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Most people have to commute to and from work each day, but for business owners, there is a chance that you’ll have to do a lot more driving than that. Business owners often drive long distances to have meetings with clients, attend industry conferences, check on various worksites or additional business locations, and so on. This type of business-related driving is actually deductible on your tax return, either using a standard deduction rate per mile, or by calculating your actual fuel and maintenance costs. The standard mileage rate changes each year, and for 2023, has increased to 65.5 cents per mile. Keep reading to learn all you need to know about this increase and how to claim the deduction.

Claiming the Standard Mileage Rate Deduction

You may hear the term “standard deduction” and think of the standard deduction on your personal tax return, which allows you to deduct a set amount on your taxes. The standard mileage rate is a bit different, however, as it’s applied per mile. This means that you’ll still need to keep detailed records of your business-related driving.

To claim this deduction, you will need to maintain a log that shows the following information for every business-related trip you take:

• Date the driving was done
• Reason for the trip (e.g., meeting a client or supplier, attending a conference, etc.)
• Odometer reading at the start of the trip
• Odometer reading at the end of the trip
• Total miles driven for the trip

You can keep a running total of your business mileage, or total it up at the end of the year. Then, you simply multiply that total mileage by the standard mileage rate (65.5 cents for 2023, as mentioned above) to determine your total deduction.

Claiming a Deduction for Actual Costs

In some cases, you may be able to claim a higher deduction for your business-related driving by deducting your actual vehicle maintenance and fuel costs. Of course, not all of your driving is business related, so you can only deduct a percentage of those expenses, based on what percentage of your annual mileage was dedicated to business driving. To determine this, you’ll need to track all your business driving as described above, as well as recording your odometer readings at the beginning and end of the year; you can then calculate the percentage of your total mileage that was business driving.

But in addition to this, you’ll need to keep all receipts for your vehicle expenses, from your fuel purchases to your oil changes, tire replacements, and more. Once you have your total expenses for maintaining your vehicle throughout the year, and you know what percentage of your driving was for business purposes, you can deduct that percentage of your total expenses on your return.

How Often Does the Standard Rate Change?

As we stated earlier, the standard mileage rate can change every year. However, it can actually change more often than that—or, sometimes, the rate may hold over from the previous year. The standard mileage deduction rate is adjusted based on inflation, and is heavily impacted by the cost of fuel. Last year, the standard mileage rate received a mid-year hike to account for rapid inflation. For 2023, it has risen once again, by an additional 3 cents. This is a fairly large increase, due to those high fuel costs, and it’s important to keep in mind that the rate can change again in the middle of the year if the IRS deems it necessary.

If this does occur, you will need to perform separate calculations for the first half and the second half of the year, multiplying the mileage driven in those months by their separate mileage rates. Then, you will add those two totals together to determine your full business mileage tax deduction for 2023.

Which Offers the Higher Deduction?

So, which method will offer you the higher tax deduction for your business mileage? The answer will vary for each person, and can even change from one year to another. It will depend heavily on what your vehicle expenses were for that year. If you have a year where you have to pay for major vehicle repairs, it may be worth the effort of claiming actual costs for your deduction. If you only had basic maintenance and fuel costs, the standard deduction may be higher.

Unfortunately, the only way to know the answer for sure is to perform both calculations. If you need assistance with this, contact Demian & Company CPAs to schedule an appointment with one of our tax experts.