Every year the IRS sets the federal mileage rate for business, charity, medical and moving expenses, and 2022 is no different. Additionally, for those who wish to claim tax deductions on their IRS forms, making the choice between whether or not to use the standard mileage rate or the actual expenses method is always a crucial one. In this article, we examine the ins and outs of the IRS’s mileage rates – focusing on what kinds of situations are beneficial for self-employed persons, employees who log business mileage for mileage reimbursement purposes, and employers.
Understanding the Standard Mileage Rate
Easily the most widely used and simplistic, the standard mileage rate is comprised of several categories, with business mileage being the most commonly thought of. In essential terms, the standard mileage rate simply stipulates a cost per mile to drive and then categorizes that into the above-mentioned categories of business, medical, moving, and charity travel expenses.
How to Calculate Mileage Rate Deductions
Before we break down the categories and their specific rates, let’s take a simple example to illustrate the elementary nature of potentially calculating just how much one can get. Since business mileage is the most common, let’s use that rate.
In 2022, the business mileage rate is 58.5 cents per mile driven – so, this means if someone does 19,000 miles for the entire tax year, they qualify for $11,115 as a total deduction.
The Different Types of Mileage Rates
Following the above example, we can now reveal the specific mileage rates for each category. These are the relevant rates for 2022:
- The cost per mile rate for business expenses relating to mileage is 58.5 cents.
- The cost per mile rate for medical expenses relating to mileage is 18 cents.
- The cost per mile rate for charity expenses relating to mileage is 14 cents.
- The cost per mile rate for moving expenses relating to mileage is 18 cents.
Using the Actual Expenses Method
A viable and sometimes more advantageous method of claiming tax deductions is the actual expenses method, in which the self-employed must collate, gather and summarize itemized deductions in the form of receipts for submission to the IRS. While it is still necessary to keep a record of all the mileage you do under this method, the extra work of keeping receipts for all of your fixed and variable costs can sometimes be tedious and demanding.
Regardless, many people choose this method when the costs of operating their vehicle, in general, are high, which is to say that the majority of those costs fall outside of actually doing mileage. This might be the case for vehicles that require a great deal of maintenance or have many rare parts which are often hard and expensive to replace.
On the other hand, for the majority who choose the standard mileage rate, their main expense is simply the gas oil relating to actually driving – this represents a key difference. For more information on the specifics regarding what might be best for you – consult your accountant.
As the actual expenses method deals with a breadth of fixed and variable costs, we’ve compiled a list below which includes most of the expenses that can be deducted:
- Insurance plans and premiums
- Fees for registration, licenses, and parking (the rules vary between states)
- Maintenance relating to the operation of a vehicle-related
- Tools that relate to the maintenance of a vehicle
- Charges relating to towing and fines
The Way the IRS Sets Mileage Rates
When the IRS decides on the various rates that fall into the category of the federal or standard mileage rate each year, they take into account a number of factors. In fact, an organization outside of the government – Motus – collates a plethora of data and aggregates it to create a general picture of the operation cost involving vehicles generally, accounting for things like the current cost of gas oil, maintenance costs, depreciation considered in the context of the economy generally, and many other factors.
Importantly for some, Motus does not factor in current trucking rates when analyzing this data and advising the IRS about appropriate costs – those rates fall into a different type of category not covered here today.
Rates such as the business mileage rate are fairly dynamic – changing year to year, while other rates such as the charity rate have not changed for a long time. In fact, the charity rate has not changed since 2007 according to our research. Still, it is worth knowing that there is some dynamism incorporating market forces in the context of the wider country – these are uncertain times in which we live and it is important that the IRS account for the volatility associated with automobile business expenses. It is also fair to point out that the general costs involved in vehicle operation have written surely and steadily over the last several years.
What Are The Past Mileage Rates?
Knowing past mileage rates can be especially vital if you’re gazing down the barrel of an IRS audit and need to prepare mileage logs that account for those past rates. You might also find these rates especially poignant if you’re interested in following the market’s current trajectory – this information can be quite important if you are self-employed and planning out the current year.
Relatively speaking, the IRS’s website is quite comprehensive when it comes to this matter. They have various tables which can help you get a better overview of the full spectrum.
How to Keep Track of Your Mileage Optimally
Whether you choose to use the standard mileage rate or the actual expenses method, you absolutely have to create a mileage log to record your odometer readings, trips, and the purpose of those trips.
Now, you could use an Excel file or an old school mileage logbook, but if you do, it’s probably time you joined the twenty-first century and made use of one of the fantastic mileage tracker apps available on the market today.
Luckily, being veterans of the software and its usage ourselves, we have put together a cross-section of the market at large so that readers can get an idea of which mileage tracker app providers offer which features.
It is, in the end, all about features, right? Right:
As you can see, there are a lot of providers to choose from. However, given the wealth of features available and their 14-day free trial, we would recommend MileageWise. While the table itself certainly does most of the talking, we found the numerous auto-tracking modes invaluable, along with the ability to recover past mileage and reconstruct logs for previous years. This is because as we mentioned earlier – when you’re facing an IRS audit, you need to rebuild your past logs quickly, and you need them to be accurate. MileageWise has an in-built IRS auditor and only needs your previous odometer readings to reconstruct logs for you – this is simply technology found nowhere else on the market.
Sure, you could go for one of the popular brands out there, but everyone loves an underdog, don’t they? Along with a few others, including Hurdlr, Driversnote, and ExpressMileage, we rate it as one of the best mileage tracking apps on the market.