The IRS routinely evaluates the standard mileage rates that are used to calculate the deductible costs of using a vehicle for business, medical, moving or charitable purposes. This evaluation is based on an annual study of the fixed and variable costs of operating an automobile, and the IRS adjusts the rates accordingly. Because the fixed and variable costs of operating a vehicle have not drastically changed since June 2011, the last time a standard mileage rate adjustment was announced, the 2012 rates will not change much.

Beginning on January 1, 2012, the standard mileage rates for the use of cars, 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 not changing 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.

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.

If you have questions about the best way to handle miles you have driven for business, charitable, medical or moving purposes on your taxes, contact a tax professional.

Daniel Stoica Accounting Professional

On November 28, 2011, the IRS announced that interest rates will remain the same beginning Jan. 1, 2012 for the calendar quarter. According to the IRS website, the interest rates will be:

• 3% for overpayments; 2% in the case of a corporation
• 3% for underpayments
• 5% for large corporate underpayments
• 1/2% for the portion of a corporate overpayment that exceeds $10,000

The 3% interest rate also applies to estimated tax underpayments for the first calendar quarter in 2012 as well as the first 15 days in April 2012.

The rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. In the case of a corporation, the underpayment rate generally is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points.

The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point. Further, the federal short-term rate that applies during the third month following the taxable year also applies during the first 15 days of the fourth month following the taxable year.

These interest rates are computed from the federal short-term rate during October 2011 to take effect Nov. 1, 2011, based on daily compounding.

Daniel Stoica Accounting Professional

Tax Topic 409 – Capital Gains and Losses

Almost everything owned and used for personal or investment purposes is a capital asset. Examples are a home, household furnishings, and stocks or bonds held in a personal account. When a capital asset is sold, the difference between the basis in the asset and the amount it is sold for is a capital gain or a capital loss. If you received the asset as a gift or inheritance, refer to Topic 703 for information about your basis. You have a capital gain if you sell the asset for more than your basis. You have a capital loss if you sell the asset for less than your basis. Losses from the sale of personal-use property, such as your home or car, are not deductible.

Capital gains and losses are classified as long-term or short-term. If you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. To determine how long you held the investment property, begin counting on the date after the day you acquired the property. The day you disposed of the property is part of your holding period.

Capital gains and deductible capital losses are reported on Form 1040, Schedule D (PDF). If you have a net capital gain, that gain may be taxed at a lower tax rate than the ordinary income tax rates. The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than the sum of your net short-term capital loss and any long-term capital loss carried over from the previous year. Currently net capital gain is generally taxed at rates no higher than 15%, although, for 2008 through 2010, some or all net capital gain may be taxed at 0%, if it would otherwise be taxed at lower rates.

There are three exceptions:

1. The taxable part of a gain from selling Section 1202 qualified small business stock is taxed at a maximum 28% rate.
2. Net capital gain from selling collectibles (such as coins or art) is taxed at a maximum 28% rate.
3. The part of any net capital gain from selling Section 1250 real property that is required to be recaptured in excess of straight-line depreciation is taxed at a maximum 25% rate.

If you have a taxable capital gain, you may be required to make estimated tax payments. Refer to Publication 505, Tax Withholding and Estimated Tax, for additional information.

If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed is the lesser of $3,000, ($1,500 if you are married filing separately) or your total net loss as shown on line 16 of the Form 1040 Schedule D, Capital Gains and Losses. If your net capital loss is more than this limit, you can carry the loss forward to later years. Use the Capital Loss Carryover Worksheet in Publication 550, to figure the amount carried forward.