Everything You Need to Know About the Business Mileage Rate for 2022
The business mileage rate is an important tax deduction for many small business owners. However, understanding how it works, and how to properly calculate it, can be confusing. In this blog post, we will take a closer look at what the business mileage rate is, how it is calculated, and what changes have been made for 2022.
What is the Business Mileage Rate?
The business mileage rate is a reimbursement rate that is used by employers to reimburse employees for the costs of using their personal vehicle for business purposes. It is also used by self-employed individuals to calculate their tax deduction for business-related car expenses.
How is the Business Mileage Rate Calculated?
The IRS sets the standard business mileage rate each year and takes into account the average costs of owning and operating a vehicle, including gas, maintenance, and depreciation. For 2022, the standard business mileage rate is 58.5 cents per mile driven for business purposes.
To calculate the total reimbursement or tax deduction, simply multiply the number of business miles driven by the business mileage rate for that year. For example, if you drove 10,000 miles for business purposes, you would be eligible for a reimbursement or tax deduction of $5,850 (10,000 x 0.585).
What Changes Have Been Made for 2022?
The business mileage rate for 2022 has been increased slightly from 2021’s rate of 56 cents per mile. This increase is in line with rising costs associated with owning and operating a personal vehicle.
It is important to note that the business mileage rate only applies to miles driven for business purposes. Commuting to and from work is not considered business driving and cannot be claimed.
Examples of Business Mileage Deductions
Let’s take a look at a few examples of how the business mileage rate can be applied:
– Suzanne is a real estate agent and drives 20,000 miles per year for work-related showings and open houses. She would be eligible for a reimbursement or tax deduction of $11,700 (20,000 x 0.585).
– Frank is a freelance contractor who drives 8,000 miles for business purposes each year. He can claim a tax deduction of $4,680 (8,000 x 0.585) on his tax return.
– Maria is an Uber driver who uses her personal vehicle for work-related trips. She logs 25,000 miles per year for business purposes. She can deduct $14,625 (25,000 x 0.585) from her taxable income.
Conclusion
The business mileage rate is an important tax deduction for small business owners and self-employed individuals. Understanding how it is calculated, and what changes have been made each year, can help you ensure that you are properly claiming this deduction on your tax return or being reimbursed by your employer. As always, it’s important to keep detailed records of your business driving in order to accurately calculate your reimbursement or tax deduction.
