not the IRS, sets that rate.
“This year’s increased gas prices are having a major impact on individual Americans,” said IRS Commissioner Doug Shulman in a prepared statement. “The IRS is adjusting the standard mileage rate to better reflect the recent increase in gas prices. We are taking this step so the reimbursement rate will be fair to taxpayers.”
The mileage rate also reflects depreciation of the automobile, and insurance and other costs.
Gas prices began rising in early spring when political turmoil in the Mideast threatened world oil supplies. Increased fuel costs have been blamed for derailing the fragile economic recovery as consumers cut back discretionary spending to compensate for higher prices at the pump.
Federal Reserve Chairman Ben Bernanke has called the spike in gas prices temporary and predicts the economy will begin to recover at a faster pace once prices subside. Gas prices have been falling from a peak in early May, according to the American Automobile Association’s Daily Fuel Gauge Report. The current average price of a gallon of gas is $3.54.