The IRS noticed that average gas prices across the United States exceeded $5.00 a gallon and took action.
Small businesses that qualify to use and do use the standard mileage rate can deduct 62.5 cents per business mile from July 1 through December 31, 2022. That’s up 4 cents a mile.
This brings up a practical question: what do you do if you track business mileage using the three-month sample method?
Three-Month Sample Basics
As a reminder, here are the basics of how the IRS describes the three-month test:
• The taxpayer uses her vehicle for business use.
• She and other members of her family use the vehicle for personal use.
• The taxpayer keeps a mileage log for the first three months of the taxable year, showing that she uses the vehicle 75 percent of the time for business.
• Invoices and paid bills show that her vehicle use is about the same throughout the year.
According to this IRS regulation, her three-month sample is adequate for this taxpayer to prove her 75 percent business use.
Sample-Method Solution to New July 1 Mileage Rate
To use the sample rate, you need to prove that your vehicle use is about the same throughout the year. Your invoices and paid bills prove the mileage part, and your appointment book can add creditability to consistent business and personal use.
Keep in mind that the sample is just that—a sample—it’s pretty exact for the three months but not that exact for the year, although it must adequately reflect the business mileage for the year.
If you have a good three-month sample, you take your business mileage for the year and apply the 58.5 cents to half the mileage and the 62.5 cents to the remaining half to find your deductions.
For example, say you drove 20,000 business miles for the year. Your deduction would be $12,100 (10,000 x 58.5 cents + 10,000 x 62.5 cents).
Mileage Record for the Full Year
If you have a mileage record for the entire year, no problem. Your record gives you the mileage for the first six months and the last six months.
In conclusion, keep good mileage records throughout the year using tools, such as MileIQ, and you will have no problems with the IRS.
We specialize in helping clients clarify their taxes so they keep more of their money. Many small business owners who come to see us in Fort Worth, TX generally do not understand the tax law enough to explain it to a fifth grader.
Tatsiana B. Bender
Bender CPA, PLLC
Fort Worth, TX 76107
[email protected]
Phone: (817) 313-4352
Bender-CPA.com
