Tax Planning? The IRS Increases the Mileage Allowance

Are you tax planning? If so, the good news is that the IRS, in an attempt to relieve the pressure of increased fuel costs, has raised the mileage allowance from 51 cents to 55.5 cents, starting July 1st.

The bad news is that gasoline costs have increased by multiples of the extra 4.5 cent allowance. Sigh.

But it’s at least something, right?

But then again, the entire US government and financial structure might come tumbling down next week, so what does it matter, really?

Truth be told is that the US is gonna be just fine next week, and the week afterwards. We have enough money to service our debts AND stay in business…just not at the levels that some politicians would like to see. That’s really the nuts and bolts of what’s going on over on the East Coast.

It does begin to look like Congress will cave to demands and some form of tax increase be implemented. This will likely be done through closing some loopholes rather than a direct tax increase. And while we’re talking about it, keep in mind that loopholes in tax land are far different from loopholes in, say, a criminal case (like this case in Seattle). Tax loopholes are done by design, intentional. A tax loophole is rarely an oversight (but by no means never an oversight) because the loophole is generally a rule, the exception to which is permitted to encourage certain fiscal behavior.

For example: we might tax taxi rides, and everyone riding in a taxi would have to pay a taxi tax. But if you’re riding in a taxi because you’re doing business as a yacht salesperson, then you can deduct that expense. Sounds pretty elitist, doesn’t it? You might even say it stinks that the rich get the breaks while us schmucks gotta pay. But there IS reason to the insanity. You see, a yacht sells in the neighborhood of $100K to several millions. And there’s a tax that goes along with it. So Congress has decided to encourage yacht sales by foregoing the taxes it might receive related to the sales of the boats. In other words, to encourage potential tax revenue of thousands, tens of thousands, maybe even hundreds of thousands of dollars, it will forego taking the hundreds in the hopes that the yacht salespeople will use those hundreds to sell more yachts!

Closing loopholes might be a good way to raise much needed revenue, though. But probably not.

Encouraging more consumption by increasing a deduction slightly while the real expenditures rise dramatically (along with the tax revenue on that increase….) In other words, it might be better to stimulate more yacht sales to raise tax revenue that it would be to stifle yacht sales by taxing the expenses associated with the sales process. But I’m no fancy Washington Dee Cee politician, though. What do I know?!? But maybe you can understand why we say that the hype over the possibility of the US defaulting on its debt was simply a distraction and never a real story so that the media consuming public would become nervous and agitated, and thereby relieved when a deal (regardless of the substance of the deal) was reached.

At least we can save a few shekels now when we drive our cars! :)