Prior to the beginning of each year, the Internal Revenue Service (IRS) issues the standard mileage rate as the deductible cost of operating an automobile for business purposes. The standard rate is based on the fixed and variable costs of operating an automobile. On December 17th, 2021, the IRS issued the standard mileage rate for the 2022 tax year at 58.5 cents per mile.  (It’s important to note that taxpayers have the option of using the standard rate or the actual costs associated with the business use of their automobile.)

As gas prices continue to skyrocket with no end in sight, the national average topping $5 per gallon in June, the IRS is taking action to provide some relief, announcing that effective July 1, 2022, the standard mileage rate for the second half of 2022 will increase to 62.5 cents per mile.

And while that offers relief for industries across the board, it may present challenges as well, since it may affect costs in other ways. Many contractors, for example, may need to take the increased cost into consideration when bidding a job.

The Wide-Ranging Effect of High Fuel Costs

According to the Associated General Contractors of America Chief Economist, Ken Simonson, construction companies are more strongly affected by fuel cost spikes than most other industries, as rising fuel costs have a direct impact on materials pricing, including bricks, concrete, and steel. Additionally, there’s some concern that rising costs could put a damper on the demand for some construction projects.

What Contractors Can Do

While there may be limited ways to offset rising costs and their impact on profits, Simonson emphasizes that clear communication is key. He recommends directing customers to credible third-party sources on changing material costs and the continued supply chain challenges that can affect costs and completion schedules.

While supply chain issues are easing in some sectors, others have a long way to go. We hosted a virtual event earlier this year with leading supply chain expert and Rutgers University professor Dr. David Dreyfus – you can watch that on-demand here on our website.

Get insights

Need help navigating the rapidly changing landscape, or insights on the best approach for managing the tax implications of the mileage rate increase? Contact us for a free consultation with one of our dedicated construction industry pros – we’re here to help.