The Internal Revenue Service (IRS) has announced an increase in the standard business mileage rate for 2023. The new rate will take effect on January 1, 2023, and will apply to the use of a car, van, pickup truck, or panel truck for business purposes.
IRS said the new standard business mileage rate for 2023 will be 65.5 cents per mile, 22 cents per mile for medical or moving purposes, and 14 cents per mile for charitable purposes. This increase is due to rising gas prices and other expenses associated with using a vehicle for business purposes.
This representation photo shows a group of people using a laptop as the business standard mileage rate increases for 2023 (Photo by Annie Spratt via Unsplash)
The Tax Adviser added that the IRS adopted a midyear adjustment in June 2022, increasing the standard mileage rate to 62.5 cents per mile to deduct business expenses.
The standard business mileage rate is used to calculate the deductible costs of operating a vehicle for business purposes, including fuel, maintenance, repairs, and depreciation. Instead of tracking and deducting the actual expenses, taxpayers can use the standard mileage rate to simplify their tax filing.
Standard Business Mileage Rate Increase in 2023: Who Takes The Mileage Deduction?
Forbes, citing IRS, said the standard business mileage rate can be used for the following purposes:
- Business mileage for self-employed individuals
- Business mileage for employees who are reimbursed by their employer
- Deductible moving expenses
- Deductible medical or dental expenses related to the use of a vehicle for medical or dental care
It’s important to note that the standard business mileage rate cannot be used for the following purposes:
- Commuting to and from work
- Personal use of a vehicle
- Depreciation of a vehicle that has already been claimed under a different method
The IRS sets the standard mileage rate each year based on factors such as inflation, fuel prices, and vehicle depreciation. The rate is designed to reflect the average cost of operating a vehicle for business purposes.
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How to Calculate For Reimbursement
To get the most out of your standard business mileage expenses, it’s essential to know how to calculate them. This is especially important for two common scenarios: self-employed tax deductions and employee mileage reimbursements. To calculate your mileage costs, GoBankingRates (via Nasdaq) said it’s important to keep track of your mileage for the tax year by manually recording it in a spreadsheet or using a tracking app on your mobile device.
To calculate your mileage deduction, you need to multiply your total business miles by the standard mileage rate. For example, if you drove 500 business miles, you would multiply it by the current rate of $0.655, resulting in a deduction of $327.50. This calculation method also applies to military and charity miles, but with different applicable rates.
If your employer reimburses mileage expenses, you can also use the same calculation to determine your reimbursement. However, it’s essential to check your company’s policies regarding mileage rates, as they may vary. If you drive a lot for work, you should be compensated for a percentage of your mileage expenses, so make sure to take advantage of that.
To avoid scrambling at the end of the tax year, keep a daily log of your standard business mileage rate in Google Sheets or Quickbooks, or use a tracking app like Zoho Expense, Everlance, Rydoo, or Shoeboxed. This ensures that you don’t miss any deductions or reimbursements and can accurately calculate your mileage expenses.
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