The IRS announced that the second half of 2022 will have a higher standard mileage rate than the first half of the year. The rate typically only increases once a year (announced in the fall for the following year) but was adjusted due to the high gasoline prices and vehicle costs seen this year.
For 2021, the mileage rate was 56 cents per mile.
For January – June of 2022, the mileage rate was 58.5 cents per mile.
For July – December of 2022, the mileage rate is 62.5 cents per mile.
For business owners: you’ll want to track your mileage for the first half of the year separately then the last half to ensure you get full credit for miles driven after July 1st.
For employees: you’ll want to talk to your employer to see if they’ll reimburse you at the higher mileage rate for the 2nd half of the year.
Overview of vehicle costs as a business deduction:
If you drive your personal vehicle for business purposes, you can choose one of the options (but not both) for recovering that cost: the actual costs or the standard mileage rate. Either option can have a tax effect when you sell the vehicle. All business deductions must be ordinary and necessary for the business.
Vehicles that are driven both personally and for business, must split the costs based on the percentage the vehicle is used for business (based on mileage). Keep in mind, commuting to and from the same place of business is not considered business use.
Option 1: Actual vehicle costs require tracking of all expenses, such as: registration fees and taxes, gas and oil costs, maintenance and repairs, licenses, vehicle insurance, rental or lease payments, loan interest, depreciation, and tolls and parking fees. These expenses need separately tracked for each vehicle used for business purposes. Mileage is also tracked to allocate the expenses between business and personal use.
Option 2: Track business mileage and total mileage for the vehicle. The business mileage is then multiplied by the standard mileage rate (which is adjusted each year). The standard mileage rate is adjusted to cover the vehicle costs, so you can’t also deduct repairs, gasoline, etc if you use the standard mileage rate.
Recordkeeping for both options must be contemporaneous information to substantiate the deduction. Required information includes: the amount of each expense, the mileage for each business use of the vehicle, total mileage for the vehicle during the tax year (business and non-business), the date of each business use of the vehicle, and the purpose of each business use of the vehicle.
<a href=”https://www.freepik.com/free-photo/man-driving-car-from-rear-view_1120663.htm#query=driving&position=0&from_view=search”>Image by fanjianhua</a> on Freepik