IRS Standard Mileage Rates: What They Are and What Options You Have
With tax season now in full swing and gas prices making it pricier to fill your tank, contractors, self-employed individuals, and small business owners may be wondering about how the IRS’s standard business mileage rates work. Furthermore, since these rates are set before the year begins, there’s also the chance that your actual expenses may exceed what their standard rate offers. With that in mind, let’s take a look at how the IRS business mileage rates work, what the 2021 and 2022 tax year rates actually are, how you can claim business deductions for your miles driven, and a few tools that can help you keep track of it all.
IRS Business Mileage Rates: What They Are and How They Work
What is business mileage?
Simply put, business mileage is a way for small business owners to deduct the costs associated with driving their vehicle for work. To give contractors/self-employed workers a simple way to calculate these deductions, each year, the IRS offers a standard mileage rate, which is based on an annual study of costs associated with operating a vehicle. In turn, those wishing to claim the standard mile deduction can take the current rate, multiply it by the number of miles driven for work over the applicable tax year, and include this deduction on their Schedule C.
What are the 2021 IRS mileage rates?
If you’re preparing your 2021 tax return now, the standard business mileage rate is 56¢ per mile. Meanwhile, the medical and moving mileage rate for the 2021 tax year is 16¢/mile and the charitable mileage rate is 14¢/mile.
What are the 2022 IRS mileage rates?
Turning to the current tax year, the IRS did make upward adjustments to some of their standard mileage rates. For business mileage, the 2022 rate was 58.5¢ per mile while the 2022 tax year’s medical and moving mileage rate was 18¢/mile. However, in July, the IRS made the rare move of adjusting the standard mileage rates midyear. As a result, effective July 1st, the business mileage rate for the rest of the year is 62.5¢. However, note that miles driven from January through June of 2022 will still be assessed at the previous rate.
|IRS Standard Mileage Rate Reason||2021 Tax Year||2022 Tax Year (Jan-June)||2022 Tax Year (July-Dec)|
|Medical or Moving||16¢||18¢||22¢|
How do I claim a business mileage deduction?
The business mileage deduction can currently be found in Part IV of the IRS’s Schedule C (Form 1040). Here, business owners will need to state when they placed their vehicle into service for their business, the total number of miles driven during the year — broken into three categories: Business, Commuting, and Other — and some other questions about the vehicle’s use.
From there, you can multiply your total business miles driven, multiply by that tax year’s mileage rate (see the table above), add in any parking or tolls you’re claiming, and put the total in Line 9 on the Schedule C.
Keep in mind that, in order to claim your business mileage deduction, you will need to track your business mileage. In fact, you’ll notice that line 47(a) of the Schedule C will ask if you have evidence to support your deduction. Luckily, we’ll discuss a few tools and options for doing this in the section below.
How do I deduct actual costs instead?
With the price of gas currently hitting record highs, you be may be wondering whether the standard business mileage rate really covers your expense. The good news is that, if you determine that the standard rate is insufficient, you may be able to elect to deduct your actual costs. However, there are a few important things to note regarding this option.
First, you can only choose either the standard mileage or “actual cost” deduction for the entire tax year — meaning you cannot use a combination of the two. Furthermore, once you use the “actual cost” option for a vehicle, you’ll need to stick with that for as long as you use that car for business and cannot go back to the standard mileage option. Similarly, if you’re leasing your business vehicle, you’ll need to go with one method or the other for the entire period including any renewals on the vehicle.
With that out of the way, there are a few reasons why you might want to use the “actual cost” method instead of standard mileage. The most obvious example is if your annual expenses related to using the vehicle for business exceed what you’d receive if you calculated using the mileage rate. Another possible reason may be that you feel it’s easier to track these types of expenses rather than log your business miles. Of course, regardless of which option you choose, you will need to differentiate between business and personal use/expense.
Some of the work-related vehicle expenses you may be able to deduct include:
Similar to the standard mileage option, your “actual cost” deduction will be claimed using the Schedule C. As the IRS notes, you’ll put the business portion of your gas, oil, repairs, insurance, etc. expenses on Line 9, your depreciation on Line 13 (you may also need to fill out Form 4562 for this), and rent or lease payments on line 20a.
Tools for Tracking Your Mileage or Expenses
Whether you want to track your business mileage or business vehicle-related expenses, Quickbooks may be able to help. While the service can be used to note business transactions and deductions, the Quickbooks app also has a mileage tracker. Not only can this be used to enter your miles driven but you can also turn on GPS tracking to have it automatically record for you. Then, you can go through your various trips and denote them as personal or business.
Currently, Quickbooks offers a number of different service packages depending on your business’s needs. There’s also a Self-Employed edition for contractors, freelancers, etc. Regardless of which option you choose, all of them should include mileage tracking as one of the core features, making it far easier to keep track of this business deduction opportunity.
Another digital mileage tracking option is the app Hurdlr. If you don’t need all of the features that Quickbook provides, Hurdlr could be a good pick as it even includes a free option you can use to log your business mileage. However, if you want to utilize their auto-tracking tool or some other features, you might consider upgrading to their Premium option, which is currently $10 a month or $100 a year paid upfront.
For those who prefer more old-fashioned options, there is no shortage of mileage logs available. These are typically as simple as a ruled notebook with a space to put the date, the trip purpose, the starting and ending odometer readings, and perhaps a few other notes depending on the book. There are plenty of logs to choose from on sites like Amazon or you could always make your own using a plain notebook or printing off a template.
Although the concept of standard business mileage sounds simple in theory, there are some complexities to it — especially when more vehicles get involved. On that note, while the “actual cost” option may make more sense for some, it too comes with some drawbacks and complications. For those reasons, be sure to consult the IRS website, your tax prep software, or your tax professional to answer any additional questions you may have about claiming business deductions on your vehicle.
Also published on Medium.