Every year the IRS announces the mileage rate for the next year. Good news… The rate for 2005 is 40.5 cents per mile; up from 37.5 cents in 2004. If you use the "optional mileage allowance method," keeping records of each auto expense is history. Instead, only two simple tasks capture your full deduction:(1) Keep track of the business miles you drive and then (2) apply the IRS's mileage allowance rate.
Here's an example. Sara Sellum drives her auto far and often for business every year. Sara has had it with keeping records of gas receipts, repairs, and maintenance. For 2005 Sara keeps track of only business miles. Suppose she drives a total of 30,000 business miles in 2005. How does Sara figure her auto expense deduction? Simple. Just multiply the 30,000 miles by 40.5 cents. Sara's 2005 deduction is $12,150. Great tax mileage! Wait. There's more. Sara also can deduct 100% of business tolls and business parking.
But caution: The mileage allowance is not always your best tax bet. Take advantage of it only if you have neither the time nor the inclination to keep those expense receipts, or if past practice shows that your total actual expenses (including depreciation) are less than the allowance amount. If your actual expenses are more than the allowance, you must decide if the reduced record keeping (mileage only) is worth the smaller deduction. Hint: The more miles you drive, the more likely the mileage allowance will save you tax dollars, as well as time.