Drivers who use their personal vehicles for business purposes may be eligible for a higher deduction for the second half of 2022. The Internal Revenue Service made a rare mid-year adjustment to the standard mileage rate, reflecting the significant increase in fuel costs that occurred earlier in the year.
The tax attorneys at Mandelbaum Barrett PC help businesses and individuals in New Jersey and New York understand how federal tax changes affect their filings and planning strategies. Here is what you need to know about the updated mileage rate.
The New Standard Mileage Rate for Business Travel
Effective July 1, 2022, the IRS increased the standard mileage rate for business use of a vehicle to 62.5 cents per mile. This represents an increase of 4 cents from the rate of 58.5 cents per mile that applied during the first half of the year, which ran from January 1 through June 30, 2022.
According to the IRS, the mid-year adjustment was driven by the recent rise in fuel prices. This type of mid-year increase is uncommon and reflects the IRS’s recognition that the cost of operating a vehicle increased significantly between the time the January rate was set and the middle of the year.
Other Mileage Rate Changes
The IRS also updated the rates for two other categories of vehicle use beginning July 1, 2022:
- The rate for medical or moving expenses (for active-duty members of the Armed Forces) increased to 22 cents per mile, up from 18 cents per mile
- The rate for charitable service mileage remained unchanged at 14 cents per mile, as it is set by statute
Taxpayers using their vehicles for medical or moving purposes should track mileage separately for the two halves of the year to apply the correct rate to each period.
How the Standard Mileage Rate Affects Your Tax Return
Businesses and self-employed individuals often use the standard mileage rate as an alternative to tracking actual vehicle expenses such as fuel, insurance, and maintenance. When filing a federal tax return, the rate applies to eligible business miles driven during the year.
Because the rate changed mid-year in 2022, taxpayers need to apply two separate rates: 58.5 cents per mile for January through June and 62.5 cents per mile for July through December. Accurate recordkeeping of the dates and distances for each trip is essential to support the deduction.
What This Means for Businesses in New Jersey and New York
Businesses that reimburse employees for vehicle use often peg their reimbursement policies to the IRS standard mileage rate. Companies that had set their reimbursement rates at the beginning of 2022 may want to review their policies to determine whether an adjustment is appropriate for the second half of the year.
Employees who are not reimbursed at the full IRS rate for business miles may be able to address the shortfall in their personal tax filings, depending on their employment situation. Consulting with a tax advisor can help clarify whether this applies to your situation.
Recordkeeping Requirements for Mileage Deductions
To support a mileage deduction on a federal return, the IRS requires contemporaneous records that document the date of each trip, the business purpose, the destination, and the number of miles driven. A mileage log, either on paper or through a dedicated app, is the most reliable way to satisfy this requirement.
Without adequate records, a mileage deduction may be disallowed during an audit. Given the mid-year rate change in 2022, maintaining separate records for each half of the year also simplifies the calculation at filing time.
Contact Mandelbaum Barrett PC for Tax Guidance
Tax law changes can affect business planning and individual filings in ways that are not always straightforward. The tax team at Mandelbaum Barrett PC advises clients in New Jersey and New York on federal and state tax matters, including how regulatory updates affect deductions and reporting obligations.
To speak with one of our tax attorneys, use our contact page to get in touch. We are available to help you understand how these changes apply to your specific situation.