Your business mileage tax deduction is now more valuable for the rest of 2022 after a recent announcement by the IRS. As of July 1, the IRS’s business mileage rate is increasing by 4 cents to 62.5 cents per mile. In addition, the medical and moving mileage rates are also rising by 4 cents, to 22 cents per mile.

Business mileage tax deduction

Here are some tips to make the most of your business’s vehicle expense deduction.

1. Don’t slack on recordkeeping. You won’t be able to take advantage of the increased mileage rates without proper documentation. The IRS mandates contemporaneous recordkeeping. This means that you must track your vehicle expenses as they happen. You cannot wait until right before filing your tax return to compile all the necessary information needed to claim a vehicle deduction. Pick a method to track your mileage and actual expenses that’s most convenient for you, whether a physical notebook that you stick in your glove compartment or a mobile phone app.
2. 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 actual expense method. But even if you use the standard mileage method, you can still deduct other expenses like parking and toll fees. So keep good records.
3. Consider using standard mileage the first year a vehicle is in service. If you use standard mileage the first year your car is in service, you can choose which expense tracking method to use in subsequent years. Suppose you initially use the actual expense method the first year your car is in service. In that case, you’re stuck using actual expenses 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.

Maximize the value

1. Don’t forget about depreciation! Depreciation can significantly increase your deduction if you use the actual expense method. Think: 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. That is, if the vehicle is in use more than 50% for business purposes. Regular depreciation is available for vehicles under 6,000 pounds with annual limits applied.

Contact our RRBB accountants and advisors if you have questions about maximizing your business’s vehicle expense deduction.