The IRS has announced a mid-year hike in the optional vehicle mileage rate.

Highlights of the article:

1. Mid-year Increase

2. Items Included in the Optional Mileage Rate

3. What Can Be Deducted in Addition to the Optional Mileage Rate?

With petrol prices on the rise, it was predicted that the IRS will raise the mileage rate that company owners may deduct for car usage rather than keeping track of real expenditures. The IRS has just announced a 4-cent increase in the optional mileage rate for the second half of 2022. The new price for deducting medical or travel expenditures (available to active-duty military personnel) will be 22 cents for the last six months of 2022, up to 4 cents from the rate in effect at the beginning of 2022. These new prices will go into effect on July 1, 2022.

The normal business mileage rate is based on an analysis of the fixed and variable expenses of operating a vehicle. The price for medical and travel purposes is established using the same study's variable expenses. The charge for using a car while conducting charitable activities is law regulated and has been 14 cents for more than 20 years.

The IRS calculates the standard mileage rate each year using data from an independent contractor's analysis of vehicle-operating expenditures based on the previous year's charges. The cost includes:

• Fuel, gas, lubrication, servicing and repairs, vehicle license costs, insurance, and so forth.

The following items are not included in the standard rate and must be paid in addition to the optional charge:

• Parking, fines, municipality and state property taxes related to commercial use

Tax rate paid at the time of purchase must be capitalized into the vehicle's business basis, thus it is not separately deductible.

After utilizing any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or claiming a Section 179 deduction for that vehicle, a taxpayer may not utilize the business standard mileage rate for such vehicle. Furthermore, the business standard mileage charge cannot be used to any vehicle used for hire or to more than four cars operated concurrently.

Taxpayers may always calculate the real expenses of operating their car instead of utilizing conventional mileage rates, which may offer a better result given then the growing fuel prices. Taxpayers can also convert it from the optional mileage rate to real costs using straight-line depreciation the next year.