Dealing with vehicle-related expenses like paying for gas and diesel can be a daily chore if your business requires you to have a vehicle to deliver products or get you to work meetings. Unfortunately, this means your monthly fuel bill can quickly become one of the most significant expenses in your overall budget. Thankfully, the IRS lets you deduct mileage costs for every business mile your vehicle has run.
This is a fixed amount set by the IRS for self-employed individuals, freelance delivery drivers for Doordash or Uber and small business owners to offset fuel expenses when they use vehicles for business purposes.
The standard mileage rate is a more simplified and straightforward method than itemizing the amount you spend on fuel and other car expenses because in the latter, you need to keep track of all the fuel receipts, as well as keep a log of your business miles traveled. When you choose the standard deduction method, the IRS only requires you to keep a mileage log.
The standard mileage rate is significant to self-employed individuals, freelancer delivery drivers and small business owners because it helps them significantly lower their tax liability. In the 2023 tax season, the 2022 mileage rate can significantly bump up your tax refund when you file your 2022 tax return on April 17, 2023.
The current global situation has pushed inflation rates to a historic high in the US, meaning the average American spends more on basic necessities than ever before. Fuel, which falls on the IRS' list of necessities, is affected too, and the IRS is providing some relief to small business owners by raising the standard mileage rate higher than it was in 2022.
The 2023 standard mileage rates are as follows:
A flat rate simplifies your business expense claim, and it reflects the average cost of operating a vehicle with the resulting depreciation. If you choose the standard mileage method, you can't deduct the actual expense of operating the vehicle you use for your business.
To calculate your deduction, multiply your business miles by 65.5 cents to arrive at your final deduction amount. If you traveled 10,000 miles in a tax year, you could deduct $6,550 from your taxable income. But let's say your semi-truck had a breakdown during the same year, and the bill for repair was $7,000. If you choose to itemize this large expense, the actual expenses method will likely bring you a more significant deduction.
Apart from this deduction from a repair job, you can also factor in other deductions like fuel cost, vehicle depreciation and other maintenance during the year.
Let's say you are a delivery driver working as a full-time W-2 employee for a large company like Amazon. You can't deduct your miles because the company owns the vehicle, and you are on the payroll.
FYI, the IRS doesn't consider miles commuting to and from work as a business deduction for W-2 employees or for 1099 employees. But if you have further questions like this, you can refer to FlyFin, which has a massive list of tax resources addressing such questions.
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