The IRS Increased the Standard Mileage Deduction for 2023

Odometer reading. Courtesy of David Taylor

Due to the recent high fuel costs, the Internal Revenue Service has raised the standard mileage deduction for the business use of a vehicle. It means you can recover more of the costs of operating your business vehicles.

In 2023, the IRS raised the standard mileage rate for businesses by $0.03. It brings it up to $0.655 per mile, which you can deduct from your 2023 tax bill.

Because gas prices had risen to abnormal highs in 2021 and 2022, mileage rates were raised at the start of 2022 and midyear—which was highly unusual. In January 2022, the mileage rate was $0.585 per mile. Starting in July 2022, the IRS raised the mileage rate another $0.04, bringing it to $0.625 per mile.

Qualifications for Claiming Mileage Deductions

At one time, employees who used their vehicle for business miles could deduct unreimbursed business mileage. After December 2017, employees could no longer claim mileage, even if your employer does not reimburse you, says the IRS. According to the current mileage deduction rules, the only employee exceptions that can claim the mileage deduction are reservists in the armed forces, qualified performing artists, and state and local government officials that work on a fee basis.

Some Mileage Cannot Be Included

Although you can count business mileage after you arrive at the office or workplace if you are self-employed, you cannot count the miles to and from the office when you start and end the day. Other mileage used for business can be deducted. An exception is when your home is your main business office, according to HRBlock. In that case, you can count mileage from your house to other locations for business.

The same principle applies to rideshare drivers, those who drive for Uber, Lyft, food delivery, and similar companies. HRBlock says that they are not allowed to count the mileage from their home to pick up their first ride—and they also cannot count the miles after dropping off their last customer to their house.

Keeping Accurate Records

You must keep accurate and contemporaneous records of your vehicle expenses. You can do this on paper or with a smartphone app. Many apps are available that will help you save time and enable you to track your mileage accurately. It makes it easier to calculate mileage when it is tax time.

Two Ways of Accounting

When calculating your vehicle use deductions, you can use one of two methods. You can use the actual cost of operating your business vehicle, or choose the IRS standard mileage rate. You can only claim a deduction for unreimbursed mileage. If you select the actual cost of operating your vehicle, MarketWatch mentions that you still are required to keep a record of actual miles and expenses. If you select the actual cost of operating your vehicle, MarketWatch states that you are still required to keep a record of actual miles and costs.

If you choose to use the actual operating cost of your vehicles, there are many expenses that you can include. Nerdwallet says you can deduct the cost of insurance, licenses and registration fees, repairs, tune-ups, lease payments, depreciation, garage rent, tires, gas and oil, car washing, and tolls and parking fees.

The other method of accounting, which uses the standard mileage rate, is a number that covers many costs—without itemizing. It is for those who are self-employed and report their information on Schedule C. If you lease a car, the IRS says you must lease it for the full lease period.

When choosing a method of reporting, you may want to make calculations using both methods. Find out which one gives you the biggest deduction, and then use that method in the future. You should keep accurate records no matter which accounting method you choose.

Sticking With One Method of Reporting

After you place a car in service for your business, you will choose how to report your mileage and costs. If you decide to use the actual car expense method in the first year, you must continue to use that method in future years.

When a vehicle is also used for personal use, and you want to use the standard mileage method, you must use it on your first tax return due date (extensions allowed). You can switch methods later, but there are special depreciation rules.

All Vehicle Types Can Claim Mileage Rates

It does not matter what kind of vehicle you have. You can claim the mileage deduction as long as it has a business use. It includes electric vehicles, hybrid vehicles, and vehicles using diesel fuel.

Medical Mileage Deduction Has Also Increased

Besides raising the business mileage rate in 2022, the IRS also increased the medical mileage rate. This rate is for necessary medical trips to and from facilities that provide medical care. It can also include the miles driven to visit a mentally ill dependent when the visits are recommended to help with treatment.

In the first half of 2022, the medical mileage deduction was $0.18 per mile. After July 1, 2022, the mileage rate was raised to $0.22 per mile. It will stay at $0.22 per mile for 2023. You can deduct other medical costs if you itemize, but your unreimbursed expenses must be more than 7.5 percent of your gross income—after it has been adjusted.

If you are moving, there is also a mileage allowance for this expense. The only people that can claim mileage for moving are those in the reserves in the armed forces—and it must be a move toward a permanent duty station. It is the same rate as medical mileage at $0.22.

You also can claim mileage driven as a volunteer for charities or similar organizations. The mileage rate for 2023 is $0.14, which has not changed since 2011. This rate was set by law.

By keeping careful mileage records for your business, you can help lower your taxes considerably. If you should get audited, they can prove your claims. Avoid claiming a loss for your business if you should have a bad year because that can lead to a tax audit.

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