Some Business Relief for Rising Gas Prices
If you drive at all (well, drive anything powered by gas), no doubt you are feeling the sting of sharply risen gas prices. The average price for a gallon of gas in the USA in 2021 was $3.28. As of this writing, the average price is nearly $5.00 per gallon, and all indications are it will continue to climb for the foreseeable future.
Just as it does with individuals, the increased cost hits many businesses hard, with the ripple effect leading to increased prices for goods and services and/or lower economic activity. This carries over as well to employees of many businesses who use their own vehicles for business purposes and receive reimbursement from their employer for mileage driven. Such reimbursements are tax-free, so long as they don't exceed the prescribed IRS standard mileage rate.
Recognizing the hardship being dealt by such a rapid increase in fuel prices just since the beginning of the year, the IRS recently took the unusual step of announcing a mid-year increase in the standard mileage rate that taxpayers can deduct for business use of a vehicle or that employers may reimburse tax-free to their employees for such use.
Normally, an adjustment to the rate is only made once a year. The last time a mid-year adjustment was made was in 2011.
Said IRS Commissioner Chuck Rettig, "The IRS is adjusting the standard mileage rates to better reflect the recent increase in fuel prices. We are aware a number of unusual factors have come into play involving fuel costs, and we are taking this special step to help taxpayers, businesses and others who use this rate."
As a result, for the final six months of 2022, the standard mileage rate for business travel will be 62.5 cents per mile, up 4 cents from the rate effective at the start of the year. The new rate for deductible medical or moving expenses (available for active-duty members of the military) will be 22 cents for the remainder of 2022, up 4 cents from the rate effective at the start of 2022. These new rates become effective July 1, 2022.
For the first six months of the year, the current rates of 58.5 cents for business and 18 cents for medical and moving should continue to be used. The charitable use rate of 14 cents per mile is set by statute and does not change.
The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.
Of course, taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates, but many find using the standard rates to be much simpler, less hassle and similar in result. Or at least close enough to avoid all the extra paper work using actual costs requires.
Now, you may wonder why the rate is only going up just shy of 7% when gas prices have gone up almost 50% since year-end? The IRS says that while fuel costs are a significant factor in the mileage figure, it's not the only one, and other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.
So, the fuel component gets watered down a bit as it mixes in with the rest of the costs I suppose. Some relief is better than none of course, but still, I think no doubt it could have been a bit more. But that's just my opinion.
Lane Keeter, CPA is the Senior Partner of EGP, PLLC, CPAs & Consultants (www.egpcpas.com), a full-service financial firm with offices around Arkansas, Managing Partner of EGP's Heber Springs office, and winner of The Sun-Times Reader's Choice Award for Best Accountant