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It’s an unusual move to adjust the year’s mileage rate mid-year, the last time it happened was in 2011, but here we are.

As gas prices continue to soar, we assumed that most clients would benefit from the use of their actual automobile expenses in 2022, as opposed to the mileage rate of 58.5 cents, which was set in the fall of 2021.

But the IRS decided to get cute and adjust the mileage rate for the last half of the year. The rate for miles driven from July 1, 2022 to December 31, 2022, increased by 4 cents to 62.5 cents.

So what does this mean?

As a small business owner, if you deduct vehicle expenses for the business, you must keep track of your mileage. It doesn’t matter if the vehicle is owned personally or by the business; the IRS will always ask for a mileage log when auditing your vehicle expenses.

So the only change required is to have your mileage documented for each half of the year. Once we reach July, make sure you notate your mileage driven in the first six months of the year, both business and personal miles.

And then keep track of your odometer starting July 1, 2022, so that you have a good starting point for your mileage tally for the last six months of the year. The miles you drive each half are very important because that four cents per mile adds up quickly. And if the IRS ever comes asking, you want to make sure you have the mileage log and proof of the trips you took to back up your deduction.

How does the auto expense deduction work?

Remember, you cannot deduct the actual expenses you incur when driving your vehicle for work AND the mileage rate. You need to keep track of your mileage for two reasons.

First, the percentage of business and personal usage will be used to calculate your business use percentage. So if you drove 8,000 business and 2,000 personal miles, that’s 10,000 total miles and 80% business usage. So we’d multiply your gas, repairs, lease, and insurance expenses for the year by 80%, which would be your actual expense deduction.

Then we take the 8,000 business miles and multiply that by the mileage rate. Whichever amount is higher, the mileage rate or the business percentage of actual expenses is what we use on your tax return as the auto expense deduction.

Below is a list of all the mileage rate changes starting 7/1/2022, including medical, moving and charitable.

Mileage Rate Changes

PurposeRates 1/1 through
6/30/22
Rates 7/1 through
12/31/22
Business58.562.5
Medical/Moving1822
Charitable1414

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