Mileage Tax Deduction Rate Change

Stay Ahead of Law Changes & Protect Yourself Against Being Audited: Corporate Transparency Act and Reasonable Compensation

Dealing With The New 62.5 Cents Mileage Rate

Due to rising gas prices, the Internal Revenue Service (IRS) announced an increase in the standard mileage rate for business travel. As a result, small businesses that make use of the standard mile rates can deduct 62.5 cents per mile for business mileage. 

This is effective from July 1 to December 31, 2022. It is a 4-cent increase from 58.5 cents, which was the rate at the beginning of the year. 

So, how do you calculate your business mileage deduction with these changes? 

Three-Month Sample Basics 

Basics of the three-month test: 

  • The taxpayer must use their vehicle for business use. 
  • The taxpayer and their family use the vehicle for personal use. 
  • The taxpayer keeps a mileage log for the first three months showing they use the vehicle 75 percent of the time for business. 
  • Can produce receipts of paid bills and invoices showing that the vehicle use is about the same throughout the year. 

Per the IRS regulation, the three-month sample is sufficient to for this taxpayer to prove their 75 percent business use.  

How The IRS Calculates the Three-Month Sample

While you use the vehicle for business purposes, you and your family also use it for personal use. You must keep a mileage log to record all your trips and destinations. Let’s say, from the mileage log of the first three months of the year, it is seen that your business use is 75% of the time. Your bills and invoices must show the same use throughout the year. 

Therefore, the three-month sample can be used to prove a business mileage of 75%. 

It is important for you to note that although the sample is exact for three months, it is not exact for the entire year. Therefore, you must prove that it can be used to calculate the business mileage rate for the year.  

Using The Sample Method For The New Mileage Rate 

If your three-month sample is accurate, you can use it to calculate your business mileage deduction for the whole year. All you have to do is apply the old rate of 58.5 cents to half of the mileage, and 62.5 cents to the second half. 

For example, based on your three-month sample, you drove a total of 30,000 miles for business for the year. This will give you a deduction of $18,150 (15,000 × 58.5 cents + 15,000 × 62.5 cents). 

What If I Have a Mileage Record for The Whole Year? 

If you kept a mileage record for the entire year, then there is no problem. In fact, this is the what the IRS prefers. You would have to kept track of every mile you traveled each day for business and personal use. 

Medical and Moving Mileage Rate 

In addition to the mileage rates for business travel, the rate of medical and moving travel also 

increased. The standard mileage rate for medical and moving travel is now 22 cents per mile. This is 4 cents increase from the old rate of 18 cents per mile. 

Charitable Mileage Rate 

It is the duty of the IRS to update the standard mileage rates for business, medical, and moving travel. In response to the high gas prices, the IRS increased the mileage rates. 

However, Congress is in charge of updating the charitable standard mileage rate. But they have made no changes to the mileage rate for charitable purposes despite the gas prices. It remains unchanged and stays at 14 cents per mile. 

Summary of the Changes in Mileage Rates for 2022 
Purpose  January – June  July – December 
Business  58.5  62.5 
Medical or Moving  18  22 
Charitable  14  14 

If you’d like further guidance with this new change, feel free to call us at 281-440-6279 and speak with one of our tax advisors. We love to educate our clients about tax laws and keep you up to date on how to save the most money on your taxes. 

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