On December 29, 2022, the IRS increased the standard mileage deduction rate for vehicles used for business in 2023 to 65.5 cents. This is a 4.5% increase over the rate it announced in June, which was itself a 6.4% increase over the previous rate. While it’s typical for the IRS to announce an annual rate increase, it’s unusual for it to raise rates twice in one year.
In addition to business, deductions can also be taken for mileage accrued while driving for certain charitable, medical, or moving purposes. Those rates remain unchanged from the midyear increase.
Current mileage rates:
- Business: $0.655 cents/mile
- Charity: $0.14/mile
- Medical: $0.22/mile
- Moving: $0.22/mile
What Does the Mileage Rate Cover?
Mileage rates are intended to cover the costs of operating the vehicle, including gas, oil, tires, maintenance and repairs, insurance, registration, depreciation, and leasing. They apply to all passenger cars, including vans, panel vans, and pick-up trucks, regardless of whether they’re electric, diesel, or gas.
You can claim the deduction if you own or lease the car. It does not apply to rented vehicles or vehicles provided by an employer.
If you drive for business, charitable, medical, or (in some cases) moving purposes, you can often deduct your mileage. You cannot deduct mileage for private use of your vehicle.
All miles in these categories are deductible; there are no thresholds.
The IRS currently allows a 65.5¢/mile deduction for business.
Prior to 2017, employees were able to claim a deduction for mileage that wasn’t reimburse by their employer. However, the Tax Cut and Jobs Act suspended employee mileage deductions. It’s important to note that now, in most cases, people who drive for an employer cannot deduct mileage on their tax returns, even if their employer doesn’t reimburse them. Employers often use the current IRS business rate as the reimbursement rate, but they are not obligated to.
If you are self-employed, you can claim your mileage as a business expense on Schedule C. Typical examples of business use include driving to meetings with clients, to work sites, or to pick up business supplies.
The IRS currently allows a 14 cents/mile deduction when driving for charitable work.
Any unreimbursed mileage accrued while performing services for an approved charitable organization is deductible. You can also deduct the cost of tolls and parking.
In order to deduct mileage driven for a charitable cause, taxpayers will need to itemize their deductions and use Schedule A.
The IRS currently allows 22 cents/mile for medically related driving.
Mileage is deductible as long as the primary purpose of the travel is for and essential to obtaining medical care. However, only medical expenses, including mileage, that exceed 7.5% of your adjusted gross income are deductible.
Examples of medical driving include:
- Driving to a doctor appointment, hospital, or other medical facility
- Driving a child or other person to receive medical care
- Driving to visit a mentally ill dependent
Parking fees and tolls in these situations are also deductible.
In order to deduct mileage driven for medical reasons, you will need to itemize your deductions and use Schedule A.
The IRS currently allows a 22 cents/mile deduction for moving expenses incurred by qualified, active-duty members of the armed services. A deduction for unreimbursed moving expenses can be taken if the move is due to a military order and a permanent change of station.
Moving expenses can be figured on For 3903 and deducted as an adjustment to income on Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Tax Return for Seniors.
Standard Mileage v. Actual Expenses
There are two approaches to deducting vehicle expenses: standard mileage and actual expenses. The one that is right for you depends on your overall driving costs, the value of your vehicle, and how much time and effort you’re willing to put into keeping track of expenses.
This method simply requires the taxpayer to keep track of all their deductible mileage and then multiply that number by the IRS rate.
Drivers who use this method must elect to use it the first year that they use the vehicle for business purposes and can change to actual expense deductions in subsequent years. Drivers who lease their vehicle and use the standard mileage method for the first year must continue to use it as long as they lease the vehicle.
Actual Expense Method
This is more comprehensive but it also takes more time and work. To use it, the taxpayer must keep track of all car-related costs, including gas, maintenance and repairs, insurance, and depreciation or lease payments. Instead of deducting mileage, they deduct the portion of those costs that can be attributed to the total number of business, charity, or medical expenses.
Drivers who elect to use this method in the first year of driving their vehicle for business purposes will not be able to switch to the standard mileage method as long as they own or lease the car.
Keeping Track of Your Mileage
It’s important to keep track of your deductible miles, both to ensure that you’re maximizing your deduction and to be prepared in the event of an audit. Fortunately, there’s a lot of leeway in what kind of record-keeping system you use. It can be as simple as a notebook that you keep in your glove compartment or as high-tech as a mileage-tracking app on your phone.
How ever you record your miles, be sure to note the number of miles on your odometer at the beginning and end of the year. In between, record the dates, purpose, and number of miles for each trip. You should keep these records for at least three years.
Tonneson +Co Can Help
Remember, because of the unusual mid-year rate hike, there are two different mileage rates for 2022. Be sure to adjust your deduction accordingly.
If you need help preparing your tax return or understanding what deductions you’re eligible to take, our qualified CPAs can help. Contact us today.
Contact us at Tonneson + Co today to learn how we can help.
If you’re interested in working with Tonneson + Co, please reach out to us. We look forward to hearing from you!