Here's some good news from the IRS. Effective July 1, 2011 the mileage rate for business miles has increased from 51 cents per mile to 55.5 cents per mile.
The IRS sets the mileage rate on January 1 of each year and usually the rate remains in effect for the entire year. But this year, due to the rising cost of fuel, we get an automatic increase in our vehicle deduction for the rest of 2011.
Keep in mind that if you deduct the actual expenses of your vehicle (such as gasoline, oil, repairs, maintenance, insurance, and depreciation) this mileage rate change has no effect on your vehicle deduction. But if you are using the mileage method, you just got a nice 9% increase in your vehicle deduction for the last half of the year.
Here's an example. Let's say you drive your vehicle 20,000 miles for business during the year. And let's also assume that you drive 10,000 miles from January to June and another 10,000 from July to December. For the first half of the year, your deduction will be $5,100 (10,000 x .51). For the second half, your deduction is $5,550 (10,000 x .555). That's an increase of $450. Of course, that's not enough to retire on, but when it comes to tax deductions, every little bit helps.
This is also a good time to remind ourselves that when it comes to audit-proofing your tax return, keeping a detailed mileage log is the best way to avoid a problem should the IRS request documentation for your mileage deduction. So be sure to keep a little notebook in your glove compartment and track your business trips by recording the date, business purpose and mileage amount for each business use of your vehicle. Maintaining this habit will come in quite handy at both tax time and audit time!