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FINANCIAL NEWS

Tax season 2023: The mileage rate explained

Business owners and self-employed filers can claim a significant deduction on their tax returns by using the IRS mileage rate.

Update:
Tax season: The mileage rate explained
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Each year the IRS issues a standard mileage rate, which is used by taxpayers who need to drive their own car for business reasons. The rate is used to calculate the deductible costs associated with operating an automobile for business.

For those whose work demands a lot of miles on the road the mileage rate is always important. But after the price of gasoline soared to record highs in 2022 the rate is even more crucial than ever, and can be worth thousands of dollars in tax deductions.

While the price of gasoline is often factorerd in to the standard mileage rate, the deduction is not only available for gas-powered vehicles. The IRS website makes clear: “These rates apply to electric and hybrid-electric automobiles, as well as gasoline and diesel-powered vehicles.”

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What was the mileage rate for 2022?

Anyone submitting their tax return now is most likely doing so for the 2022 tax year. The price of gasoline fluctuated so much during 2022 that the IRS implemented a very rare mid-year alteration to the mileage rate. At the start of the year the IRS set the rate at 58.5 cents per mile. However from 1 July 2022, the standard mileage rate for business travel rose to 62.5 cents per mile.

“The IRS is adjusting the standard mileage rates to better reflect the recent increase in fuel prices,” IRS Commissioner Chuck Rettig explained at the time.

“We are aware a number of unusual factors have come into play involving fuel costs, and we are taking this special step to help taxpayers, businesses and others who use this rate.”

This was the first mid-year increase to the optional mileage rate since 2011. For charity organisations, the rate of 14 cents per mile has remained the same, because it is set by statute.

Who can claim a mileage rate deduction?

If you are self-employed or own your own business you may be able to make a mileage deduction for any business-related driving that you did during 2022. The deduction is supposed to help subsidise travel expenses for businesses.

Certain other groups, such as Armed Forces reservists and employees with impairment-related work expenses, are also able to claim the deduction.

To include the deduction on your tax return you need to keep track of your business mileage throughout the year and multiple it by the standard mileage rate. Remember that the second half of 2022 had a higher rate than the first half.

Business owners or self-employed filers can then record vehicle expenses on Schedule C, Part ll, Line 9 of their tax return. You will also need to complete Part IV to provide accompanying information to the IRS.

Make sure to retain records, such as a business mileage logbook, to ensure that you have proof of your business driving costs. The IRS requires claimants maintain records for at least three years.