Taking the standard mileage deduction when you use your car for business can save you big on your taxes. Find out what the IRS mileage rate is for 2022 and what the IRS’s rules are for taking this deduction.
If you use a car in your business, you may be entitled to some significant tax deductions. The amount and type of deductions you can claim depend on a number of factors.
The IRS offers two options for deducting expenses for using a vehicle in your small business. You can deduct the actual costs you incur with the vehicle in your business or, provided you meet certain criteria, you deduct the standard mileage rate for every mile you drive with your car for business.
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What is the standard kilometer deduction?
With the standard mileage deduction, all you need to do is keep a log of business miles driven (with notes to indicate business purpose), then multiply the total miles driven by the standard mileage rate for the year. If you claim the standard kilometer deduction, you may also deduct the costs of tolls and parking fees. ZenBusiness Money Pro provides a good way to track and store this information.
What is the IRS mileage rate for 2022?
Due to the increase in fuel costs in 2022, there are two different business mileage rates for the year. The IRS business mileage rate for the first half of 2022 is 58.5 cents per mile for miles driven between January 1, 2022 and June 30, 2022. The mileage rate will increase to 62.5 cents per mile for miles driven from July 1, 2022 to December 31, 2022.
If you drove 1,500 miles in the first 6 months of 2022, that equates to a tax deduction of $877.50 ($0.585 X 1,500) at the rate of 58.5 cents per mile. If you drive an additional 1,500 miles between July 1, 2022 and December 31, 2022, you’ll get an additional $937.50 ($0.625 X 1,500) deduction, making your total mileage deduction for the year $1,815.00.
Each year, the IRS adjusts the standard mileage rate based on the fluctuating cost of operating a vehicle (including fuel costs). The IRS normally only updates mileage rates once a year, but made the Half-yearly adjustment 2022 to reflect the increase in fuel costs in 2022.
How do you qualify for the standard kilometer deduction?
To use the standard mileage method to calculate your business use vehicle deductions, you must own or lease the vehicle for which you are making the deduction. The standard kilometer rate cannot be used if you:
- Use five or more cars at once (as in fleet operations).
- Claim depreciation or a Section 179 deduction (Publication 463, Chapter 4†
- Are you a rural postman receiving qualified compensation (Publication 463, Chapter 4†
What are other deductible car expenses?
When you use the kilometer deduction, yYou can still deduct parking fees and tolls that you incur when using your car or truck for business, as well as the business percentage of the car loan interest and personal property taxes you pay on your car. However, you cannot deduct actual expenses such as gas, oil, insurance, taxes, vehicle maintenance, and other expenses. The IRS considers these costs covered by the mileage allowance.
How do you keep data for standard mileage?
Although you do not need to register your odometer reading for every journey, you do need to register your vehicle’s odometer reading at the beginning of the year and at the end of the year. Then, every time you use your car or truck to travel on business, record how many miles you’ve covered, where you’ve been, and the purpose of the trip. The IRS expects you to keep good records of the miles you drive in your vehicle for business. You can track it the old-fashioned way — in a mileage notebook that you keep in your car — or you can use ZenBusiness Money Pro to log your mileage and calculate the mileage deduction. There are also several standalone smartphone apps to log mileage. Most importantly, you have documented records for every time you use your vehicle for business.
What is the method of actual cost?
Companies that use the true cost method to operate their vehicles may have vehicle depreciation and costs such as: as lease payments, registration fees, insurance, garage rental, gas, repairs, tune-ups and tires. The deductions are proportional to the business use of the car, and there are limitations on the depreciation and deductibility of lease payments on vehicles above certain fair market values. Keeping records and calculating depreciation can be quite complex using the true cost method. In some cases, using the true expense method can give a small business a larger deduction than the standard mileage rate, but you can check with your accountant. More information about deducting the actual costs for the business use of your vehicle can be found in this IRS publication†
Finally
Before you commit to using the mileage deduction, you may want to spend some time calculating which method is most beneficial for you. For some people, using the true cost method will yield greater savings. Keep in mind that once you’ve used the actual expense method for a particular vehicle, you’ll need to continue using that method in future tax years to calculate the vehicle expense deduction.
Disclaimer: The content on this page is for informational purposes only and does not constitute legal, tax or accounting advice. If you have specific questions about any of these topics, please contact a licensed professional.
