The Internal Revenue Service announced an increase in the optional standard mileage rate for the final 6 months of 2022. Taxpayers may use the optional standard mileage rates to calculate the deductible costs of operating an automobile for business and certain other purposes.
For the final 6 months of 2022, the standard mileage rate for business travel will be 62.5 cents per mile, up 4 cents from the rate effective at the start of the year. The new rate for deductible medical or moving expenses (available for active-duty members of the military) will be 22 cents for the remainder of 2022, up 4 cents from the rate effective at the start of 2022. These new rates become effective July 1, 2022.
In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2022. The IRS normally updates the mileage rates once a year in the fall for the next calendar year. For travel from Jan. 1 through June 30, 2022, taxpayers should use the rates announced earlier.
The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.
The 14 cents per mile rate for charitable organizations remains unchanged as it is set by law.
A lot of young people find themselves going into business each summer. Jobs like babysitting, lawn mowing, and dog walking teach responsibility and the value of hard work. But they also might come with an unexpected tax bill, because – whether they realize it or not – many of these young entrepreneurs are self-employed, and their income may be taxable.
What you need to know
Things to keep in mind:
- Everyone, including minors, must file a tax return if they had net earnings from self-employment of at least $400.
- If they owe taxes, teens and young adults should file their own tax return, even if their parent or guardian claims them as a dependent.
- Teens and young adults can prepare and sign their own tax return. There is no minimum age to sign a tax return.
- Parents can’t claim a dependent’s earned income on their own tax return.
- In addition to income tax, people who are self-employed are generally responsible for self-employment tax as well. It’s like the Social Security and Medicare taxes withheld from the pay of most wage earners.
- Teens and young adults can lower the amount of tax they owe by deducting certain expenses.
What to do
Here’s what young entrepreneurs can do to keep on top of their tax responsibilities:
Keep records. It’s good to make and keep financial records and receipts during the year. Recordkeeping can help track income and deductible expenses and provide the information needed for a tax return.
Pay estimated tax, if required. If a teen being claimed as a dependent expects to owe at least $1,000 in tax for 2022, they must make estimated payments on a quarterly basis. They should be sure to pay enough tax on time to avoid a penalty.
File a tax return. When tax season rolls around, young taxpayers can review the information and forms, gather their records and e-file their tax return. When preparing to file a tax return, they should make sure to review all their records, including estimated tax they’ve already paid.
It’s that time of year again. Summertime! The time of year when we all enjoy warm weather, vacation, and reviewing our federal tax witholding. Well, maybe we don’t all enjoy reviewing our federal tax witholding, but it’s definitely something that we all should do each year. And summertime is a good time to do it.
You should definitely check your witholding if you fall into any of these group, as adjustments are more likely to be needed:
- People who are working two or more jobs at the same time or who only work for part of the year
- People who claim credits such as the child tax credit
- People with dependents age 17 or older
- People who itemized deductions on prior year returns
- People with large tax refunds or large tax bills for the previous tax year
When you’re reviewing your witholding, a good place to start is the IRS Tax Witholding Estimator, a free tool provided by the IRS. This tool guides you step-by-step through the process of checking your withholding, and provides recommendations on adjustments that might be needed.
Adjusting your withholding
So what types of adjustments might be needed to your federal withholding?
You should generally increase withholding if you hold more than one job at a time or have income from sources not subject to withholding. If you don’t make any changes, you will likely owe additional tax and possibly penalties when filing your tax return.
You should generally decrease your withholding if you qualify for income tax credits or deductions other than the basic standard deduction.
Either way, if you need to adjust your withholding, you will need to submit a new form W-4 to your employer as soon as possible since withholding occurs throughout the year.
If you would like help reviewing your witholding, or if you need advice on what adjustments might be necessary, please contact our office.