The Internal Revenue Service recently announced an increase in the optional business standard mileage reimbursement rate. For 2013, the business rate is 56.5 cents. That is an increase of one cent!
While that sounds like a lot, many folks find their actual driving costs are greater than the automatic rate IRS allows for business driving.
Keeping track of business miles driven is required for the mileage rate and for actual expenses. The business miles of each vehicle are divided by the total miles in the calendar year for actual expenses. That ratio is then applied to the various expenses of driving.
The standard mileage rate is used instead of all operating and fixed costs such as depreciation, maintenance and repairs, tires, gas, insurance, registrations fees and oil.
If the vehicle is not used 100 percent for business, then an allocation is required to determine the business portion of any allowable tax and interest deductions.
You can claim whichever method is higher, but changing from one to the other does have to be adjusted if you claimed actual expenses before. The depreciation component of the business standard mileage rate will also increase one cent for 2013 to 23 cents per mile.
That means it is important to record your odometer reading of all business vehicles at Dec. 31 of each year. Also be sure to save all receipts. Some of those receipts will show odometer readings. Those will be important if IRS asks for some verification of the business miles driven.
The receipts also can be used to verify the operating expenses.
Some clients have used a calendar to record odometer readings at the end of each month and to record business miles driven each day. Then it is just a quick job to determine business miles and total miles driven each month. The 12 month totals are then used for their income tax return.
An example might be Sue is a sales representative and drives her car 20,000 miles in the year: 12,000 miles for business and 8,000 miles for personal use. Sue can claim only 60 percent (12,000/20,000) of the cost of operating the car for business use that year. Or she can claim the standard business rate on the 12,000 business miles, whichever is greater (saves her the most income and self employment taxes).
Maybe you remember a few years ago, IRS adjusted the standard mileage rate but there were no mid-year adjustments for 2012.
Did you hear? "I don't think change is stressful. I think failure is stressful," by Bob Stearns.
• John Bullis is a certified public accountant, personal financial specialist and certified senior adviser serving Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs, LLC.