Standard Mileage Rates Go Up in 2022

6/14/2022 Update: The IRS increased the optional standard mileage rate for the final 6 months of 2022.

After two years of no increases, the optional standard mileage rate used to calculate the deductible cost of operating an automobile for business is going up in 2022 by 2.5 cents per mile. The IRS recently announced that the cents-per-mile rate for the business use of a car, van, pickup, or panel truck is now 58.5 cents (up from 56 cents for 2021).

Tax Depreciation RulesIn addition, the mileage for driving medical products or moving purposes for qualified active-duty members of the Armed Forces is also up two cents for 2022, at 18 cents per mile driven. The IRS said the rate for driving in service of charitable organizations is unchanged for 2022 at 14 cents per mile driven.

The increased tax deduction partly reflects the price of gasoline. On December 21, 2021, the national average price of a gallon of regular gas was $3.29, compared with $2.22 a year earlier, according to AAA Gas Prices.

Benefits of using cents-per-mile method

Generally, businesses can deduct the actual expenses attributable to business use of vehicles. This includes gas, oil, tires, insurance, repairs, licenses, and vehicle registration fees. You can also claim a depreciation allowance for the vehicle. However, certain limits may apply to depreciation write-offs on vehicles that don’t apply to other types of business assets.

The cents-per-mile rate is beneficial if you don’t want to keep track of actual vehicle-related expenses. With this method, you don’t have to account for all your actual expenses. However, you still must record certain information, such as the mileage for each business trip, the date, and the destination.

Using the cents-per-mile rate is also popular with businesses that reimburse employees for business use of their personal vehicles. These reimbursements can help attract and retain employees who drive their personal vehicles a great deal for business purposes. Under current law, employees can’t deduct unreimbursed employee business expenses, such as business mileage, on their own income tax returns.

If you do use the cents-per-mile rate, keep in mind that you must comply with various rules. If you don’t comply, the reimbursements could be considered taxable wages to the employees.

How is the rate calculated?

The business cents-per-mile rate is adjusted annually. It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle, such as gas, maintenance, repair, and depreciation. If there’s a substantial change in average gas prices, the IRS will change the cents-per-mile rate midyear.

When you can’t use the cents-per-mile method

There are some cases when you can’t use the cents-per-mile rate. It partly depends on how you’ve claimed deductions for the same vehicle in the past. In other situations, it depends on if the vehicle is new to your business this year or whether you want to take advantage of certain first-year depreciation tax breaks on it.

Questions

There are many factors to consider in deciding whether to use the standard mileage rate to deduct vehicle expenses. We can help if you have questions about tracking and claiming such expenses in 2022 or claiming 2021 expenses on your 2021 income tax return. Contact us to discuss your specific situation.

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