IRS Hikes Mileage Deduction to Ease Impact of High Gas Prices
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Here's your Money Briefing for Monday, July 11th. I'm J.R. Whalen for The Wall Street Journal. We've told you how rising gas prices are causing more companies to offer perks, like fuel stipends and gift cards, to help their workers deal with higher prices at the pump. Now the IRS is stepping in with a perk of sorts for self-employed workers who use their car to do their job. It's taken the unusual step of raising the standard mileage deduction in the middle of the year.
So basically, as a self-employed person, you want to maximize your tax deductions, so you pay less in taxes. In this case, for driving miles, you log your business miles driven and multiply the miles by the IRS set standard mileage rate to calculate your deductions.
But the deductions go beyond just the miles you drove for work. Our personal finance reporter Ashley Ebeling did a top-to-bottom review of the driving-related tax breaks for self-employed workers, and she'll join us to talk about it after the break.
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High gas prices are putting the squeeze on everyone's household budgets, but for self-employed people, it's adding to their business expenses, too. The IRS is aware. And this month, it raised the amount that self-employed workers can take as a standard mileage deduction to account for sticker shock at the pump. So how does it work? And what other ways can self-employed people benefit? Wall Street Journal personal finance reporter Ashley Ebling has been looking into that, and she joins us to discuss. Hey, Ashley, thank you so much for being with us.
Nice to be here, JR.
What midyear change did the IRS make to the standard mileage rate and who announced it?
So Ashley, the IRS raised the standard mileage rate to 62.5 cents. Can you just explain what that means and how does this benefit work and who does it affect?
It helps self-employed taxpayers who drive for their job. So not people who commute to work, not like nine to five commuters, but rideshare drivers, real estate agents, landscapers. Those are people who file their taxes and have a business Schedule C on their tax return. So basically, as a self-employed person, you want to maximize your tax deductions so you pay less in taxes. In this case, for driving miles, you log your business miles driven and multiply the miles by the IRS set standard mileage rate to calculate your deduction. So when the standard mileage rate is higher, 62.5%, you're going to end up with a bigger deduction. For every 1,000 miles you drive, you'd get a $625 deduction. So just to be clear, the IRS isn't reimbursing you for the cost of gasoline.
The 62.5 cents a mile includes gas costs, but it also has a component for depreciation, the wear and tear on your car.
Okay, but that's not the only way that self-employed people can account for driving expenses. Are there ways besides the standard deduction that can maybe save them more money?
Well, there are actually two different methods for calculating this deduction. So self-employed workers can often do better by skipping the standard mileage deduction and instead calculating their actual car expenses.
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