The 2022 standard mileage rate used to calculate the deductible cost of operating a vehicle for business will increase to 58.5 cents per mile, up from 56 cents per mile.
The increased tax deduction partly reflects the price of gasoline. According to AAA Gas Prices, on December 21, 2021, the national average price of a gallon of regular gas was $3.29, compared with $2.22 a year earlier.
Don’t want to keep track of actual expenses?
Businesses can generally deduct the actual expenses attributable to the business use of vehicles. Deductible expenses include gas, oil, tires, insurance, repairs, licenses, and vehicle registration fees. In addition, you can claim a depreciation allowance for the vehicle. However, in many cases, certain limits apply to depreciation write-offs on vehicles that don’t apply to other types of business assets.
The cents-per-mile rate is beneficial if you don’t want to keep track of actual vehicle-related expenses. You don’t have to account for all your actual expenses with this method. However, you still must record certain information, such as the mileage for each business trip, the date, and the destination.
Using the cents-per-mile rate is also popular with businesses that reimburse employees for business use of their personal vehicles. These reimbursements can help attract and retain employees who drive their personal vehicles a great deal for business purposes. Why? Under current law, employees can’t deduct unreimbursed employee business expenses, such as business mileage, on their own income tax returns.
If you use the cents-per-mile rate, keep in mind that you must comply with various rules. If you don’t comply, the reimbursements could be considered taxable wages to the employees.
How is the rate calculated?
The business cents-per-mile rate is adjusted annually. It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle, such as gas, maintenance, repair, and depreciation. Occasionally, if there’s a substantial change in average gas prices, the IRS will change the cents-per-mile rate midyear.
When can the cents-per-mile method not be used?
There are some cases when you can’t use the cents-per-mile rate. It partly depends on how you’ve claimed deductions for the same vehicle in the past. In other situations, it depends on if the vehicle is new to your business this year or whether you want to take advantage of certain first-year depreciation tax breaks on it.
As you can see, there are many factors to consider in deciding whether to use the standard mileage rate to deduct vehicle expenses. If you have questions about tracking and claiming such expenses in 2022, contact us to discuss.