In a rare, generous move, the Internal Revenue Service has increased a mileage deduction to offset fuel costs. Tax attorneys in San Jose have learned that the new rate will go into effect midyear, beginning in July. IRS Commissioner Charles P. Rettig stated that the new rate will more efficiently reflect the skyrocketing fuel prices the country has seen over the last few months.
Record-Breaking Gasoline Prices Led to Change in Rate
As gasoline prices reach $5 a gallon as a national average, self-employed taxpayers and those whose businesses require them to travel can enjoy a bit more of a write-off for their work-related miles. Record-breaking gas prices have led to this decision, which will increase the standard mileage rate from 58.5 cents per mile, initially announced in December 2021, to 62.5 cents per mile.
Rate Change Doesn’t Apply to Everyone
An IRS tax attorney would probably note that the rate change does not apply to everyone. For example, it is not meant to be used for commuting costs, but rather will apply to individuals who are self-employed and travel for work-related business. Employees who work for companies that deduct payroll taxes and unemployment compensation will not qualify for the new rate. However, employers still have an option of giving an allowance for workers who must commute from a considerable distance to get to work.
Rates Typically Set Annually
In most cases, the standard mileage rate is calculated by the IRS annually. This does not mean it cannot be changed midyear, but it usually takes extenuating circumstances for the IRS to make such changes. The last time a midyear adjustment was made to this rate was in 2011.
New Rate Better Reflects Recent Fuel Price Increase
As mentioned above, Commissioner Rettig was quoted as saying the four- cent rate increase was aimed at better reflecting the recent fuel price increase. According to GasBuddy, the cheapest-gas-finder app, the day the announcement was made, national gas averages exceeded the $5 per gallon mark.
Commissioner Rettig also stated that the IRS is aware that several unusual factors contributed to the higher cost of fuel, and that the midyear change in the rate was a special step taken to assist business owners and others who benefit from the deduction.
A California tax attorney can explain in further detail who will or will not benefit from this change, although it can be safely assumed that the self-employed will find this change advantageous. Googling tax-attorneys-near- me and speaking to such attorneys is recommended for those who are unclear about whether or not they will benefit from the new rate.
How the New Rate Applies
The new 62.5-cents-a-mile rate is applicable to all eligible road travel beginning on July 1 and continuing until December 31. Eligible miles logged from Jan. 1 through June 30 are subject to the old rate of 58.5 cents per mile. At first glance, four extra cents for each mile may not sound like a lot, but every little bit helps with the cost of fuel continually rising.
Rates Not Mandatory
According to our tax attorneys in San Jose, the IRS has made it clear that these new rates are not mandatory. In other words, taxpayers do not have to use standard mileage rates, but rather can calculate the actual cost of using their vehicle to conduct business as a self-employed individual. However, many taxpayers prefer using the standard rate because it alleviates them from extra documentation. It is wise to discuss which way is best with a professional tax preparer.