Deduction
Under Code Sec. 162(a), taxpayers are allowed a deduction for the ordinary and necessary expenses a taxpayer incurs while operating an automobile for trade or business purposes. Depending on their automobile usage, taxpayers may have several options for calculating the deduction. They may use the actual expense method, which requires them to determine the actual costs to operate the car for business uses. (Actual expenses include gas, oil, repairs, tires, insurance, registration fees, licenses, and other qualified expenditures.)
In the alternative, taxpayers may use the business standard mileage rate set by the IRS. (Although, in order to use the business standard mileage rate, the taxpayer must not operate five or more vehicles at the same time—as for example in a fleet vehicle operation.)
Business standard mileage rate
In June 2011, the IRS announced a mid-year increase in the business standard mileage rate. The business standard mileage rate increased from 51 cents-per-mile to 55.5 cents-per mile for the second half of 2011.
For 2012, the business standard mileage rate will be 55.5 cents-per-mile, which reflects no change from the second half of 2011.
Other rates
For 2012, the standard mileage rate for medical and moving expenses will be 23 cents-per-mile, reflecting a 0.5 cents-per-mile reduction from 2011. The statutorily-determined rate for the charitable deduction remains unchanged at 14 cents-per-mile for 2012.
IR-2011-116, Notice 2012-1