IRS released the new mileage rates for business use of your car, effective July 1, 2011. From July 1 – December 31, 2011, your new mileage rate is 55.5 cents per mile. From January 1 – June 30, 2011, it was 51 cents per mile. The rate for moving and medical mileage increase to 23.5 cents per mile from 19 cents. Charitable mileage stays the same, at 14 cents.

This isn’t the most confusing year ever. During the year of Hurricane Katrina, we had new rates three times, plus special rates for Katrina disaster workers. That was fun.

Not very charitable

Did you notice that the charity mileage doesn’t change? It literally takes an act of Congress to change the rate for charitable mileage. IRS does not control that rate. Congress never even looks at it. So it is and has been 14 cents for a decade or more.

Hidden depreciation

Most people who use their cars for business or work know that you can use either the standard mileage deduction or you may use actual expenses. When you use the actual expenses, you get to claim depreciation deductions, in addition to the insurance, registration fees, repairs and fuel costs.

What you may not have known is, the standard mileage rate has depreciation built right into it. When you sell the car, people of think they don’t need to take depreciation into account. Wrong.

Use the table here on the Small Business Taxes & Management site to determine how much depreciation you used each year, based on the total number of business miles you reported on your tax returns.

Let’s look at an example.

Suppose you drive 10,000 miles per year for business, starting in January 2008 through June of 2011.

2008 – 10,000 x 21 cents = \$2100 depreciation
2009 – 10,000 x 21 cents = \$2100 depreciation
2010 – 10,000 x 23 cents = \$2300 depreciation
2011 – 5,000 x 22 cents = \$1100 depreciation

Total depreciation taken = \$7600.