In a time of rising prices, the Internal Revenue Service is being a bit more generous with the formula businesses and eligible taxpayers can use when they tally the tax deductions for their work-related miles on the road.
On Friday, the IRS released the standard mileage rate for business-related driving in 2022. The rate will be 58.5 cents per mile for business use. That’s a 2.5-cent climb from the 56-cent rate this year. It was a 57.5-cent rate the year before that, and a 58-cent rate before that.
“That’s not a bad hike,” said Barbara Weltman, author of “J.K. Lasser’s Small Business Taxes 2022: Your Complete Guide to a Better Bottom Line.”
The IRS recalculates it mileage rates every year. This one is coming at a time of high inflation and increased work-related travel, which makes every tax break count all the more. For the people who can use it — including gig workers and other self-employed taxpayers — the standard mileage rate is optional, with the alternative being a tabulation of the actual car and gas expenses connected to their business.
As of Friday, Americans paid an average $3.31 for a gallon of gas, according to AAA. That’s down a dime from a month ago, but up from $2.20 a year ago.
Gas prices are one ingredient in the IRS’s rate-making methods, Weltman said, but still, “nobody knows how the IRS figures the standard mileage rate. They never shared those details.”
“The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile,” the IRS said in its Friday announcement.
To be sure, these mileage rates are not a license for a widespread write-off. Employees cannot use the rate to chip away at their own tax bill. It’s the same reason why millions of tele-commuting workers last year couldn’t write off the costs of buying home office expenses. (Though Weltman noted some employers may use the mileage rate to reimburse their employees.)
The mileage rate does not count for commuting, said Weltman, founder of Big Ideas for Small Business .
But here’s a scenario where it would apply: a self-employed taxpayer drives to their office and then travels to meet clients or to attend other business meetings.
The mileage racked up from the office to the client counts. If a person has a home office in the eyes of the IRS, their trips from their house to business events could count too, she noted.
Come tax time, the IRS will be expecting records on the mileage, Weltman noted. That’s the mileage count, but also records on date, destination and purpose, she said. One good move is using apps that can track mileage for tax purposes, Weltman noted.
When it comes to this standard mileage rate, people will be submitting their information to the IRS on their Schedule C forms in the 2023 tax season. The question is how much will business-related travel be back in 2022? There’s been a rise at least from 2020 to 2021.
The average American driver lost 36 hours just sitting or crawling through traffic in 2021, according to Inrix, atraffic data analytics company. That’s 10 hours more than they did in 2020, when many more people were working from home, Inrix said. It’s still down from the pre-pandemic average of 63 hours lost, the company said.