With gas prices soaring about 30 percent in the last year, the 37.5 cents-per-mile standard used by the IRS and many employers to calculate vehicle expenses may no longer reflect reality, according to the Newsday newspaper on May 22. But the IRS plans to stick to its once-a-year review. "The way we calculate it is year by year. It may or may not be adjusted every year depending on the circumstances, which include fuel costs," said IRS spokesman Kevin McKeon. For 2004, the IRS increased the rate to 37.5 cents a mile from 36 cents in 2003. The standard mileage rates are recommended to the IRS — and to many major employers — by Runzheimer International. Runzheimer bases the mileage calculation — which taxpayers use to deduct business, medical and moving expenses — on an annual study of fixed costs, such as insurance; and variable costs, such as fuel prices, said Ted Schuerman, project manager of government services at Runzheimer. The annual study begins this month, but the new rate will be effective for Jan. 1, 2005. "We are just beginning our data analysis now, but based on the rising fuel prices and insurance costs, my guess is that it will definitely go up," Schuerman said. Taxpayers will not know until October whether the rate will increase. "Runzheimer provides the data for us in mid-June," McKeon said. "One could assume that the rate might go up due to the rising fuel costs, but in mid-stream we not going to change anything."

Originally posted on Fleet Financials