The sustained downward spiral in oil prices has resulted in a lower IRS mileage reimbursement rate for 2016. The new rate will be $0.54 per mile, down from $0.575 in 2015. The 3.5 cent per mile drop reflects stabilization in the international oil markets according to the IRS, and is based upon a model developed by a Wisconsin company that designs workforce mobility and business vehicle programs based upon national statistics for maintenance, depreciation, fuel prices and insurance premiums.
The issue for Californians is that national averages do not reflect the high cost of living or extended mileage we experience here. Commutes are often much longer here in the San Diego area than in most areas of the nation, and the price of a gallon of gasoline is $1 higher than most comparable cities across the United States.
Business owners may choose to reimburse employees under the “Fixed and Variable Reimbursement” program or FAVR, which combines several more realistic factors into the reimbursement model. FAVR incorporates statistical components that reflect regional employment locations, mileage driven, and other costs associated with ownership and maintenance that may remain more consistent across the year.
Business owners should carefully consider the alternatives, and the unique circumstances of their own business factors. The tax and business attorneys at Allen Barron, supported by extensive accounting and tax preparation staff, are uniquely positioned to advise business clients and help them to develop strategies that reduce tax exposure and increasing profitability while accounting for and deducting genuine business expenses. We invite you to call for a free and substantive consultation at 866-631-3470.