In December 2021, the Internal Revenue Service instituted a new standard mileage rate for people looking for tax deductions for business, medical, charity, or moving expenses in 2022. This federal mileage rate affects a great many people. Here we’re going to take an in-depth look at the Standard IRS Mileage Rates in 2022, and their implications for the tax deductibles.
Types of Mileage Rates
Focusing now on the above-listed categories, let’s take a look at exactly what each category includes or stipulates according to the IRS:
Business expenses
A wide range of trips classifies as business mileage, including any trip you make from your place of work to a client, a business lunch, or even running errands for work-related tasks. Essentially, most trips qualify provided that they are related to your job in some way. It is important to note, however, that commuting between your home and office is considered a personal trip, therefore does not count toward your deductible business mileage.
Charity expenses
If you work or volunteer for a non-profit organization, you may need to use your vehicle to undertake various tasks. This might include driving to a location to pick up some donations, or errands involved with the delivery of certain items – food for the homeless, for example. If that’s you, then you can claim tax deductions on the mileage driven for this kind of work.
Moving expenses
Only active-duty military members can deduct relocating expenses since the introduction of the 2017 Tax Cut and Jobs Act (TCJA). You can claim a moving deduction from your taxable income if you are in active service and include it as an attachment to your Form 1040 on your Form 3903. You must be a member of a protected area that services more than 100 miles from your home, or the relocation must be the consequence of military order and has to be permanent. You can deduct relocation expenses that have not been reimbursed for you, your spouse, and your dependents in these situations.
Medical expenses
In a case where you have been sick or injured, paying hefty hospital and/or doctor’s fees, you may qualify for a tax deduction if those costs exceed 7.5% of your adjusted gross income (AGI). For example, if your AGI is $100,000, and your medical expenses exceed $7,500, you may then claim a tax deduction on the miles you have driven visiting doctors or hospitals, which could be significant if you travel to medical facilities often.
What is the Standard Mileage Rate?
This is the most common mileage rate used by small business owners, entrepreneurs, and contractors alike. Represented as a particular amount of cents on the dollar, this rate varies depending on what you are claiming mileage-related deductibles for on your IRS form.
For example: Let’s say you drive roughly 20,000 miles per year for business purposes – the IRS allows 58.5 cents of tax back on every mile you drive for business in 2022. Therefore, you’ll be able to deduct approximately $11,700 on your IRS form.
Of course, the IRS mileage rate for business purposes is only one deductible category here, so let’s take a look at the breakdown of the standard mileage rate for all the categories previously mentioned:
- Business purposes: 58.5 cents for every mile driven.
- Medical and Moving purposes: 18 cents for every mile driven.
- Charity purposes: 14 cents for every mile driven.
How Does the IRS Set Mileage Rates?
Every year, the IRS establishes new rates for each of the aforementioned categories based on a cost and data analysis performed and compiled by a company named Motus. Motus aggregates data based on variable costs related to travel expenses across the country, taking into account gas/oil prices, service costs, automotive insurance premiums, depreciation, travel expenses, and any other costs associated with operating and maintaining a vehicle.
For purely business purposes, the standard mileage rate is determined by and based on both fixed and variable costs, such as the current market cost of insurance premiums, or your yearly membership to the American Automobile Association.
On the other hand, the standard mileage rate for medical, moving, or charity purposes is based only on the variable costs of actually driving a car, or, more specifically, oil and gas prices.
How to Calculate a Mileage Deduction
Mileage rates for tax deductions are essentially broken into two categories: the actual expenses method and the standard mileage rate.
Standard mileage rate
The standard mileage rate is certainly the easiest method for the vast majority of business people and only requires you to keep track of all of your mileage driven for business purposes. The standard mileage rate is also favorable for employers and employees who use their private vehicles for mileage reimbursement, as using this method, the amount of the reimbursement can be fine-tuned and is more likely to be fair than using a monthly flat car allowance as a lump sum.
The best way to do this is through a mileage tracking app, where you can record all your trips quickly and easily, without having to worry about excessive administration. MileageWise offers a great choice on the mileage tracker app market, especially if you want to make sure to have an IRS-compliant mileage log.
Now, let’s take a look at the other type of mileage calculation, the actual expense method.
How Does the Actual Expenses Method Work?
This method is tailored specifically to people or businesses who face a great deal of expenses relating to driving for work, though it is different from the standard mileage rate in that it is not concerned with the mileage. In this case, your cost per mile to drive is simply not mentioned. This is because the actual expenses method focuses on itemized deductions that relate to gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) based on the percentage of total miles driven that are business miles and are included in these expenditures.
The catch? You have to keep receipts of every expense paid for, consequently submitting them to the IRS if you face an audit.
The most important thing to remember with the actual expenses method is that if you do face a large amount of vehicle-related expenses, it could be the best option for you.
Mileage Rates in the Past
The standard mileage rate for business, medical, and moving expenses change every year, though the rate for charity deductions has not changed since 2011 – it has remained at 14 cents per mile since then.
