The publication of the 2023 standard kilometer rate for IRS shows that the rate is increasing. The new standard mileage rate for 2023 is 65.5 cents per mile.
This is an increase of 0.3 cents from the 2022 standard mileage rate adjustment that the IRS announced earlier this year as a way to combat inflation and rising transportation costs. gasoline.
2023 IRS Mileage Reimbursement Rates
For 2023, the IRS mileage reimbursement rates for businesses, individuals, and other organizations are as follows:
- 65.5 cents per mile traveled for business purposes, up 3 cents from the mid-year increase setting the rate for the second half of 2022.
- 22 cents per mile traveled for medical or moving purposes for qualified active duty members of the armed forces, consistent with the mid-year rate increase set for the second half of 2022.
- 14 cents per mile driven in the service of charities; The rate is set by law and remains unchanged from 2022
The IRS goes on to say that this increase applies to electric and hybrid-electric automobiles, as well as gasoline and diesel vehicles.
An annual study of the fixed and variable costs of operating an automobile is used to establish the standard kilometric rate for professional use.
The mid-year increase in 2022
Due to high prices in early and mid-2022, the IRS increased The optional standard kilometer rate is from July 1, 2022 to December 31, 2022. The increase, which was significantly high, was almost double the increase since the start of the year. It increased by 4 cents for professional use and medical care as well as for active members of the armed forces. The IRS rarely makes a mid-year raise, with the last one being in 2011. This came after House Democrats called out the Internal Revenue Service (IRS) to increase the mileage reimbursement rate.
So who can deduct car expenses on their tax return?
If you are a business owner or self-employed and use your vehicle for business purposes, you can deduct car expenses on your tax return. On the other hand, if you, as a taxpayer, use your car for both business and personal purposes, you will have to share the expenses. The deduction is based on the portion of the mileage used for business.
Here’s how to calculate car expenses, actual expenses, and use the standard mileage rate:
Actual expenditures include:
- Depreciation
- Lease payments
- Gas and oil
- Tires
- Repairs and tune-ups
- Assurance
- Registration fees
Use of the standard kilometer rate
If you plan to use the standard mileage rate for a car you own, you must choose to use this method the first year the car is available for use in your business. Again, if you want to use the standard mileage rate for a car you are renting, you must use it for the entire rental period.
Alternative vehicle allowances and reimbursements
If you drive your own car, you can also use the Fixed and Variable Rate Allowance (FAVR) scheme to receive tax-free reimbursements from your employee for fixed and variable vehicle expenses. Fixed costs are things like insurance, taxes, and registration fees. Variable costs are expenses such as fuel, tires, maintenance and routine repairs.
There are certain exclusions to this allowance. Your car cannot cost more than what the IRS sets as the maximum for each year. For example, for 2022, your vehicle may cost upwards of $56,100 for automobiles, trucks, and vans.
Lump-sum car allowances are another way for employers to reimburse their employees for business driving expenses. This is a fixed amount that an employer can provide to its employees to cover the cost of using their own vehicle for business purposes over a given period.
The amount may vary depending on location, task and type of vehicle. However, both parties can agree on a fixed amount such as $750 for wear and tear, tires and of course the cost of fuel. Remember that these allowances are taxable unless certain actions are taken. So make sure you know the tax obligations of both parties.
More tax deduction for employees
With respect to driving, the IRS no longer takes deductions for employee business expenses. This started in 2018 and will continue until 2025 due to the Tax Cuts and Jobs Act (TCJA). According to the tax“Employees who use their car for work can no longer claim a business expense deduction as part of their miscellaneous itemized deductions reported on Schedule A.”
The agency goes on to say that employees cannot deduct this even if their employer does not reimburse the employee for the use of their own car. However, there is an exception for a certain group. Armed Forces reservists, qualified performers, and paying state or local government officials can still deduct unreimbursed employee travel expenses.
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