News & Updates for You
Here is what you can find in the most recent newsletter!
- IRS Updates the Mileage Rate
- Start Your Tax Planning Now
- Protect Your Emergency Fund From Inflation
- Update on the IRS backlog
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IRS Updates the Mileage Rates for 2022
In response to the growing cost of gasoline and inflation the IRS announced that they are revising the optional standard mileage rates set at the beginning of the year. Beginning July 1, 2022, the rates are 62.5 cents per mile for business use of an automobile and 22 cents per mile for costs of using an automobile as a medical or moving expense. These are increases from the current rates of 58.5 cents per mile for business use of an automobile and 18 cents per mile for costs of using an automobile as a medical or moving expense.
Here are some tips on making the most out of your mileage:
- Don’t slack on recordkeeping. You won't be able to take advantage of the increased mileage rates without proper documentation. The IRS mandates that you track your vehicle expenses as they happen (this is called contemporaneous recordkeeping). You’re not allowed to wait until right before filing your tax return to compile all the necessary information needed to claim a vehicle deduction. Whether it’s a physical notebook you stick in your glove compartment or a mobile phone app, pick a method to track your mileage and actual expenses that’s most convenient for you.
- Keep track of both mileage and actual expenses. The IRS generally lets you use one of two different methods to track vehicle expenses – the standard mileage rate method or the actual expense method. But even if you use the standard mileage method you can still deduct other expenses like parking and toll fees. So keep good records.
- Consider using standard mileage the first year a vehicle is in service. If you use standard mileage the first year your car is placed in service, you can then choose which expense tracking method to use in subsequent years. If you initially use the actual expense method the first year your car is placed in service, you’re locked in to using actual expenses for the duration of using that car in your business. For a car you lease, you must use the standard mileage rate method for the entire lease period (including renewals) if you choose the standard mileage rate the first year.
- Don’t forget about depreciation! Depreciation can significantly increase your deduction if you use the actual expense method. For heavy SUVs, trucks, and vans with a manufacturer’s gross vehicle weight rating above 6,000 pounds, 100% bonus depreciation is available through the end of the 2022 tax year if the vehicle is used more than 50% for business purposes. Regular depreciation is available for vehicles under 6,000 pounds with annual limits applied.
Start Your Tax Planning Now
Keeping your taxes as low as possible requires paying attention to your financial situation throughout the year. Here are some tips on getting a head start:
- Check your paycheck withholdings- It is a good time to check your tax withholdings to make sure you haven't been paying too much or too little. To change how much is withheld from your paycheck in taxes, fill out a new form W-4 and give it to your employer.
- Defer earnings- Deferring your 2022 income to a future year via contributions to a retirement account could potentially cut your tax liability. For 2022, the 401(k) contribution limit is $20,500 ($27,000 if 50 or older); $6,000 for both a traditional and Roth IRA ($7,000 if 50 and older); or $14,000 for a SIMPLE IRA ($17,000 if 50 and older).
- Net capital gains with capital losses- If you have appreciated investments you're thinking about selling, take a look to see if you have other assets that you could sell for a loss and use to offset your gains.
Protect Your Emergency Fund From Inflation
Most financial experts suggest keeping three to six months worth of household expenses in savings to help in case of an emergency. But with record inflation, it just got a lot harder to accomplish. Here are some ideas to reduce the impact of inflation on your emergency funds.
- Actively monitor your savings account rate- The head of the Federal Reserve is suggesting there may be several rate increases in the next twelve months. This could increase the interest you earn on the cash in your emergency account.
- Take a look at Series I Savings Bonds- Series I Savings bonds feature two interest rate components: a fixed rate and an inflation rate. The fixed rate is set when the bond is issued and never changes during the life of the bond. The inflation rate resets semi-annually based on the Consumer Price Index.
- Creative use of Roth IRA funds in an emergency- Roth IRA are funded with after-tax dollars. Because of this, early removal of the initial contribution is tax and penalty free. However, If you dip into the earnings, you will not only be subject to income tax, but also may be subject to a 10% early withdrawal penalty.
Update on the IRS Processing Backlog
IRS says it will get through its backlog of unprocessed returns by year-end. They are still extremely far behind as of the end of April:
- 6.7 million individual returns filed on paper and received by IRS in 2021 and 2022.
- 2.3 million amended individual returns filed on Form 1040-X. 2.5 million Forms 941, which mainly involve the now-expired employee retention tax credit.
According to IRS’s National Taxpayer Advocate Erin Collins, there are very, very long waits for refunds on paper-filed 1040 returns. The wait could be up to six months.
There is a bit of good news: IRS is current on its unopened mail with 300,000 pieces of unopened mail, which is typical for it on any given day. One issue with the unopened mail backlog the IRS had though was the destruction of information returns such as 1099s, W2s, 1098s, and similar forms. The IRS destroyed nearly 30 million unprocessed forms in March 2021 since they could be keep up with the pile of paper filings.