WASHINGTON — The Internal Revenue Service today issued the 2012 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 55.5 cents per mile for business miles driven
• 23 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The rate for business miles driven is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical or charitable expense are in Rev. Proc. 2010-51.

Notice 2012-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

Related Item: IR-2011-104, In 2012, Many Tax Benefits Increase Due to Inflation Adjustments

More than six million children in the U.S. fall into the “special needs” category, and their ranks are expanding. The number of those affected by one developmental disability alone—autism—grew more than 70% between 2005 and 2010.

The tax code can help—if you know where to look.

There are numerous tax breaks for education, but the most important one for many special-needs students isn’t an education break per se. Instead, it falls under the medical-expense category.

Although students with disabilities have a right to a “free and appropriate” public education by law, some families opt out and others pay for a range of supplemental therapies.

Beyond Taxes

IRS Publication 502, Medical and Dental
Expenses, can be found at www.irs.gov.
Here’s where to find other help:

• Special Needs Alliance
• National Center for Learning Disabilities
• Talk About Curing Autism
• Autism Society
• National Alliance on Mental Illness
• National Down Syndrome Society

Such families can use Uncle Sam’s medical-expense deduction for help coping with costs, say experts. But many parents and tax advisers overlook it.

“Parents are busy helping their children, and tax preparers often don’t ask about medical expenses unless the taxpayer is old or ill,” says Bernard Krooks, a New York attorney who is past president of the Special Needs Alliance, a nonprofit group with members specializing in disability law.

In fact, tax rules allow medical deductions for “diagnosis, cure, mitigation, or treatment…primarily to alleviate or prevent a physical or mental defect or illness” (IRS publication 502).

That can include the cost of a school or program if prescribed by a licensed health-care professional. It might even cover costs for a special two-year college certificate program for students with severe learning disabilities, such as the Reach program run by the University of Iowa, which costs as much as $40,000 a year.

The deduction also can be used for additional therapies. Regina Levy, a Los Angeles CPA with two special-needs children, offers a partial list: occupational therapy, music therapy, dance therapy, physical therapy, social-skills groups and “hippotherapy” (horseback riding), among others.

Although students with disabilities have a right to a “free and appropriate” public education by law, some families opt out and others pay for a range of supplemental therapies.

There is much more. If the education or therapy qualifies for a deduction, travel costs for the student also are deductible at 23½ cents a mile for the last half of 2011 (19 cents from January to June). Food and lodging at a specialized school is also. Even the cost of parental attendance at a relevant conference may be deductible, although food and lodging aren’t, Mr. Krooks says.

Joseph Nagy, a CPA in Port Jefferson, N.Y., says he helped one family with a college-age son with severe attention deficit disorder maximize their deductions for 2008. The student couldn’t live in a dorm, so the family bought a small house near the school.

The Internal Revenue Service allowed a $5,000 medical deduction to alter the house to his needs, and another $9,000 deduction equal to what room and board would have been, on the grounds that living off-campus was a medical necessity, Mr. Nagy says. (His tuition wasn’t deductible as a medical expense because it wasn’t a specialized program, though the family did take an education tax credit.)

There is an important limit to this break, however. Medical expenses are deductible only above a threshold of 7.5% of adjusted gross income, or 10% for those who owe alternative minimum tax. Families with access to a flexible-spending account can use dollars for the same expenses without a threshold, although in 2013 by law the FSA contribution limit drops to $2,500 from the $5,000 that many companies currently allow.

Then again, once a family has passed the hurdle, many other medical expenses are deductible—including contact-lens solution and birth-control pills, as well as out-of-pocket health-insurance premiums. Even with the hurdle, one family counseled by Mr. Krooks was eligible for a deduction of more than $30,000.

Families who hope to take large medical deductions for special-needs children probably need expert tax advice. But Mike Walther of Oak Wealth Advisors in Deerfield, Ill., who has helped many families with such children, offers these general tips:

Establish the medical need for the special education or therapy. Note that it must be “primarily” to treat the issue. In one case, a mother couldn’t take a deduction for sending her son to military school, even though it helped him, because the program wasn’t primarily to treat his issues.

Make sure to have the treatment prescribed by a doctor or other licensed health-care professional before it takes place. Keep careful records supporting the
deduction, from prescription letters and canceled checks to travel mileage. “This is what’s hardest for taxpayers,” Mr. Walther says, “but
it makes all the difference.”

• The catch-up contribution limit for those
  aged 50 and over remains unchanged at $5,500.
• The deduction for taxpayers making contributions
  to a traditional IRA is phased out for singles and heads of household who are
  covered by a workplace retirement plan and have modified adjusted gross incomes
  (AGI) between $58,000 and $68,000. For married couples filing jointly, in which
  the spouse who makes the IRA contribution is covered by a workplace retirement
  plan, the income phase-out range is $92,000 to $112,000. For an IRA contributor
  who is not covered by a workplace retirement plan and is married to someone who
  is covered, the deduction is phased out if the couple’s income is between
  $173,000 and $183,000.
• The AGI phase-out range for taxpayers making
  contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly. For singles and
  heads of household, the income phase-out range is $110,000 to $125,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.
• The AGI limit for the saver’s credit for low-and moderate-income workers is $57,500 for married couples filing jointly; $43,125 for heads of
  household; and $28,750 for married individuals filing separately and for singles.

An expense deduction is allowed for businesses which choose to treat the cost
of certain qualified property, called section 179 property, as an expense rather
than a capital expenditure. For qualifying property placed in service during the
taxable years 2010 and 2011, the new law increases both the maximum amount of
the deductible expense under IRC Section 179, as well as the statutory phase-out
amount. The provision also expands the definition of IRC Section 179 property to
include the following types of real property: qualified leasehold improvement
property, qualified restaurant property and qualified retail improvement
property.

Section 402, Temporary Extension of Increased Small Business Expensing, of
the Tax Relief Act of 2010, further amended IRC Section 179 for tax years 2012
and 2013. If this election is chosen, it is made in Part 1 on Form 4562, Depreciation and Amortization
(PDF), which must be attached to the taxpayer’s original tax return. The instructions (PDF) for Form 4562 contain
information on how to complete Part I, Election To Expense Certain Property
Under Section 179. Further guidance on Section 2021 is available in Rev. Proc. 2010-47.

WASHINGTON — The Internal Revenue Service today announced an increase in the optional standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.

The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011, as set forth in Revenue Procedure 2010-51.

In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2011. The IRS normally updates the mileage rates once a year in the fall for the next calendar year.

“This year’s increased gas prices are having a major impact on individual Americans. The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices,” said IRS Commissioner Doug Shulman. “We are taking this step so the reimbursement rate will be fair to taxpayers.”

While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of 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 new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

The new rates are contained in Announcement 2011-40 on the optional standard mileage rates.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Mileage Rate Changes

 courtesy of irs.gov