Standard Mileage Rates

Beginning Jan. 1, 2009, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) will be 55 cents per mile for business miles driven; 24 cents per mile driven for medical or moving purposes; and 14 cents per mile driven in service of charitable organizations.

IRS said the new rates for business, medical, and moving purposes are slightly lower than rates for the second half of 2008 that were raised by a special adjustment mid-year in response to a spike in gasoline prices.  The rate for charitable purposes is set by law and is unchanged from 2008, IRS said.

For vehicles not used for hire; for taxpayers that do not operate a fleet of vehicles using five or more vehicles at the same time (two or more prior to 2004); must be elected the first year the vehicle is placed in service; for leased as well as owned vehicles after 12/31/97...

IRS released a fact sheet regarding the hot topic of S Corporations - Distributions v. Payroll -

The following excepts the IRS information

Reasons to Buy or Lease an Automobile

Buy:

•    Taxpayers who own autos can choose the standard mileage rate in the first year an auto is placed in service and switch to the actual expense method in a later year if it becomes more favorable. Taxpayers who lease may also choose the standard mileage rate in the first year, but must use it for the life of the lease.
•    A taxpayer intends to keep the vehicle more than four years, or until it is ready for the junkyard.
•    The vehicle will be driven more than 10,000 – 12,000 miles per year. Many lease contracts have a mileage limit with an additional charge for every excess mile.
•    The taxpayer has cash for the purchase or down payment.

When a shareholder takes a distribution from the S corporation, no taxes are payable since income is already taxed to the shareholders as a pass-through.  If the shareholder takes a salary, income tax consequences are essentially the same. The salary is taxable to the shareholder, but it reduces the income of the S corporation, so the net result is a wash.

If not for FICA (Federal Insurance Compensation Act), either of these scenarios would be essentially identical.  This is an especially important consideration because the FICA hit increases every year.  In 2008, the shareholder/employee pays 7.65% (employee’s share; the employer pays a like amount) on up to $102,000 of earnings (in 2007, FICA applied to $97,500 of earnings). Between the employee’s and employer’s share, the total is $15,606. The employer’s share is, of course, deductible, but even so, the net outlay may still be over $11,000.[1]