Understanding Your Tax Deduction After the IRS Boosts Mileage Rates
Keep this in mind when calculating your tax deduction once the IRS raises mileage rates; the IRS made an increase in the optional standard mileage rate for the final six months of 2022 for business travel, deductible medical expenses, and moving expenses for active duty. These bumps are reflective of the spike in gas prices. Charitable organizations, which are set by statute, will remain unchanged.
Rates for Previous Mileage
The IRS normally updates the mileage rates once a year, usually towards the end of the year, for the following calendar year. For 2022, the IRS issued guidance on Dec. 17, 2021, setting the optional standard mileage rate for the 2022 calendar year at 58.5 cents per mile driven for business use, 18 cents per mile driven for medical or moving purposes for qualified active-duty members of the Armed Forces, and 14 cents per mile driven in service of charitable organizations. The national average for a gallon of gas was around $3.28 at the time. Today, the national average has reached $5.00 a gallon; this difference was the trigger for the change.
Keep Great Records
Just when tax season is around the corner, the midyear adjustment will likely cause some confusion. Avoid guessing, keep a concise record, and don’t forget to write the date, the total miles traveled, and the purpose of your journey; the more information you have, the better. The deductible costs of driving a business vehicle can easily be calculated using the optional business standard mileage rate. Simply multiply the usual mileage rates by the number of business miles driven.
Deducting Actual Costs
Instead of utilizing the normal mileage rates, taxpayers can deduct real expenses: Depreciation or lease payments, maintenance and repairs, tires, gas, oil, insurance, and license and registration fees are all examples of expenses. To figure your deduction, total your expenses each year. The costs must be pro-rated if the car is used for personal and business use. No matter which option you choose — the standard mileage rate or actual car expenses — parking fees, tolls, interest, and taxes are separately deductible for business, medical, moving, and charitable purposes.
Mileage Rates for Reimbursements
Mileage rates are not just used for deductions. They are also used by the federal government and many companies to reimburse their employees for mileage. The IRS mileage rates are used by numerous businesses. As noted earlier, midyear adjustments aren’t very common and cause confusion among business owners. That’s why every business needs to partner with the right financial solution. IOOGO Accounting is the top Finance-as-a-Service company that provides efficient accounting, CFO, and tax solutions, combining technology and personalized support for businesses like yours to support your growth. Let’s connect!