The Internal Revenue Service (IRS) recently announced the standard mileage rate for 2022. This is the amount taxpayers can deduct for the use of their vehicles in business and other specified activities.
What Is the Standard Mileage Rate?
Standard Mileage Rate (SMR) is a rate set by the IRS that determines how much taxpayers can deduct from their income for using their vehicle for specified purposes. Small businesses and self-employed individuals often use the SMR to calculate their tax deductions.
To qualify for the SMR, taxpayers must keep track of all their miles driven during the year for business or for activities listed below. Different rates are used to calculate the allowable deduction and the rates change each year, so it’s important to stay current on the latest rates. The rates for 2022 are as follows:
- 58.5 cents per mile driven for business travel purposes, up 2.5 cents from the 2021 rate of 56 cents.
- 18 cents per mile driven for medical care or moving purposes for qualified active-duty members of the armed forces, up 2 cents from the 2021 rate of 16 cents.
- 14 cents per mile driven for providing services to a charitable organization, unchanged from 2021.
Understanding the Standard Mileage Rate
There are different standard mileage rates used to calculate the deduction for the use of a car. The IRS publishes these rates annually, and they are based on the cost of operating a vehicle.
You can generally determine the deductible amount of business vehicle expenses by using one of two methods: (1) the standard mileage rate (SMR) method or (2) the actual expense method.
Under the SMR method, you simply apply the business rate of 58.5 cents per mile in 2022 to the number of miles driven for business purposes.
Under the actual expense method, you must determine what it actually costs to operate the vehicle for business purposes including the cost of gas, insurance, repairs/maintenance, registration/licenses, and depreciation.
To use the SMR method for your car, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you have the option to use the actual expense method instead. You should consult with a tax professional to determine which method is best in your circumstances.
Business Purposes
If you are a small business owner or entrepreneur, you know that tracking your expenses is key to keeping your business finances in order. And if you are like most people, you probably track your mileage as one of those business expenses.
As outlined earlier, starting on January 1, 2022, the standard mileage rate is 58.5 cents per mile for business purposes. That means you can estimate how many miles you drive for business each year and use that number to deduct your car costs from your taxable income.
Employees are unable to deduct the business use of their vehicle on their personal tax returns under the Tax Cuts and Jobs Act (TCJA), which suspends the miscellaneous itemized deduction for unreimbursed employee expenses until 2025. Employers that have an employee reimbursement plan may use the SMR to reimburse employees for operating personal vehicles for business purposes. The reimbursement is a deductible expense on the employer’s business tax return.
Obtaining Medical Care
The IRS has released updated standard mileage rates for the use of an automobile to obtain medical care under IRC Section 213. The Standard Mileage Rate is a reimbursement offered by the government to cover taxpayer travel costs for medical appointments. The rate is 18 cents per mile and is an itemized deduction subject to the 7.5% adjusted gross income limitation.
Charitable Organization
The Internal Revenue Service has also announced the 2022 standard mileage rate for providing services to a charitable organization. The new rate is unchanged at 14 cents per mile. This mileage rate applies to cars, trucks, and vans used to volunteer service for a qualified charity. Miles driven in connection with performing services as an employee of a charity are not deductible. To qualify for the deduction, miles must be driven primarily to benefit the charitable organization.
This announcement reminds us that tax benefits are available when we volunteer our time and talents to help those in need.
Moving and Storage Expenses
If you are a member of the armed forces and have a permanent change of station, be sure to keep track of your moving and storage expenses. The standard mileage rate for moving and storage expenses is 18 cents per mile. You can deduct these expenses when filing your taxes. Keep in mind that the standard mileage rate may change every year, so make sure to check the latest IRS guidelines.
Also, remember that you can only deduct expenses that are related to your move. For example, if you hire a moving company, only the cost of the movers’ services can be deducted. If you choose to do the move yourself, only the cost of gas and tolls can be deducted. Be sure to keep detailed records of all your expenses so you can claim them on your tax returns.
Final Word
The different standard mileage rates are based on the number of miles driven for business purposes, obtaining medical care, providing services for a charitable organization, and moving and storage expenses for the members of the armed forces.
The standard mileage rate changes annually. It is in your best interest to understand the current rates so you can calculate how much you are saving on gas expenses with an accurate number, which will also help keep track of any potential tax implications.
For questions or more information about this article, connect with us today or contact our tax professionals at taxalerts@windes.com.
