Deductions for Meals and Mileage Change for 2023

The allowances for two significant business deductions have changed for 2023. The deduction for business meals provided by a restaurant decreased from 100 percent to 50 percent of the cost, as scheduled, and the optional standard mileage rates used to calculate the deductible costs of operating a vehicle increased. Both changes are effective January 1, 2023.

Reduced Business Meal Deductions

Taxpayers can now deduct only 50 percent of the cost of eligible business meals. The Consolidated Appropriations Act of 2021 increased the deductible amount to 100 percent of the cost of food or beverages provided by restaurants after December 31, 2020, and before January 1, 2023. Beginning January 1, 2023, the deduction allowance reverted to the 50 percent allowance that was imposed by the Omnibus Budget Reconciliation Act of 1993.

In order for the cost of a business meal to be eligible for any deduction, (1) the meal must be “ordinary and necessary” and not lavish or extravagant under the circumstances; and (2) the taxpayer, or an employee of the taxpayer, must be present at the furnishing of the meal.

Standard Mileage Rates for 2023

The IRS also issued the optional standard mileage rates for 2023 via Notice 2023-3. These rates are used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes. The standard mileage rates apply to the use of a car, van, pickup, or panel truck. The vehicle can be electric, hybrid-electric, gasoline, or diesel-powered. Beginning on January 1, 2023, the rates are:

• 65.5 cents per mile driven for business use, up from 62.5 cents after the 2022 mid-year increase, and up from 58.5 cents at the beginning of 2022.
• 22 cents per mile driven: (1) for medical care described in IRC Section 213; or (2) as part of a move for qualified active-duty members of the Armed Forces for which moving expenses are still deductible under IRC Section 217(g). This rate is the same as the increased mid-year rate set for the second half of 2022. The rate was 18 cents at the beginning of 2022.
• 14 cents per mile driven in gratuitous service of a Section 501(c)(3) charitable organization. This rate is set by statute and remains unchanged from 2022.

The business-use standard mileage rate takes into account fixed and variable operating costs, such as gasoline (including taxes), oil, repairs, registration fees, insurance, and depreciation. A taxpayer using the business-use standard mileage rate may not separately deduct these expenses.

In addition, because of the depreciation component of the business-use standard mileage rate, a taxpayer may not use the business-use standard mileage rate for a vehicle that previously was depreciated under a method other than the straight-line method or if the taxpayer claimed a deduction for some or all of the cost of the vehicle under IRC Section 179 (expensing election) or IRC Section 168(k) (bonus depreciation). By using the business-use standard mileage rate, the taxpayer elects to exclude the automobile from accelerated depreciation under MACRS or ACRS. The taxpayer may choose to deduct actual depreciation in a later tax year but must use straight-line depreciation for the automobile’s estimated useful life, subject to the applicable depreciation deduction limitations under IRC Section 280F(a).

As a reminder, under the Tax Cuts and Jobs Act, miscellaneous itemized deductions that are subject to the two-percent of adjusted gross income floor under IRC Section 67 are not deductible through December 31, 2025. Thus, the business-use standard mileage rate may not be used to claim an itemized deduction for unreimbursed employee travel expenses for 2023.

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