The Internal Revenue Service (IRS) recently published Notice 2023-03 which calls for an increase in the optional standard mileage rate. This rate is often used by Denver businesses and organizations to calculate the eligible deduction which can be taken for mileage driven for business or other purposes. The rate is typically increased annually to counteract the effects of inflation. However, in 2022, the IRS made a rare mid-year increase to help offset the rising prices associated with purchasing and maintaining a vehicle. Effective on January 1, 2023, the rate is now 65.5 cents per mile which is up 3 cents. To help clients, prospects, and others Whipplewood CPAs has provided a summary of the key details below.
What Is the Standard Mileage Rate?
The standard mileage rate is established annually to be used when claiming a deduction for vehicle use. The rate varies based on how the vehicle was used including moving, medical, business reasons, or in serving a charitable organization. For medical or moving the rate remains at 22 cents per mile. In addition, the 14 cents per mile remains for vehicles used for charitable purposes.
These rates apply for gas-powered, diesel-powered, electric-powered, and hybrid automobiles. Not just limited to individuals, these tax credits also apply to corporations as well. The IRS offers a tax-free threshold for employers to employee reimbursements.
How is the Standard Mileage Rate Determined?
Motus, a leader in vehicle reimbursement solutions advises the IRS on business driving trends and provides them with extensive insights into vehicle ownership and usage over the course of the previous year. This information is then used to determine the annual rate.
The Actual Expense Method
However, there is another method that taxpayers can use to calculate eligible deductible miles called the actual expense method. It evens the playing field a bit for high-mileage drivers and those who live in places with a higher cost of living. It permits taxpayers to deduct the actual costs of using vehicles which includes gas, parts, repairs, and insurance.
It is important to note that other operating expenses such as parking fees, and tolls incurred for business use are separately deductible regardless of the selected method.
The mileage rate increase is good news for Denver families and businesses that drive significant miles for eligible purposes. If you have questions about the information outlined above or have questions about how to capture this deduction, Whipplewood CPAs can help. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.