IRS Mileage Rate for 2023: Utilize Reimbursement Rate For Benefits

The rising oil prices have prompted the IRS to adjust the standard mileage rates for 2023. The update comes after the IRS increased the SMR to 58.5 and 62.5 cents per mile in 2022 for vehicles used for business purposes.

This tax deduction allows you to exclude the costs of operating a vehicle for charitable, medical, business, or moving purposes, but only if you meet specific criteria.

Most importantly, you cannot use IRS mileage rates to deduct the costs of using your car for private purposes.

Let’s see how you can utilize the updated IRS mileage rates to your advantage and reduce your transportation expenses.

IRS Mileage Rate Types

Besides businesses, charities and individuals with considerable travel expenses related to medical issues can use IRS mileage rates to deduct the costs of operating their vehicles from their taxes.

1. Business Mileage Rates

According to the IRS Topic 510, business owners who use their vehicles for professional and private purposes can deduct the costs they must cover while using their cars, trucks, and vans to run their businesses.

A business must own or lease the vehicle to qualify for this deduction. It’s worth noting that employees, independent contractors, and self-employed individuals who only use their cars to commute to work usually don’t qualify for business mileage rate deductions.

2. Charity Mileage Rates

You may be eligible for a charity mileage deduction if you use your car to provide services for a charity organization or do volunteer work. In addition to the mileage you cover, you can use the deduction to reimburse parking fees or tolls.

This deduction only applies to costs directly related to the work you provide for a charitable organization, and you cannot use it to deduct the costs of repairing or insuring your vehicle.

Remember that you can still deduct your gas and similar out-of-pocket expenses even if you don’t itemize this deduction on your tax return.

3. Medical and Moving Mileage Rates

Individual taxpayers whose medical expenses exceed 7.5% of their Adjusted Gross Income can deduct the mileage they’ve covered with their vehicle due to medical reasons.

You may be eligible to deduct the costs of driving yourself, your child, or any other individual to a hospital or a medical facility, including parking fees and tolls.

Moreover, taxpayers who must drive to visit a mentally ill dependent as a part of the treatment can use mileage rate deductions to cover their expenses.

Under the TCJA of 2017, only active-duty military personnel can deduct moving mileage rates from their taxes under the following conditions:

• They received an army order for permanent relocation.
• They must serve in a protected area over a hundred miles from their primary residence.

Qualifying taxpayers must attach Form 3903 to their return to make this deduction.

Overview of IRS Mileage Rates for 2023

Here’s a quick look at the updated IRS mileage rates for 2023:

• 65.5 cents per mile for businesses
• 14 cents per mile for charities
• 22 cents per mile for moving and medical purposes

The mileage rate for businesses has increased by nearly 10 cents since 2021, while the mileage rates for charities have remained the same since 2011.

Even though the IRS increased the mileage rates for medical and moving purposes in 2022, these rates stayed the same in the first half of 2023.

It’s worth adding that the standard mileage rates apply to vehicles that run on gas and diesel fuels and hybrid and electric cars.

Deducting IRS Mileage Rates on Tax Returns

The forms you must fill out to claim the IRS mileage deduction depend on multiple factors, including how you use your vehicle. You can only claim these expenses if you opt to itemize deductions on your return, making you ineligible for standard deductions.

You must file Schedule A, Schedule C, and other forms and attach them to Form 1040 to claim this deduction.

Businesses can use two methods to calculate their deductions for professional use of their vehicles.

1. Actual Expenses

Suppose you don’t want to track the mileage you cover with your vehicle. In that case, you can use the actual expenses method to determine the deductible amount. The IRS lets you add up the following expenses:

• Registration fees.
• Gas and oil costs.
• Reparation costs.
• Changing or repairing tires.
• Insurance and licenses.
• Depreciation or lease payments are attributed to the total miles driven, which are business miles.

Moreover, parking fees and tolls are deducted separately regardless of how you calculate the costs of operating your vehicle.

You cannot switch to the standard mileage deduction if you opt for this deduction method in the first year of using a vehicle for business purposes.

2. Standard Mileage Deduction

This deduction method is only available to businesses that meet specific criteria.

Moreover, a business that owns a vehicle can choose the standard mileage deduction in the first year that vehicle was used for business purposes and later switch to the actual expenses deduction method.

This option isn’t available to businesses that lease their vehicles as they cannot change the deduction method once they choose it for the duration of the lease.

The standard mileage deduction isn’t available for businesses that:

• Have five or more cars.
• Claim the Section 179 deduction for their vehicle.
• Claim the special depreciation allowance on a car.
• Use any other depreciation deduction method except a straight line.
• Claim actual expenses deduction for a leased vehicle after 1997.

3. Reimbursing Travel Expenses to Employees

Aside from the standard mileage method, businesses can use car allowance and FAVR methods to reimburse travel expenses to their employees.

A car allowance is a fixed rate a business can deduct from taxes, while the standard mileage method relies on cents-per-mile costs. The FAVR method combines these two options, but it’s only available to businesses whose employees drive over 5,000 miles yearly.

It’s important to remember that TCJA has made it more difficult for businesses to reimburse unpaid travel expenses to their employees.

Consequently, some businesses struggle to control their expenses because their costs depend on how many miles their employees drive. Moreover, low-mileage drivers are often under-reimbursed, while high-mileage drivers are overcompensated.

Learning to Track the Milage You Cover with Your Vehicle

The standard mileage method tracks the number of business miles you log annually. Keeping a record of the distance you cover with your vehicle makes it easier to claim this deduction, as you won’t have to approximate the number of miles.

It also ensures that you have substantial evidence that the mileage you included on your return is accurate if the IRS flags your return for an audit.

Recording a vehicle’s odometer at the start of the year and keeping the driving log of all trips you make during the year will ensure that you can accurately calculate the total amount of business miles during a tax year.

Also, you can install an automatic mileage tracker app on your smartphone if you want to avoid logging each trip manually.

Frequently Asked Questions

Maximizing Tax Deductions with IRS Mileage Rates

The IRS mileage rates can lessen the financial burden of travel expenses for business, charity, or medical purposes.

These rates are frequently updated to reflect the current costs of operating and maintaining a vehicle, so you must check the standard mileage rate before filing your return.

The standard mileage rate for businesses increased to 65.5 cents per mile at the beginning of 2023, compensating for the growing gas and oil prices, while the medical and moving cent-per-mile rates remained the same after the most recent increase in 2022.

It’s important to check if you meet all the criteria to make this deduction and, more importantly, ensure that the miles you cover with your vehicle are accurately recorded before using it to reduce your tax liability.