Last updated on: March 24, 2023
The Internal Revenue Service (IRS) has announced another increase in mileage rates for 2023 for driving a car for business, medical, and moving purposes. The new IRS Standard Mileage Rates are in effect from Jan 1, 2023.
What is the Standard Mileage Rate?
The standard mileage rate is the default cost per mile to drive established by the Internal Revenue Service (IRS) for taxpayers who claim a tax deduction on an IRS form for the cost of using a vehicle for business expenses, charitable or medical purposes, and even moving expenses. This federal mileage rate varies depending on the type of expense and is adjusted annually by the IRS.
How the IRS sets mileage rates
Standard mileage deduction rates are based on cost data and analysis that Motus compiles and sends out to IRS. Motus uses data from the whole country and measures gas/oil prices, service costs, automobile insurance premiums, travel expenses, depreciation, and other costs included in operating and maintaining a car.
The standard mileage rate for automobile business purposes is based on both fixed and variable costs of using a vehicle, while medical and moving rates are only based on the variable costs of car driving.
For charity purposes, the standard mileage rate is based on the minimum value established by federal law. It is meant to compensate taxpayers for expenses they usually pay out of their pocket and are not reimbursed for by anyone else but the IRS.
What does the IRS Standard Mileage Rate include?
- The same tariffs apply to all passenger cars, including cars, vans, pickups, and panel vans.
- The mileage rates cover variable costs for vehicle operations such as gasoline, oil, tires, maintenance, and repairs, and fixed costs for vehicle operations such as insurance, registration, depreciation, and leasing.
- The mileage rates do not cover the cost of parking and tolls and they do not vary by geography, it’s the same amount throughout The United States.
- Taxpayers cannot deduct mileage for the private usage of the vehicle
IRS Standard Mileage Rates from Jan 1, 2023:
- 65.5 cents per mile for business purposes
- 22 cents per mile for medical and moving purposes
- 14 cents per mile for charity purposes
Along with cars, vans, pickup trucks, or panel trucks powered by gasoline and diesel, the current IRS mileage rates also apply to hybrid and electric vehicles.
As you can see above, only the business mileage rates have been changed for 2023, partly because the 2022 Standard Mileage Rates had been increased last June due to a drastic rise in fuel prices, insurance as well as repair and maintenance costs.
The IRS sets new Standard Mileage Rates each year for Business Miles and Medical / Moving Travel. However, the charity rate is set by law [26USC 170 (i)] and has not changed since 2011.
Types of mileage rates
Chad owns a small HVAC business, for which he uses his own car on a daily basis. He drives from home to the business office and visits several clients a day from there. He is not able to deduct the costs of commuting between his home and the office, but he can deduct 65.5 cents for every business mile he drives in 2023 between the office and a client, and also between clients. He uses an automatic mileage tracker app, which is both available for iOS and Android phones, and creates a mileage log in just 7 minutes every month. Chad is a wise man, be like Chad. 🙂
Rose does volunteer work for Hunger Fight Inc. in Jacksonville, Florida. She drives to different places in the area to collect charity and run other types of errands for the organization, which is qualified to provide her with a charitable deduction for the miles she drives. This amount is 14 cents per mile.
How much charity can you deduct in 2023?
If you’re wondering how much you can donate for taxes, we’ve got a mini-guide for you:
For the 2023 tax year, an individual is allowed to deduct up to $300 in cash donations without itemizing, which means a married couple filing jointly can deduct up to $600 in donations without itemizing. This is referred to as an “above the line” deduction.
In general, charitable gifts can be deducted up to 60% of your AGI (Adjusted Gross Income), but you may be limited to 20%, 30%, or 50% depending on the type of contribution and the organization (contributions to certain private foundations, veterans organizations, fraternal societies, and cemetery organizations come with a lower limit, for instance).
The specifics can be found in IRS Publication 526.
Marshall broke his jaw and has been paying hospital and doctor visits ever since. He is able to deduct the visits that are not covered in his health plan provided by his employer. The medical rates are limited to his AGI. It means that medical expenses are deductible only if they exceed 7,5% of his AGI, so if his annual income is $50,000, he can claim a medical deduction only if his medical expenses exceed $3,750. According to the current mileage tax deduction rules, he cannot claim any deductions up to $3,750.
Medical expenses include costs of treatments affecting the structure or function of the body, alleviation, diagnosis, and the treatment or prevention of diseases.
Since the 2017 TCJA (Tax Cut and Jobs Act), only active-duty military members are able to deduct moving expenses. If you are on active duty, you can claim a moving deduction from your taxable income and include it as an attachment to your Form 1040 on your Form 3903. The relocation must be the result of military order and must be a permanent relocation, or you must be a member of a protected area, that is servicing more than 100 miles from your home. In these cases, you can deduct unreimbursed moving expenses for you, your spouse, and your dependents.
Mileage Reimbursement in 2023
Tax Cuts and Jobs Act of 2017 temporarily abolished various personal itemized deductions until December 31, 2025, prohibiting taxpayers from claiming deductions for unpaid employee travel expenses. Previously, various personal deductions of over 2% of Adjusted Gross Income (AGI) had been deductible.
Many companies use the IRS mileage rate to reimburse employees for business trips by car. Mileage Reimbursement is a profitable solution for both the employer and the employee, depending on what method the parties use:
- Car allowance (fixed monthly lump sum)
- Standard mileage rate
- FAVR (Fixed And Variable Rate), which is the combination of the first two
Mileage rates in the past
The business mileage rate changes every year, however, the charity mileage rate has not changed ever since 2011. 2022 saw the first mid-year change in the business mileage rate since 2011. For the changes of numbers in detail, see the official IRS table.
How to calculate a mileage deduction
There are two ways to calculate a mileage deduction: you can choose the standard mileage rate or the actual expense method.
Actual Expense Method
The actual expense method is for those who’d like to deduct the actual costs of using their vehicle instead of their mileage. These costs include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to the portion of the total miles driven that are business miles.
If you choose this method in the first year of using a vehicle, you won’t be able to switch to the standard mileage rate as long as you drive that car for business.
Whether you’re an employee or an entrepreneur, having high costs of driving a vehicle or owning a very expensive vehicle usually means you can deduct more if you can prove the actual expenses with appropriate receipts.
Standard Mileage Rate
The standard mileage rate is a simple way to deduct miles. It is based on the miles traveled, not the actual cost of maintaining your car.
To use the standard mileage rate for a vehicle, you have to choose this method in the first year of using your car in your business. Then, you can choose to deduct based on the standard mileage rate or the actual cost for subsequent years. If you choose a standard mileage rate for the vehicle you are leasing, you must adhere to this method throughout the entire lease period.
If you choose the standard mileage rate method, you will need to track your miles to calculate the year-end deduction. For that, an automatic mileage tracker app is strongly recommended, as you can save yourself plenty of hours when automatically logging your 1000+ trips/month compared to tracking your miles on paper or an Excel sheet.
More Mileage Tax Deduction in 2023
Many businesses have been suffering because of the increased gas prices and other goods. Last year, the IRS upped the federal mileage rates for 2022 Q3 & Q4 by 6,4% (58.5 cents to 62.5 cents), further increasing it by 4,5% for 2023 means that you’ll be able to deduct more when you file a Mileage Tax Deduction in 2023.
The increase of the Standard Mileage Rate in 2023 can mean a bit of a relief to many and also a good reason to make sure that you create a 100% IRS-Proof Mileage Log, that meets every expectation.
With MileageWise, you can get the most out of your business mileage tax deduction, track your business miles automatically with an app, or even convert your Google Timeline trips into an IRS-approved mileage log for taxes in just 7 minutes a month.
For this, we strongly suggest that you turn on Location History in your Google account, which automatically tracks each and every one of your trips.
If anything happens in the future, you’ll have your trips in Google Timeline, which you’ll be able to convert into an IRS-approved mileage log with the help of MileageWise.
IMPORTANT: This method does not substitute using a piece of mileage logging software such as MileageWise but gives you an extra backup in a cloud that can save you thousands of dollars when transformed into a real mileage log.
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