The IRS recently announced that it will increase the standard mileage rate for qualified driving expenses for the second half of 2022. The adjustment reflects the soaring cost of gasoline this year. As of June 13, the nationwide average price of regular unleaded gas was $5.01 a gallon, compared to $3.08 a gallon a year ago.
Beginning July 1, 2022, the standard mileage rates will increase as follows:
- Business travel will increase to 62.5 cents per mile, up 4 cents from the 58.5 cents-per-mile rate effective for the first six months of the year.
- If you use your vehicle for medical reasons and deduct medical expenses on your tax return, the mileage rate will increase to 22 cents per mile, up from 18 cents at the beginning of 2022.
- The moving expense mileage rate for active-duty members of the military is increasing to 22 cents per mile, up from 18 cents.
While the cents-per-mile rate is traditionally adjusted annually by the IRS, the higher prices of gas spurred calls for a mid-year adjustment.
Basic Business Driving Deduction Rules
There are two options for deducting business driving expenses:
1. Deducting actual expenses: If you use a vehicle for business driving, you generally have the option to deduct the actual expenses attributable to your business use. This includes expenses such as gas, oil, tires, insurance, repairs, licenses and vehicle registration fees. In addition, you may claim a depreciation allowance for the vehicle, based on the percentage of business use. Note that your deduction may be subject to so-called “luxury car” limits, indexed annually.
2. Standard cents-per-mile rate configuration: If you don’t want to keep track of all of your vehicle-related expenses, you may be able to use a standard cents-per-mile rate. With the standard mileage deduction, you don’t have to account for all your actual expenses, although you still must record certain information such as the mileage for each business trip, the dates you drove and the business purpose of the travel.
The best course of action depends upon your circumstances and is different for every situation.
Determining Your Deductions
With the IRS announcement that the standard business rate will increase to 62.5 cents per mile for the last half of this year, taxpayers who use it will have to use a “blended rate” for 2022 to figure their deductions. For example, let’s assume that you drive 10,000 miles every six months on business. You also incur $1,100 in related tolls and parking fees during the year. Based on the initial IRS rate, your deduction for business driving for the first six months of 2022 is $5,850 (10,000 miles × 58.5 cents). However, you can deduct $6,250 (10,000 miles × 62.5 cents) for business auto trips during the last six months of 2022. Thus, your total deduction is $13,200 ($5,850 + $6,250 + $1,100 tolls and parking fees).
There are additional rules that may prevent a taxpayer from using the standard cents-per-mile rate or the actual expenses method. For example, leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen for the first year.
Though the rate is increasing, you still may fare better from a tax standpoint using the actual expense method than you would with the standard mileage rate – it is dependent upon your circumstances. If you have questions about which method is right for you or how the rate changes will affect your taxes, contact a member of our team today.