January 2010 News Update
New Mileage Rates and ROTH IRA Conversion Rules
2010 Standard Mileage Rates
The Internal Revenue Service today issued the 2010 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
- 50 cents per mile for business miles driven
- 16.5 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations
The new rates for business, medical and moving purposes are slightly lower than last year’s. The mileage rates for 2010 reflect generally lower transportation costs compared to a year ago.
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.
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 any vehicle used for hire or for more than four vehicles used simultaneously.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
Revenue Procedure 2009-54 contains additional details regarding the standard mileage rates.
ROTH IRA Conversions in 2010
Beginning in January of this year, taxpayers with modified adjusted gross income (MAGI) of more than $100,000 will be allowed to convert a traditional IRA to a Roth IRA. This change applies to all years beyond 2010, and additionally, your income taxes due on the conversion can be spread over two years if desired. For example, if you chose to convert this year, the conversion amount may be included as taxable income in 2011 and 2012 - helping to spread out the tax consequence.
While MAGI has been eliminated for ROTH conversions, it is important to note that MAGI limits still exist to fund a ROTH IRA.
Example:
Suppose you funded traditional IRAs from 2006 through 2009 and now, in 2010, you have $40,000 in your account. Additional, let us suppose this entire account consisted of $30,000 tax deductible dollars and $10,000 of growth.
In this example, you'd need to pay income taxes on all $40,000 in initial funding and growth when you convert to a ROTH IRA. However, the good news is you will never have to pay income taxes on this account again, regardless of future growth, and you can spread the tax liability over two years.