Claiming a tax deduction is one of the best ways to reduce the amount of funds owed to the government. Though the IRS tightened up the rules surrounding claiming tax on mileage, there are available possibilities. Using two different rules—standard and actual—a tax on mileage can be claimed as a deduction.
Throughout this article, we’ll take a closer look at business mileage, reimbursement, and the methods allowed.
What is business mileage?
The IRS defines business mileage as mileage driven between two places of work, permanent or temporary. Therefore, self-employed individuals can deduct the mileage they accrue throughout the year while doing business. All expenses can be deducted for those who use the car only for business purposes. Vehicles used for personal and business reasons will need to have business expenses separated and expensed.
What is the mileage reimbursement rate for 2022?
Year to year, the reimbursement rate changes per IRS standards. Beginning on January 1, 2022, the standard rates changed for vehicles such as cars, vans, pickups, and panel trucks:
- 58.5 cents per miles reimbursement for business use from January through June 2022; 62.5 cents the rest of the year
- 18 cents reimbursed per mile driven for medical issues or moving purposes but only for qualified members of the Armed Forces from January to June 2022; 22 cents the rest of the year
- 14 cents reimbursed per mile driven for charitable organizations—this amount remains unchanged by 2021
The IRS has many rules governing tax deduction of business mileage driven along with the documentation that individuals should maintain:
- Total mileage of each the trip
- The time and the purpose of each trip
- The total mileage driven each year
What is the mileage reimbursement rate for 2023?
Here are mileage rates for using an automobile as of January 1, 2023:
- 65.5 cents per mile driven for business use for the second half of 2022 (an increase of 3 cents from the midyear)
- 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)
- 14 cents per mile driven for charitable organizations (this rate remains unchanged from 2022)
These prices also apply to hybrid and electric vehicles along with gasoline and diesel automobiles.
Mileage tax deduction methods: standard mileage vs. actual expense
Armed with the information above, it’s possible to use one of the two methods available to deduct mileage on yearly taxes.
1. Standard mileage method
The standard mileage method is the simpler of the two options, with the rate covering all expenses of owning and operating a vehicle for any business purpose. To claim this deduction, it’s important to keep track of the exact mileage driven and keep a record of all trips for auditing purposes. Calculating the amount is straightforward; take the mileage driven and multiply by the rate set by the IRS (2022: 58.5 cents until June 2022 and 62.5 cents from July to December 2022).
Pros and cons of the standard mileage method
|Simple to calculate (multiply miles driven by IRS rate for the year)||Cannot deduct mileage on a vehicle owned by someone else|
|Simple to track||Cannot deduct mileage on a fleet of vehicles (5 or more)|
|It’s possible to switch back and forth between two methods of deducting mileage on taxes||Can only use straight-line depreciation|
|Cannot claim a Section 179 deduction on the vehicle|
|The deduction could be lower than with the actual method|
2. The actual expense method
The name is rather self-explanatory for this method—only actual expenses will get deducted on taxes. The deduction is calculated by adding up all money spent on the vehicle’s operation and multiplying that by the percentage of business use. Let’s say it took $10,000 to maintain the vehicle throughout the year, but it was only used for business 50% of the time. The calculation is $10,000 x 50% = $5,000 claimed.
Pros and cons of the actual expense method
|Potentially a larger deduction, especially when depreciation is factored into the equation||More records to maintain|
|For more expensive vehicles, there is a potential for a larger deduction||If the actual expenses method is claimed the first year, it’s not possible to flip to the standard method the next year|
|Larger deduction for those that don’t drive a lot throughout the year|
Actual expenses vs. standard mileage, which is better?
Choosing a better method will come down to personal choice rather than a hard and fast rule. Some might prefer to keep to a simpler method that provides flexibility should actual expenses prove more beneficial another year. Of course, the actual expense method does hold the potential for a higher deduction, but at the expense of keeping more records.
Step-by-step guide on how to claim gas mileage on your tax return for the actual expense method
Step 1. Check if you qualify for the actual expense method.
Ensure you qualify for the actual expense method and would prefer to continue with this route.
Step 2. Keep receipts.
Throughout the year, keep track of all actual vehicle operating expenses. The total money spent on keeping the vehicle running, including gas, will help calculate the actual expense to get deducted from taxes.
Step 3. Calculate!
Complete the actual expense method calculation by taking the total operating cost of the vehicle and multiplying it by the percentage of business use.
Step 4. Keep records.
Keep track of all records for potential auditing in the future.
Step-by-step guide on how to claim gas mileage on your tax return for the standard mileage method
Step 1. Check if you qualify for the standard mileage method.
Ensure you qualify for the standard mileage method based on IRS guidelines.
Step 2. Record the odometer and keep a driving log.
Record the odometer at the beginning of the tax year (January 1st), as this information will be reported. Maintain a driving log throughout the year, then record the last odometer reading at the end of the year (December 31st).
Step 3. Calculate.
Record the mileage on the tax return and perform the correct calculation by multiplying the number with the rate set by the IRS for the year.
Step 4. Maintain records.
Maintain records of all mileage deducted on the tax return should questions arise.
Bonus: Free mileage trackers
For those using the standard mileage method, here are some of the best free mileage trackers on the market today.
- How to Track Mileage for Taxes with the Shoeboxed App [Free Mileage Tracker]
Frequently asked questions
The IRS explains that business mileage is driving done for a business purpose. This includes driving to meet clients, getting supplies, or running other errands only for the business.
The calculation is simple. First, take the total miles driven and multiply the number by the rate set down by the IRS. For example—in 2022, let’s say you drove 500 miles in August. The IRS rate is 62.5 cents a mile. Therefore, 500*.0625=$31.25.
Tax on mileage is something many think about when they drive for business-related purposes. The IRS gives the ability to deduct such expenses using two methods: standard and actual expense. Each has specific pros and cons to help make the decision on which one works better. To prepare, always keep track of all expenses or miles driven using a handy tracker.
Agata Kaczmarek has held a passion for writing since early childhood. A professional writer for many years, Agata specializes in writing articles and blogs focused on finance as someone who holds a Master’s Degree in Accounting and Finance.
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