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High Gas Prices Prompt Increased Tax Deductions

Posted on: Wednesday, 31 May 2006, 09:01 CDT

By Matt Kempner, The Atlanta Journal-Constitution

May 28--Talk about putting turbo in your income tax filings.

High gas prices this year have souped up a deduction for people who drive personal vehicles on the job and aren't fully reimbursed by their employers.

The savings -- particularly for the self-employed -- could be "hundreds or even thousands" of dollars in taxes, provided they keep good records, said Lori Evers, a partner in a CPA firm in Cobb County.

Meanwhile, a recent survey shows that the lofty price of gas has persuaded more employers to raise the per-mile reimbursement rates they pay employees.

The Internal Revenue Service allows tax filers to claim a deduction for unreimbursed job expenses, such as the cost of operating their cars.

Drive to deliver pizzas? Make plumbing house calls? Visit real estate clients trying to sell homes? Deduct. Deduct. Deduct. But -- sorry -- the cost of commuting to work generally isn't deductible.

Americans are facing sticker shock over gas. The average price at pumps is about 80 cents a gallon higher than it was this time last year.

"When they are paying this much for gas, they start thinking it's worth more than it used to be worth" to seek the tax deduction, Evers said.

But many employers make it easy on workers: They reimburse workers at the maximum mileage rate allowed by the IRS, eliminating the need for the tax deduction.

So far this year, BellSouth, MARTA, UPS and a host of other local employers are paying at the IRS rate for business travel: 44.5 cents per mile. Their employees get reimbursed on the front end and are unlikely to benefit from trying to deduct mileage expenses from their taxes.

High gas prices apparently have persuaded other employers to follow their lead. About 21 percent of employers who completed a recent online survey by the Society for Human Resource Management said they have or are planning to raise reimbursement rates to the IRS cap. That compares with 7.5 percent of employers who gave the same answer when surveyed after gas prices soared following Hurricane Katrina last year.

Warren Neuburger, chief operating officer of Concurrent Computer, a Duluth-based provider of digital on-demand systems for cable and telecommunications companies, said paying at the IRS rate makes sense, though it costs the company money. (Companies can seek tax deductions for mileage reimbursements they pay, but the deduction doesn't fully compensate the company for the expense.) Paying anything other than the IRS rate "creates a paperwork headache" for employees, he said. Anything over the standard IRS rate is considered taxable income.

Neuburger said he hopes the IRS will take the unusual step of raising the standard rate in the middle of the year to account for beefed-up prices at the pump. The agency did so last year after Katrina, increasing the rate to 48.5 cents from 40.5 cents per mile. It later set the 2006 rate at 44.5 cents.

IRS spokesman Mark Green said there are no plans to change the rate before next January, but it's not out of the question.

The current rate is not enough, according to the National Treasury Employees Union. The group, which says it represents about 150,000 federal workers, recently called for a temporary increase to 60 cents a mile.

Employers who reimburse employees below the IRS rate don't shell out as much money but face other challenges as they try to keep in sync with pump prices.

Runzheimer International is a Wisconsin-based firm that helps companies track vehicle operating costs.

Runzheimer provides data the IRS uses to set its standard rate, factoring in expenses for fuel, oil, maintenance, tires, insurance, vehicle license and registration, depreciation and property taxes.

For workers who don't get fully reimbursed by their employers, seeking a tax deduction requires planning. Drivers have to keep dated logs that include where they drove, the business purpose and mileage readings, just in case IRS auditors call.

Self-employed taxpayers can use the deduction to reduce self-employment taxes in addition to their income taxes, Evers said.

People who aren't self-employed face bigger hurdles.

To take advantage of deducting the difference between what an employer pays for mileage reimbursement and what the IRS allows, employees must itemize on their federal income tax forms, Evers said. They can claim the mileage deduction, along with other unreimbursed employee expenses and some miscellaneous deductions such as the cost of tax preparation, safe deposit box fees and some investment management fees. But they can deduct only the portion of these expenses that exceeds 2 percent of their adjusted gross income.

One other crucial point: Taxpayers aren't allowed to deduct any expense already reimbursed by their employers.

The standard mileage rate isn't the only way to go. Pete Fishman, a CPA in Sandy Springs, advises taxpayers who are really good at keeping receipts as well as mileage records to try to deduct their actual expenses by tallying costs for everything from gas to insurance to maintenance to depreciation. (The IRS provides guidance.) If the IRS doesn't increase its standard mileage rate, Fishman said, many taxpayers will find it more valuable to figure actual expenses rather than using the standard rate.

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BLS, UPS, CCUR,

Source: The Atlanta Journal and Constitution

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