The 2022 Mileage Rate | How the IRS Helps Lower Your Taxes
What is the standard mileage rate?
You may think that being a freelancer is difficult and has no advantages, but the IRS is here to help! Did you know that if you use your car to complete business tasks or use your car as a business owner for business purposes you can get a tax deduction?
The 2022 mileage rate was $0.585 cents per mile, but is now increased to $0.625 cents per mile for the second half of 2022. Put simply, the standard mileage rate is a number in cents-per-mile and acts as a simple multiplier used to determine how much you can deduct from your income at the end of the year, if you use your car to make money. Sometimes, fancy CPAs also like to refer to it as the safe harbor rate.
Some classic examples of when this would apply is if you drive for Uber/Lyft, DoorDash, or Instacart. There are also other instances where the mileage rate may apply, such as being a business owner/salesperson who needs to drive often for business-related trips–like meetings and sales pitches.
Changes for 2022: How does it work?
Let’s say you drive for Uber in your spare time. At the end of the year, you’ve driven 20,000 miles in your car for Uber–that means that you are eligible to claim 20,000 x the 2022 mileage rate ($0.585) = $11,700 as an expense to any income you’ve made driving for Uber.
Business Mileage Rate: Why is this important?
This is extremely important for freelancers to understand, because it acts as a direct deduction to your income as a self-employed individual operating your own “business”. Let’s use the above example again:
Say the 20,000 miles you drove for Uber generated $35,000 in income. If you don’t claim your standard mileage rate deduction, you would have to pay taxes on the full $35,000.
If you use the 2022 mileage rate deduction calculated above, you are only taxed for $23,300 (35,000 - 17,000).
If we assume the tax rate is 20%, that means you will save:
$35,000 x 20% = $7,000
minus
$23,300 x 20% = $4,660
$2,340 dollars!
Filing Your Taxes: How do I claim this?
When you file taxes at the end of year–we recommend using a software-enabled solution like TurboTax. In addition to any other sources of income you may have (full-time job, other jobs), you will need to file as a Self-Employed individual, which means you need to submit a Schedule C (just a fancy term for: detailed breakdown of income and expenses). As part of the Schedule C, you will be writing down the appropriate standard mileage deduction amount. In our example above and using the IRS mileage rate for 2022, this would be the $17,000 amount.
In sum, your schedule C will basically read something like this:
Box 1: Gross receipts or sales (Income) = $35,000
Box 9 Car or Truck Expenses = $17,000
Box 31 Net Profit or Loss = $23,300
Can I deduct gas and other car expenses?
The short answer is: no. Because you are required to select one of two options: EITHER the standard IRS mileage deduction method, which we are covering in this article, OR the “actual expenses” method which includes items like gas, insurance, repairs, etc. For almost all drivers, usually you will get the larger deduction using the federal mileage rate method. Using the government mileage rate is also a far simpler process, as you should have clear differentiation between personal and business miles.
Can’t I just lie about my mileage and get a bigger deduction?
No. That’s what tax fraud is. The IRS can be very particular about mileage deductions– in fact you need to keep very accurate records of self-employed/business mileage. We recommend using an app like Stride that makes the process simple and provides all the details the IRS may ask for.
What Else Can I Deduct as a Driver?
Since many readers may be drivers for Uber and other services, let’s outline some common items that are deductible and may not be covered under the mileage reimbursement method:
The portion of the cost of a phone you use for driving services:
If you buy a $1,000 iPhone and use it ONLY for Uber, then it can be the full amount. But if you only use the iPhone 30% of the time while driving Uber, you may only deduct 30%
Carrier bills, proportional to business usage
Phone accessories, proportional to business usage
Fees for tolls, bridges, parking, airports, etc.
Battery jump pack
Floor mats/other protective equipment for your car
Customer amenities like water/drinks
2021 Mileage Rate vs. 2022 Mileage Rate
It’s worth mentioning that the IRS mileage rate in 2022 has increased from $0.56 cents per mile to $0.585 when compared to the IRS mileage rate in 2021. If you are still completing your 2021 taxes, just use the $0.56 cents per mile x your mileage to figure out how much you can claim as an expense.
FAQs:
What are the new mileage rates?
The mileage reimbursement rate for 2022 is $0.585 cents per mile for the use of cars and trucks for self-employed/business purposes. This is increased from $0.56 in 2021.What is the standard mileage rate for 2022?
What is the 2021 mileage rate?
The standard IRS mileage rate for 2021 was $0.56 cents per mile. You can also claim $0.16 cents per mile for medical/moving expenses, or $0.14 cents per mile for charity miles.
What is the current going rate for mileage?
The current 2022 mileage rate is $0.585 for general business usage, up 2.5 cents from the 2021 mileage rate of $0.56.
