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Charitable travelers: Don’t take IRS bait; track actual costs

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in Small Business Tax

With gas prices soaring, the IRS threw business travelers a bone recently by allowing them to deduct 48.5 cents per driving mile for the final four months of 2005. But, at the time, the IRS didn't touch the standard deduction rate for charity-related driving, which remained at a paltry 14 cents per mile.

In the midst of hurricane relief, Congress increased the deduction for charity-related driving to 34 cents per mile for travel during September through December. The kicker: That higher rate only applies to charity driving related to Hurricane Katrina relief. For any other charity driving, you're stuck with the same old 14 cents-per-mile rate.

Advice: If you do lots of charitable work, keep track of your actual driving expenses. Despite the new per-mile rate increases, you'll still do a whole lot better tax-wise if you deduct actual expenses instead of using the standard mileage rate. That's true even if most of your driving is related to Katrina relief this year.

Example: Per-mile rate versus actual costs

Let's say you sit on a prominent nonprofit group board. You drive 5,000 miles a year relating to your charitable activity and pay an additional $500 in tolls and parking. Due to gas prices spiking this summer, the actual cost of driving your car works out to 75 cents a mile, when you figure in depreciation.

If you use the standard mileage rate for charitable travel, your deduction is limited to just $1,200 (14 cents times 5,000 miles plus $500).

But if you've kept detailed records during the year—including for gas, oil, insurance, repairs—you can deduct $4,250 (75 cents times 5,000 plus $500). That's more than triple the standard mileage amount!

Katrina-related driving. Now, let's change the facts a little. Suppose all your charitable driving is related to assisting Katrina victims. You travel 2,000 charitable miles during the last four months of 2005. Under the new standard mileage rate for Katrina volunteers, your deduction equals $680 (34 cents times 2,000 miles).

But if you calculated actual costs, assuming the same 75 cents-per-mile cost of actual driving, you can deduct $1,500 (75 cents times 2,000 miles). That's still more than double the standard amount.

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