The Standard Business Mileage Rate Has Gone Up for 2023
- Find the standard business mileage rate for 2023.
- Learn which factors play into calculating the standard business mileage rate.
- Find information about the cents-per-mile rate vs. actual expenses.
- Find out why you can’t always use the standard business mileage rate.
Although the national price of gas is a bit lower than it was a year ago, the optional standard mileage rate used to calculate the deductible cost of operating an automobile for business has gone up for 2023. The IRS announced that the 2023 cents-per-mile rate for the business use of a car, van, pickup, or panel truck equals 65.5 cents. These rates apply to electric and hybrid-electric automobiles, as well as gasoline and diesel-powered vehicles.
In 2022, the business cents-per-mile rate for the second half of the year (July 1 – December 31) was 62.5 cents per mile. For the first half of the year (January 1 – June 30), it was 58.5 cents per mile.
How rate calculations are done
The 3-cent increase from the 2022 midyear rate is surprising because gas prices are now lower than they have been. On December 29, 2022, the national average price of a gallon of regular gas equaled $3.15, compared with $3.52 a month earlier and $3.28 a year earlier, according to AAA Gas Prices. However, the IRS calculates the standard mileage rate based on all the costs involved in driving a vehicle — not just the price of gas.
The business cents-per-mile rate is adjusted annually. It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle. This includes gas, maintenance, repair, and depreciation. Occasionally, if there’s a substantial change in average gas prices, the IRS will change the cents-per-mile rate midyear. This happened in 2022.
Standard business mileage rate versus actual expenses
Businesses can generally deduct the actual expenses attributable to business use of vehicles. This includes gas, oil, tires, insurance, repairs, licenses, and vehicle registration fees. In addition, you can claim a depreciation allowance for the vehicle. However, in many cases, certain limits apply to depreciation write-offs on vehicles that don’t apply to other types of business assets.
The cents-per-mile rate is beneficial if you don’t want to keep track of actual vehicle-related expenses. With this method, you don’t have to account for all your actual expenses. However, you still must record certain information, such as the mileage for each business trip, the date, and the destination.
Using the cents-per-mile rate is also popular with businesses that reimburse employees for business use of their personal vehicles. These reimbursements can help attract and retain employees who drive their personal vehicles a great deal for business purposes. Why? Under current law, employees can’t deduct unreimbursed employee business expenses, such as business mileage, on their own income tax returns.
If you do use the cents-per-mile rate, keep in mind that you must comply with various rules. If you don’t comply, the reimbursements could be considered taxable wages to the employees.
You can’t always use the standard business mileage rate
There are some cases when you can’t use the cents-per-mile rate. It partly depends on how you’ve claimed deductions for the same vehicle in the past. In other situations, it depends on if the vehicle is new to your business this year or whether you want to take advantage of certain first-year depreciation tax breaks on it.
As you can see, there are many factors to consider in deciding whether to use the standard mileage rate to deduct vehicle expenses. Fiducial can help if you have questions about tracking and claiming such expenses in 2023 — or claiming 2022 expenses on your 2022 income tax return. Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations to discuss your situation.
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