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Tax-deductible standard mileage rates increase in 2022

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Did you do more driving to conduct business in 2021 as the COVID-19 pandemic seemed to abate a bit? Are you planning, Delta and Omicron variants notwithstanding, to hit the road for more business travel in 2022?

If so, the Internal Revenue Service has some good tax deduction news for you.

Beginning on Jan. 1, 2022, the standard mileage rates for the use of a car (or van, pickup or panel truck) will be a bit more.

Next year, according to the notice the IRS issued today (Friday, Dec. 17), you can write off business travel at 58.5 cents per mile. That's up 2.5 cents from the 2021 rate.

The standard mileage rate for medical-related travel also will increase in tax year 2022, going up 2 cents to 18 cents per mile. That's also the per-mile rate that qualified active-duty members of the Armed Forces can claim for their required reposting relocations.

And, as we all know by now, the miles you drive to provide services on behalf of charitable organizations remains at 14 cents. That rate can only be changed legislatively.

Tracking tax-related travels: Recording the number of miles you drive each year to conduct business can help you reduce taxes on your self-employment income. This obviously is a major write-off for self-employed individuals. But the deduction also applies to gig jobs you have in addition to your wage paying main work.

You have a couple of ways to track this travel. You can keep complete and contemporaneous records of all your actual business-related auto usage (more on this in a minute) or you can claim the optional standard mileage amount.

The standard mileage deduction amount is adjusted annually based on the yearly study of the fixed and variable costs of operating an auto. Some years, like in 2022, it increases. Other times, as in 2021, the mileage rate goes down.

The standard mileage rate for vehicular business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the car's variable costs.

And while the motor methodology is not technically inflation-based, because the tax-related figures tend to change, the annual announcement of the upcoming standard mileage rates always wraps up the ol' blog's annual 10-part inflation series.

2021 and 2022 standard mileage rates overview: As noted earlier in this post, the 2022 per-mile optional standard rates for business and medical travel, as well as for some military moves, is going up in a few weeks.

Since we're still wrapping up 2021, the table below illustrates which rates will apply on this year's taxes, alongside the rates for 2022 that you'll track during those 12 months.

2021 & 2022 standard mileage deduction rates
allowed on cents-per-mile basis

Tax Year

Business

Medical

Moving

Charity

2021

56

16

16

14

2022

58.5

18

18

14


Not to overthink things or overstate the obvious, but remember the timing on these tax-deductible miles.

The 2021 amounts will be used to calculate your allowable travel claims on your tax return you file next year. The 2022 amounts will be used when you finally file that year's tax return in 2023.

Business mileage deduction choice: Many business taxpayers use the standard rate when figuring how much in mileage costs they can claim. It's easy and just requires you to keep track of your work-related miles.

But note that you always have the option of calculating the actual cost of using your vehicle rather than using the standard mileage rates.

The mileage deduction choice, like every other tax decision, depends on your personal situation.

In most instances, it's a no-brainer to use the one that will give you more tax savings. Some filers, however, find convenience is more valuable, especially if the tax-saving difference is, from your perspective, negligible.

Make your choice wisely, especially if you're claiming the business mileage rates for the first time. The IRS points out that you can't use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. Yeah, that's a lot of IRS tax-speak for additional calculations you'll have to make here.

The upshot is that if you initially opt for the actual expenses method the first time you ever make a business mileage tax claim, you're stuck using that method for as long as you use that vehicle.

If, however, you choose the standard mileage rate when you first put a vehicle into business use, in later years you can choose to keep using the fixed-mile rate or switch to totaling your auto's actual expenses.

Note, too, that if you lease your business use vehicle, you must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.

No more miscellaneous mileage claims: What if you drive your car for work but you're an employee and not your own boss? Sorry, but those work-related miles aren't of any tax use, for now.

Tax Cuts and Jobs Act (TCJA) that became law at the end of 2017 eliminated through 2025 the miscellaneous itemized deduction on Schedule A where employees could claim unreimbursed business expenses, including the costs of operating an automobile in connection with their jobs.

Again, this affects only salaried workers who drive in connection with work. In these cases, you need to talk with your employer about an adjusted compensation or reimbursement method.

If, however, you are self-employed, the miles you travel for your company still count. You can still claim your qualifying work-related miles on your taxes.

In addition, Armed Forces reservists, qualifying state or local government officials, educators and performing artists also still can deduct unreimbursed business expenses under the TCJA.

If any of these exemptions apply to you and you're still a bit confused, don't freak out. Your tax preparer, tax software, or IRS Tax Topic 510, Business Use of a Car, can help.

A medical mileage tax Rx: The TCJA also greatly increased the standard deduction amount (you can read about those 2022 increases in Part 2 of the annual inflation series), which means most taxpayers use that method instead of itemizing tax deductions on Schedule A.

However, some filers still find itemizing gives them a larger deduction. In many cases, that's because they have a lot of deductible medical expenses. Among those costs that count here is medical-related travel.

The 16 cents per mile this year and 18 cents per mile in 2022 includes road trips to medical treatments (and, in some instances, medical conferences), as well as when you drive to the pharmacy to pick up your prescriptions. The IRS has a full (and ever changing/expanding) list of deductible medical expenses.

Moving expenses also limited by tax reform: The write-off for moving mileage remains, but (again thanks to the TCJA) only for certain taxpayers.

Military-Moving_Air-Force
Until tax reform was enacted in late 2017, any person who moved for job reasons (and who met the distance and time rules) could claim their relocation costs on their taxes. Now, however, civilians are out of luck. This tax deduction is available only to members of the military.

Specifically, this above-the-line tax deduction currently is only available to U.S. Armed Forces personnel who are on active duty and who move pursuant to a military order related to a permanent change of station.

Charitable driving still allowed: Some who choose to itemize also count on deductible charitable donations to increase their itemized tally. Those gifts to nonprofits can include miles driven in connection with services for and by an IRS-authorized charity.

Common charitable mileage claims include volunteer delivery of meals to the home-bound or providing transportation to individuals who are getting help from a qualified charity.

This rate is still at 14 cents per mile where it's been for years.

The reason for no fluctuation from the prior year? The rate is set by statute and therefore is not affected by inflation.

If you agree with me that it should be inflation adjusted, too, let your U.S. Representative and Senators know. Since many charities have taken a hit due to the TCJA changes, some members of Congress seem to be more open to other tax options that could encourage giving.

Why the mileage rates differ: The 2022 increase in the optional standard mileage rates generally reflects the way the economy and inflation are going.

But there's more to it when it comes to cars. The tax agency explains in Notice 2022-03 that it hires an independent contractor to calculate the mileage rates, aside from the charitable one that's set by law, and to evaluate the fixed and variable costs of operating a vehicle.

The biggest fixed automotive cost is the vehicle price. The biggest variable cost is gasoline.

The rate for business driving is based on the both the vehicle's fixed and variable costs. The rates for medical and moving purposes, on the other hand, are based only on the variable costs.

Those different vehicular cost categories account for the differences in the rates.

Exiting the inflation highway: As noted earlier in this post, the IRS' annual mileage rates notice technically isn't part of the agency's overall inflation adjustments that are put out in two major announcements, generally each fall.

But the mileage rate adjustments merge nicely into that changing tax amounts roadway. So each year it is the final post in the annual look at how inflation affects myriad parts of our taxes.

You can detour to the rest of the 2022 inflation entries by clicking on the link to Part 1 of the series in the below box. That initial post has a complete inflation series directory at the end of the item.


This post on 2022 tax mileage deduction amounts
is Part 10 of the ol' blog's annual series on tax inflation adjustments. 
The 10-part series started with a look at next year's income tax brackets and rates.
That first item also has a directory, at the end of the post,
of all of next year's tax-related inflation updates.
If, after perusing this mileage post, you want to check out
other inflation adjustments for 2022, you'll find all the links to those posts there.
Note: The 2022 figures in this post apply to that tax year's returns to be filed in 2023.
For comparison purposes, you'll also find 2021 amounts that apply to this year's taxes that,
pending any COVID-19 Tax Day delays like we've faced the last couple of years, will be
due April 15, 2022.


Thanks for taking this long and winding inflation and taxes road trip. As we reach our destination, I hope you find your way to a very Merry Christmas and the happiest of holidays.

 

 

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Comments

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isabella

Although somewhere there is a decrease in the right direction, now it will be possible to save some kind of penny and spend on yourself!

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