At Maicher CPA Pllc, we provide comprehensive tax services to help businesses and individuals reduce taxes by maximizing deductions. One common deduction covers the business use of vehicles. The 2023 tax year marks an increase in the standard mileage rate for this deduction. What are the parameters of the standard deduction? What are the parameters of the alternative of deducting the actual cost of the vehicle? What option is most sensible in your case?
Beginning on January 1, 2023, the standard mileage rate for the business use of a vehicle, including, automobiles, vans, pickups and panel trucks, is 65.5 cents per mile. This rate applies to electric as well as hybrid-electric vehicles (along with traditional gasoline and diesel-powered vehicles). In claiming the standard deduction, which is popular with businesses reimbursing employees for the business use of their personal vehicles, you must keep records of the mileage for each business trip, the date, the destination, along with the business purpose, and ideally by contemporaneously written logs.
As an alternative to the standard deduction, businesses may generally deduct the actual costs of using a vehicle for business purposes rather than using the standard mileage rate. These costs include, for example, gas, oil, tires, insurance, repairs, licenses, and vehicle registration fees, along with a depreciation allowance. Be aware, though, that in many cases, certain limits apply to depreciation write-offs on vehicles which are inapplicable to other types of business assets, potentially making this option less favorable.
Maicher can help you determine what method – standard or actual – is available in your case and which one will maximize tax savings. For instance, 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, either the standard mileage method or actual expense method may be used. Leased vehicles, however, must use the standard method for the entire lease period (including renewals) if that method is initially chosen. Lastly, as a practical matter, the standard method is beneficial to avoid tracking actual expenses.
Take-away: Like many tax issues, including the standard rate method versus the actual cost method, there are many factors to consider as to what specific approach makes the most sense in a particular case. Maicher can help guide you in these decisions. Call us today for an appointment.
IRS Publication – “Travel, Gift, and Car Expenses,” (last reviewed or updated: 07-Feb-2023).
IRS Publication – “Topic No. 305 Recordkeeping,” (last reviewed or updated: 26-Jan-2023).
IRS Publication – “IRS issues standard mileage rates for 2023; business use increases 3 cents per mile,” (last reviewed or updated: 29-Dec-2022).
IRS Publication – “Topic No. 510 Business Use of Car,” (last reviewed or updated: 06-Oct-2022).