Increased 2022 Business Mileage Rates Now in Effect
Over the past several months, drivers in the United States have been feeling the proverbial “pain at the pump” as gas prices across the nation have reached record highs. While this has impacted vacationers, commuters, and many others, it’s also affected small business owners who use their vehicles for work. In recognition of this, the Internal Revenue Service has taken action. Recently, the IRS announced a rare (with the previous one coming in 2011) mid-year mileage adjustment, which could impact small business owners.
Effective July 1st, the standard business mileage rate is 62.5¢ per mile. This is up 4¢ from the earlier 2022 rate of 58.5¢. Note that this new rate only applies to business miles driven starting in July, with mileage from January through June of 2022 still being assessed at the previous rate. Meanwhile, the deductible medical and moving (available for active-duty members of the military) rate will increase to 22¢ from 18¢ for the rest of the year, while the charitable organization rate remains at the previous 14¢.
Announcing the change, IRS Commissioner Chuck Rettig said, “The IRS is adjusting the standard mileage rates to better reflect the recent increase in fuel prices. 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.”
The standard business mileage rate is one option small business owners and self-employed workers have when it comes to their taxes. Alternatively, taxpayers may opt for the “actual cost” method, allowing businesses to deduct gas costs, vehicle maintenance, etc. However, the IRS does not allow business owners to switch between the two options regularly. Once a switch is made to the “actual cost” method, that deduction model will need to be used for as long as the vehicle in question is used for business purposes.
While the 4¢ adjustment may not sound like much on its face, this could make a sizable difference for small business owners come tax time. For example, if business owners were to drive another 5,000 over the course of the second half of this year, that 4¢ would amount to $200 in deductible business expenses ($3,125 with the adjustment versus $2,925 in deductions under the previous rate). However, this difference still might not truly cover the additional expenses some business drivers are incurring in fuel costs. Therefore, it may be worth it for businesses to take a closer look at their tax options regarding business vehicles and determine the best path for them going forward.