Your business mileage tax deduction became more valuable for the rest of 2022 after a recent announcement by the IRS.
Starting July 1st, the IRS’s business mileage rate is increasing by 4 cents, to 62.5 cents per mile, while the medical and moving mileage is rising by 4 cents, to 22 cents per mile. The previous mileage rates still apply through June 30th.
Here are some tips to make the most of your business’s vehicle expense deduction.
- Don’t slack on recordkeeping. You won’t be able to take advantage of the increased mileage rates without proper documentation. The IRS mandates that you track your vehicle expenses as they happen (contemporaneous recordkeeping). You’re not allowed to wait until right before filing your tax return to compile all the necessary information needed to claim a vehicle deduction. Whether it’s a physical notebook you stick in your glove compartment or a mobile phone app, pick a method to track your mileage and actual expenses that’s most convenient for you.
- Keep track of both mileage and actual expenses. The IRS generally lets you use one of two methods to track vehicle expenses – the standard mileage rate method or the exact expense method. But even if you use the traditional mileage method, you can still deduct other expenses like parking and toll fees. So keep good records.
- Consider using standard mileage the first year a vehicle is in service. If you use typical mileage the first year your car is placed in service, you can choose which expense tracking method to use in subsequent years. If you initially use the actual expense method the first year your car is in service, the actual expenses will lock you in for the duration of using that car in your business. For a car you lease, you must use the standard mileage rate method for the entire lease period (including renewals) if you choose the standard mileage rate for the first year.
- Don’t forget about depreciation! Depreciation can significantly increase your deduction if you use the actual expense method. Regular depreciation is available for vehicles under 6,000 pounds with annual limits applied. For heavy SUVs, trucks, and vans with a manufacturer’s gross vehicle weight rating above 6,000 pounds, 100% bonus depreciation is available through the end of the 2022 tax year if the vehicle is used more than 50% for business purposes.
Please call if you have questions about maximizing your business’s vehicle expense deduction.