At a Glance
Recent fuel price increases have led the IRS to increase the standard mileage rates for the last six months of 2022. This change will allow businesses to reimburse their employees for business travel at a higher rate, reflecting their increased transportation costs. It also increases the tax deductions that taxpayers are entitled to claim on business and medical mileage.
Understand the new standard mileage rates for 2022 and how these changes can affect employees’ business expense reimbursements and your tax deductions.
What is the Standard Mileage Rate?
The standard mileage rate is an optional cent per dollar amount that the IRS determines for business vehicle expenses.
Businesses and other entities can use this amount to calculate their mileage deduction for taxes. Companies also use the standard mileage rate for employee reimbursement rates throughout the year.
Standard Mileage Increase for 2022
On June 9, 2022, the IRS announced new standard mileage rates for 2022. This announcement came after several months of rising gas prices that have caused businesses to spend more on gas and transportation. According to the Bureau of Labor Statistics, gas prices have risen 48.7% in the last year.
National gas prices have recently surged to approximately $5 per gallon, with crude oil increasing to $120 per barrel this year. In California, gas prices are higher than the national average, with the commodity costing businesses an average of $6.42 in the Golden State.
Typically, the IRS adjusts the standard mileage rates once a year; however, with the unprecedented rise in gas prices in the first half of the year, it has increased rates by 4 cents for the last part of 2022.
Effective July 1, 2022, the standard mileage rate for businesses will increase to 62.5 cents per mile and 22 cents per mile for medical expenses, up from 58.5 and 18 cents per mile, respectively. For charitable contributions, the rate is unchanged at 14 cents per mile. The new rates begin July 1, 2022, and are effective through December 31, 2022.
Calculating Your Mileage Tax Deduction
When filing your business taxes, you can opt to use the IRS standard mileage rate or calculate actual expenses for your deduction. Since this deduction reduces your taxable income, it is best to use the highest deduction possible to lower your tax liability.
Calculating actual operation expenses requires you to keep detailed records of expenses related to the use of the vehicle, including:
- Depreciation from the total business miles the vehicle is driven
Many businesses opt to use the standard mileage method to simplify taxes. Rather than keep receipts, logs, and documents for every business vehicle, you can simply track your business mileage and use the standard mileage rate. For example, if you drove the vehicle for 3,200 miles in the second half of the year and 56% of those miles are for business purposes, you would receive a $1,120 deduction. (3,200 miles x 56% = 1,792 business miles; 1,792 x .625 = $1,120).
Professional Business Accounting Services from Windes
When considering your tax deductions for 2022, work with a professional business accounting and tax planning firm to determine your best options. Windes offers tax planning and business accounting services to businesses in Long Beach, Los Angeles, Orange County, and beyond.
Our team can help you determine whether to use the standard mileage rate or the actual expense method to gain the most significant deduction in 2022. The IRS changes the standard mileage rate each year, so tax planning with Windes can help you track your gas and mileage expenses to save the most money year over year.
Contact Windes today to learn more about possible tax deductions for your business.