Mileage Tax Deduction Rules 2023
The day-to-day cost of living can eat away at your wallet. Driving expenses are one of the ordinary and necessary expenses associated with employment that quickly add up. But did you know you may qualify for a mileage deduction? Keep reading to learn how to claim this valuable tax break and save on driving expenses.
- Self-employed individuals can deduct business-related travel expenses.
- Eligible taxpayers can either use the standard mileage deduction or actual expenses for their calculation method.
- You can deduct business-related travel, medical travel, and travel while volunteering for a qualified charity.
- You can no longer deduct moving expenses unless you are a member of the Armed Forces.
Table of Contents
- Mileage Tax Deduction Qualifying Criteria
- 2023 IRS Mileage Rates
- Mileage Deductions Calculation Methods
- How To Deduct Mileage Taxes For The Self-Employed
- How To Claim Mileage on Taxes
- Tax Limitations For Mileage Claims
- Use FreshBooks To Simplify Your Tax Preparation
- Frequently Asked Questions
Mileage Tax Deduction Qualifying Criteria
In order to qualify for a mileage tax deduction, there are some qualifying criteria you need to meet. The most important one is that you must own or lease your vehicle, and you can only qualify for:
- Business-related travel for self-employed individuals
- Mileage related to medical appointments
- Mileage incurred while volunteering for a nonprofit
Self-employed people include:
- Independent Contractors
- Small Business Owners
- Delivery Drivers and ride-share drivers
- Sales Representatives
- Real Estate Agents
- Truck Drivers
You cannot claim for your daily travel to and from your workplace, nor can you claim for moving expenses.
2023 IRS Mileage Rates
The IRS has a standard mileage rate (SMR) for the business use of your personal vehicle. The rate for tax year 2023 is 65.5 cents per mile.
For medical expenses, you can claim 22 cents per mile driven and 14 cents per mile for volunteer work for charitable organizations.
These rates take into account market fluctuations and are revised regularly.
Mileage Deductions Calculation Methods
If you qualify for a mileage deduction, you may choose between the standard mileage rate or actual vehicle costs associated with business use of your vehicle.
You can only qualify for mileage deduction if you own or lease your vehicle. When you choose to use the standard mileage rate, you cannot deduct actual costs such as depreciation, lease payments, maintenance and repairs, gas, oil, insurance, or vehicle registration fees if you use the standard mileage rate.
Alternatively, you can deduct the actual car expenses, including lease payments or depreciation, insurance, gas, oil, maintenance, and repairs. If you use your car for personal and business use, you can only submit a mileage deduction for the portion of these expenses for which you use the vehicle for business purposes.
In both mileage deduction calculation methods, you can also deduct the interest paid for an auto loan equal to the percentage you use your car for business.
Whether you use the standard mileage rate or actual expenses, parking fees and tolls for business use are separately deductible.
Knowing the rules and regulations surrounding the tax deductions for mileage can seem overwhelming. Learn how FreshBooks can take the pain out of tax preparation with this short video.
How To Deduct Mileage Taxes For The Self-Employed
Eligible drivers can claim an IRS tax deduction for mileage on their year-end taxes.
If you only use your car for business, you can deduct the total cost of the vehicle. If you use your vehicle for personal and business use, you can only deduct the percentage proportional to the business use. For example, if you drive 20,000 miles per year and 12,000 of those miles are for business use, you can deduct 60% of your costs.
You must keep accurate and detailed records, whether you deduct the standard mileage rate or the itemized expenses. Use a statement of accounts or log book to track and categorize your receipts. FreshBooks mileage tracker app can help simplify and automate the process for you.
If you qualify for both methods, it is recommended to calculate the deductions both ways to determine which method gives you a larger deduction.
A sole proprietor will deduct car expenses on Schedule C (Form 1040), Profit or Loss From Business. Farmers use Schedule F (Form 1040), Profit or Loss From Farming.
Fee-basis state or local government officials, armed forces reservists, and qualified performing artists figure out their car mileage on Form 2106, Employee Business Expenses.
How To Claim Mileage on Taxes
Did you know you can claim mileage for volunteering? If you volunteer for a qualified charity, you can use the volunteer mileage rate of 14 cents per mile for your deduction. You can only claim mileage in the year you volunteered. You will need to provide detailed records to prove your claim.
You can also claim 22 cents per mile driven for medical reasons.
Unless you are a member of the armed forces, you cannot claim a deduction for moving expenses.
Tax Limitations For Mileage Claims
The IRS states that you cannot use the standard mileage rate if:
- You have fleet operations or use more than 5 cars at a time
- You claimed a depreciation deduction for the car using any method other than a straight line for the car’s estimated useful life
- You use the Modified Accelerated Cost Recovery System
- Claimed a section 179 deduction for the value of your vehicle
- Claimed special depreciation allowance on the car
- Claimed actual car expenses after 1997 for a car you leased
You can only use the SMR for deducting mileage for a car you own. If you use it for a leased vehicle, you must use the SMR for the entire lease term and cannot change to use the actual method in later years.
Employees can no longer claim unreimbursed business miles as a miscellaneous itemized deduction on their tax return.
Use FreshBooks To Simplify Your Tax Preparation
Travel and mileage write-offs can be one of the bigger deductions for self-employed taxpayers. Now that you understand business mileage tax deductions better, you can put your mind at ease when preparing your tax return. FreshBooks accounting software can track and categorize your expenses, helping small businesses like yours find their way to success.
Try FreshBooks for free by signing up today to see how easy tax filing can be!
Navigating the rules and regulations of tax credits and deductions can seem daunting, but it doesn’t have to be. FreshBooks offers guides for many tax relief topics. Learn more about Small Business Tax Deductions and start getting the most out of your money today.
FAQs about Mileage Tax Deduction
FreshBooks has summarized some of the frequently asked questions about mileage tax deductions below for quick reference. Have a look!
Is it better to write off mileage or gas?
If you use your vehicle for a substantial portion of your total mileage, it may be better to use the actual expense method because it allows you to calculate the gas costs and other itemized vehicle expenses.
If you use the standard mileage rate, you cannot also deduct actual expenses.
Can I claim all my mileage on my taxes?
If you use your vehicle exclusively for business use, you can claim all the mileage you drove in a tax year. You must keep a detailed record of every mile driven, including dates, reason for travel, and any receipts corresponding to mileage.
How does the IRS calculate mileage reimbursement?
The Internal Revenue Service calculates mileage reimbursement by examining the fixed and variable automobile operating costs. The IRS reexamines these costs each year, and new rates are issued. These rates apply to gasoline and diesel-powered vehicles and electric and hybrid automobiles.
What happens if you didn’t keep track of your mileage?
If you forgot to keep track of your mileage, you can still prove your claim with:
- A statement that includes specific information about the untracked mileage
- Provide sufficient supporting evidence through other sources
The FreshBooks mileage tracker app can help you stay on track with your mileage records.
Can I deduct mileage to and from work as an independent contractor?
You can only claim mileage to and from work if the workplace is a temporary location. This is common for tradespeople who regularly travel to other homes and job sites to perform their job.
What states require mileage reimbursement?
California, Illinois, and Massachusetts require employers to reimburse employees for business mileage. Employers can reimburse above or below the standard mileage deduction rate of 65.5 cents per mile. If they reimburse below the standard rate, the rate cannot be so low as to bring the wage below the state minimum wage.
About the author
Sandra Habiger is a Certified Public Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond. Learn more about her work at http://www.sixfiguresaccounting.com/ .