Mileage

Astronomical gas prices are slamming businesses across the board including antiques and collectibles shops. As of July 1, 2008 through the end of the year, the IRS is giving a little tax relief by increasing deductible mileage rates.

The optional business-standard-mileage rate, which is set by the IRS, is used to calculate how much you can deduct when using a vehicle for businesses purposes without tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

The current $.505 rate is in effect for the first six months of 2008. On July 1, 2008, the mileage rates for antiques (and other) businesses increases by 8 cents to $.585. Medical and moving mileage also increases 8 cents to $.27. Charitable mileage remains $.14.

To take full advantage of the IRS change, on July 1, record your auto’s mileage as shown on its odometer and compute your deductible automobile mileage for the first half of 2008.

What does this mean to the antiques shop owner? Assume the owner drives 1,000 business miles each month in 2008. Deductible mileage for the first half of the year would be $3,030 ($.505 @ 6,000 miles) and the second half, $3,510 ($.585 @ 6,000 miles) for a grand total of $6,540.

Now let’s look at an actual projection we prepared for a client. The antiques shop owner faces tax rates as follows: federal 25%, Social Security 14% (the self-employed pay both sides of the Social Security tax) and state tax of 7%. All these employment taxes total 46%.

Should you prefer to see the above information in a more visual manner, below you’ll find the six steps to calculate savings from deductible mileage this year. As above, I’ve assumed 1,000 deductible miles a month and employment taxes totaling 46 %.

Step 1

1,000 miles per month
x 6 Months Jan 1-June 30, 2008
6,000 Total miles in the first six months

Step 2

6,000 total miles in the first six months
x $.505 IRS optional business standard mileage rate Jan-June
$3,030 Total dollar amount of deductible mileage for the first half of the year

Step 3

1,000 miles per month
x 6 months July 1-Dec 31, 2008
6,000Total miles in the second half of the year

Step 4

6,000 total miles in the second half of the year
x $.585 IRS adjusted optional business standard mileage rate July 1-Dec 31, 2008
$3,510 Total dollar amount of deductible mileage for the second half of the year

Step 5

$3,030 dollar amount of deductible mileage for Jan 1-June 30, 2008
$3,510 dollar amount of deductible mileage July 1-Dec 31, 2008
$6,540 total dollars of deductible mileage for the year

Step 6

$6,540 total dollars of deductible mileage for the year
x 46% employment taxes
$3,008 savings from tracking your deductible mileage

As you can see, if you are in the antiques or collectibles business, you should be tracking your mileage. Good auto mileage records translate into money for the inventory purchases you need.

—Jim Sturgill is a director of WorthPoint and founding partner of Sturgill & Associates LLP, a DC and Baltimore area CPA firm.


Jim Sturgill’s Dollar & Sense Column

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Tax Day: Mileage Pays