Soaring Gas Prices Trigger Increase in Mileage Reimbursement

Citing soaring gas prices, the IRS announced a rare mid-year increase to the standard mileage rate for the final six months of 2022. The 4 cent increase goes into effect on July 1, 2022 and brings the business use mileage rate up to 62.5 cents per mile.

TRACK YOUR MILEAGE

As we have discussed previously, the best way to deduct auto expenses related to your practice is with the mileage deduction. The advantage of the mileage deduction includes:

  • It can be applied to any of your personal cars so you are not forced to use the “company” car when completing trips for the practice.

  • The mileage rate is the same for any car so the 20 year truck gets the same deduction as the brand new Mercedes. With the actual cost deduction option, you lose a majority of the your auto deduction after the first five years of ownership.

  • Since the personal car is not being depreciated, there is no taxable gain upon sale or trade-in with the mileage method. For the actual cost method, your auto becomes a practice asset and the eventual sale or trade-in of the car is a taxable transaction.

Since auto expense is the single most audited expense category on a small business tax return, keeping a mileage log and solid record-keeping is not optional, it’s a must-do. The real truth is, it’s really not difficult. We recommend the old fashion logbook in the car or a smart phone app, like MileIQ, that uses your phone’s built-in technology to diligently track all your business and non-business trips. You simply need the daily diligence to classify each trip as either business (swipe right) or non-business (swipe left) before your head hits the pillow.

REIMBURSE YOUR TEAM’S TRAVEL

While we highly discourage having team members run errands for the practice due to liability issues, we understand that is occasionally unavoidable. You are not required to reimburse team members at the current standard mileage rate but it is the easiest method and provides you with the maximum tax deduction. Your practice reimbursement form should include a mileage section with the date, mileage and description of the business trip. Feel free to use our Reimbursement Form template.

Jeff Gullickson