Is the standard business mileage rate increasing for the second half of 2022?
Yes, the IRS recently announced that it’ll increase the standard mileage rate for qualified business driving for the second half of 2022. Beginning July 1, 2022, the standard mileage rate for business travel will be 62.5 cents per mile. This is a 4 cent increase from the 58.5 cents-per-mile rate effective for the first six months of the year. The IRS also announced an increased standard mileage rate for medical driving and moving for members of the military.
“The IRS is adjusting the standard mileage rates to better reflect the recent increase in fuel prices,” said IRS Commissioner Charles Rettig. “We are aware a number of unusual factors have come into play involving fuel costs, and we are taking this special step to help taxpayers, businesses and others who use this rate.”
As of June 13, 2022, the nationwide average price of regular unleaded gas was $5.01 a gallon, compared to $3.08 a gallon in 2021.
Basic business driving deduction rules
There are two options for deducting business driving expenses.
1. Deduct 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. You may also claim a depreciation allowance for the vehicle based on the percentage of business use. Note: your deduction may be subject to so-called “luxury car” limits, indexed annually.
2. Standard mileage deduction
Instead of deducting your actual expenses, you may be able to use a standard cents-per-mile rate. With the standard mile deduction you must record certain information such as the mileage for each business trip, the dates you drove, and the business purpose of the travel.
The cents-per-mile rate is adjusted annually by the IRS. Initially, the agency established a rate of 58.5 cents per business mile for 2022 (up from 56 cents per mile in 2021). But higher gas prices spurred calls for a mid-year adjustment.
Taxpayers who use the standard mileage deduction will have to use a blended rate for 2022 to calculate their deduction.
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 trips during the last six months of 2022. Therefore, your total deduction is $13,200 ($5,850 + $6,250 + $1,100 tolls and parking fees).
There are additional rules that could prevent a taxpayer from using the standard cents-per-mile rate or actual expenses method. If you have questions about which deduction method to use, contact a tax professional.
Medical & moving driving
You can also use the standard mileage rate if you use your vehicle for medical reasons and deduct medical expenses on your tax return. For example, you can include in medical expenses the amounts paid when you use a car to travel to doctor appointments. The new rate for deductible medical expenses will be 22 cents per mile beginning July 1, up from 18 cents per mile for the first six months of 2022.
The rate for moving-expense driving (currently available only for active-duty members of the military) will also increase to 22 cents per mile beginning July 1, 2022 up from 18 cents per mile. The rate for charitable driving remains unchanged at 14 cents per mile for the entire year.
What’s the right option for you?
Keep in mind that you still may fare better from a tax standpoint using the actual expense method than you would with the standard mileage rate, even after the latest rate increases.
Contact us to discuss your particular circumstances.