IRS to increase mileage rate for 2023

On Dec. 29, the Internal Revenue Service issued the 2023 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Since Jan. 1, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• $0.655 cents per mile driven for business use, up $0.03 from the midyear increase that set the rate for the second half of 2022
• The portion of the business standard mileage rate treated as depreciation for the purpose of calculating reductions to the basis will be $0.28 cents per mile.
• $0.22 cents per mile driven for medical or moving purposes for qualified active-duty members of the Armed Forces, consistent with the increased midyear rate set for the second half of 2022
• $0.14 cents per mile driven in service of charitable organizations. This rate is set by statute and remains unchanged from 2022.

These rates apply to gasoline and diesel-powered vehicles, along with electric and hybrid-electric vehicles.

According to the IRS website, the standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers should be aware that under the Tax Cuts and Jobs Act, they cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, unless they are members of the Armed Forces on active-duty moving under orders to a permanent change of station. 

Alternate to standard mileage rates

As an alternative to the standard mileage rates, taxpayers have the option of calculating the actual costs of using their vehicle.

Taxpayers can use the standard mileage rate but generally must opt to use it in the first year the vehicle is available for business use. Then, in later years, they can choose either the standard mileage rate or actual expenses. Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.

IRS Notice 2023-03PDF contains the optional 2023 standard mileage rates, as well as the maximum automobile cost used to calculate the allowance under a fixed and variable rate (FAVR) plan. In addition, the notice provides the maximum fair market value of employer-provided automobiles first made available to employees for personal use in 2023 for which employers may use the fleet-average valuation rule in or the vehicle cents-per-mile valuation rule.

The Zinner & Co. Tax Team can help you assess how the standard mileage may affect your returns. Please call us at 216-831-0733 to schedule an appointment.