IRS gives company drivers a bigger break to offset gas shocks

As gasoline prices have fallen significantly from their June highs, lingering pain at the pumps has led the Internal Revenue Service to offer some relief to business travelers.

Effective July, the IRS increased the standard mileage rate for business vehicle use by 4 cents to 62.5 cents per mile. The highest allocation remains in place until the end of the year.

A mid-year adjustment like this isn’t common, with the agency only implementing such changes in 2008 and 2011, but it’s not surprising, experts say.

“Many factors affect drivers,” says Karen O’Byrne, president and CEO of Motus, a provider of mobile workforce management software that provides data to the IRS for the help calculate the mileage rate. “The fuel price hike was the most painful and obvious.”

But she added that other inflationary factors are also squeezing drivers’ wallets, including rising costs on everything from tires to normal maintenance.

Hence the increased mileage rate, says O’Byrne. The IRS normally updates mileage rates once a year in the fall for the following calendar year.

Karen O’Byrne, President and CEO, Motus.
Credit: Pinpoint National Photography

The optional standard mileage rate is used to calculate the deductible costs of using an automobile for business purposes instead of tracking actual costs, the IRS explains. This rate is also used as a benchmark by the federal government and many companies to reimburse employees for mileage.

Simpler method

Most companies use the standard mileage rate to reimburse employees for business conduct, says Amy Bloom, tax partner at UHY LLP, an accounting and consulting firm, which has local offices in Manhattan and Melville. “It’s much easier to just track your mileage,” she says.

But for the self-employed, she finds most choose to calculate the actual expenses of the car instead of taking the standard mileage rate.

“The more you use the car, the more likely the self-employed will use actual expenses,” Bloom says.

But it requires more record keeping, she notes, adding that “some people don’t want to be bothered with keeping detailed records of all the car expenses they incur.”

Amy Bloom, Partner, UHY LLP

Amy Bloom, Partner, UHY LLP Credit: McKay Imaging Photography

To calculate the actual expenses, you need to figure out what it actually costs to run the car for the portion of the car’s overall use that is for business use, according to the IRS. Include gasoline, oil, repairs, tires, insurance, registration fees, licenses and depreciation (or lease payments) attributable to the portion of the total kilometers driven that are kilometers business.

It’s no wonder “most people like to use the standard mileage rate because it’s simple and easier,” says Robert Tobey, tax partner at Grassi Advisors & Accountants in Jericho and a fellow at the American Institute. of CPAs Tax Policy and Advocacy Committee.

For many small business owners, the actual car expenses could mean a bigger refund come tax time, he says.

But consider that if you’re self-employed and your car is leased, you can’t use the standard mileage rate, Tobey says.

If you’re not sure which to use, it pays to track both actual expenses and mileage, then figure out which will be more beneficial at tax time, he says.

Some companies use FAVR, an IRS-approved vehicle reimbursement plan, to calculate both fixed and variable costs, O’Byrne says. She noted that Motus offers FAVR as an option to customers through an app they can use to calculate and manage reimbursement costs. FAVR is typically used by employers whose employees drive more than 5,000 miles per year, she says.

Matt Rosen, 35, a part-time Uber & Lyft driver and co-administrator of the Long Island Uber and Lyft Network, a Facebook group of about 850 drivers, finds using the standard mileage rate easy.

Part-time Uber driver Matt Rosen prepares for...

Matt Rosen, part-time Uber driver prepares to leave for a summer weekend in July 2022 Credits: Gina Segura

Regarding the IRS mileage rate increase, he says “any kind of relief helps in a way, but it’s not going to save a driver from having to work harder.”
“It only went up four hundred,” he said. “I don’t think four cents is a significant change…not keeping up with the cost of everything else going up.”

Before the pandemic, he could fill his tank for around $65 and now he could go up to $100. Oil changes are also now $20 higher.

Rosen lives in Brooklyn but drives Uber part-time in the summer, often trekking in the Hamptons and Montauk.

“Gas has a big impact, especially for drivers like me with an SUV or a six-cylinder vehicle,” Rosen says.

Quick fact:

Tuesday’s average price for regular gasoline on Long Island was $4,290, down from the highest recorded average price of $5,046 on June 15, but still up from $3,206 a year ago. , according to AAA.

Source: https://gasprices.aaa.com/?state=NY

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