Are You Cheating Yourself by Using IRS Mileage Rates?

Let’s start with an example.

Say that in 2022 you bought a $50,000 SUV that qualifies for both Section 179 expensing and bonus depreciation. You drive this SUV 15,000 miles during the year, of which 87 percent are business miles.

Let’s further suppose that you can qualify to use the IRS mileage rates:

• 58.5 cents a mile from January 1, 2022, to June 30, 2022
• 62.5 cents a mile from July 1, 2022, to December 31, 2022

You plan to use the new SUV for three years and then trade it in.

1. Would you be cheating yourself by using the mileage rates?
2. If so, how badly would you cheat yourself?
3. Is there an easy way to know what’s best?

Answers to the Questions

Yes, based on the facts above, you would be cheating yourself.

How badly would you cheat yourself? Pretty badly. You would have lost $5,712 in after-tax cash. (As Yogi Berra, the famous baseball player, likely would have said, “This is real money.”)

Do You Qualify for the IRS Mileage Rate?
Not everyone can use the IRS mileage rate. You may not use the IRS business standard mileage rate on your vehicle if you

1. have five or more vehicles on the road at the same time; lease a vehicle and don’t use the standard rate for the full term of the lease;
2. claimed Section 179 expensing on the vehicle;
3. claimed any depreciation on the vehicle, other than straight-line depreciation over the vehicle’s estimated useful life;
4. or use the vehicle as an employee of the United States Postal Service to deliver mail on a rural route. 

Corporation. Your corporation may not use the mileage rate to deduct its corporate-owned vehicles. 2 But the corporation can use the mileage rate to reimburse employees for the business use of their personal vehicles. 3

Partnership. As a general rule, partners may not deduct the expenses of a partnership on their personal income tax returns, even if the expenses were incurred by the partners in furtherance of the partnership business. Under
this rule, the partnership may not use the IRS mileage rate method on partnership vehicles.

But if, under the partnership agreement, partners are required to pay certain partnership expenses out of their own funds, then the partners are entitled to Section 162 deductions for the amount of such expenses. And in these cases, the partners are claiming the deductions as self-employed individuals and may use the standard mileage rate.

Switching Methods

When you choose the actual-expense method, that’s your method for the life of that vehicle. This is not true when you start with the mileage method. When you start with the mileage method, you can switch to the actual-expense method using the special rules explained in You Can Switch from the IRS Mileage Rate to the Actual-Expense Method.

Takeaways
Self-employed individuals may use the IRS mileage rates. But corporations and partnerships do not qualify to use the IRS mileage rates on corporate- or partnership-owned vehicles.

If you have questions or would like to learn more, click below.