Check your odometer for tax savings.
The Internal Revenue Service announced standard mileage rates for 2022 today for taxpayers to use in calculating the deductible costs of using a car for business, charitable, medical or moving purposes. That means tax savings if you’re self-employed and drive your own car for business—and likely more money in your pocket if your employer reimburses you for miles driven.
In Notice 22-03, the IRS lists the standard mileage rates, effective January 1, 2022:
Business use: 58.5 cents a mile in 2022, up 2.5 cents from 56 cents a mile in 2021
Medical use: 18 cents a mile in 2022, up from 16 cents a mile in 2021
Moving use: 18 cents a mile in 2022, up from 16 cents a mile in 2021
Charitable use: 14 cents a mile, for 2021 and 2022
You’ll use the 2022 rates on your 2022 tax return. And the 2021 rates on your 2021 tax return due April 15, 2022. If you’re curious, the IRS keeps track of historical mileage rates over the last decade. The standard rates for business purposes reach a new high; the standard rates for medical and moving purposes were 20 cents a mile back in 2019. Rates jumped this year because of higher fuel prices and higher car costs.
The rate for charitable miles driven has been fixed by Congress at 14 cents a mile since 1997, but the other rates are adjusted each year. The business rate adjustment takes into account all the costs associated with owning a car, including insurance and repairs, while the other adjustment primarily takes into effect oil and gas costs.
The standard rates are the simplest option for taxpayers to use. You multiply the miles driven by the rate. Another option is to claim deductions based on the actual costs of using a vehicle. In either case, you need to keep records to prove how far you drove and when and for what purpose.
The higher standard rates mainly help workers whose employers reimburse them for miles driven and self-employed folks who drive their own car for business purposes. Employers don’t have to use the IRS-blessed rate for reimbursement purposes, but they often do as it sets the level that’s tax free for employees, so there is no tax reporting for the employee.
If your employer doesn’t reimburse you, you’re out of luck. Unreimbursed employee travel expenses are not deductible. That’s because the 2017 Tax Cuts and Jobs Act eliminated the miscellaneous itemized deduction for unreimbursed employee travel expenses for tax years 2018 through 2025.
If you’re self-employed, you’ll list your mileage as a business expense on Schedule C. You can’t use the business standard mileage rate for a vehicle after claiming accelerated depreciation, including the Section 179 expense deduction, on that vehicle.
Don’t underestimate the charity and medical mileage breaks. If you itemize deductions, miles driven to volunteer count—say you drive to volunteer at a local animal shelter twice a week, or you deliver meals for a charity to home-bound seniors. If you have big healthcare bills, medical miles can help you meet the threshold to claim a medical expense deduction. You get a deduction to the extent medical expenses, including mileage, exceed 7.5% of your adjusted gross income. The deduction for moving miles is limited to active military personnel.
There’s more savings if you keep good records: Parking fees and tolls for business, charitable, medical and moving trips are also deductible.
Further reading:
New Higher Estate And Gift Tax Limits For 2022
IRS Announces 2022 Tax Rates, Standard Deduction Amounts And More
