This post will help those who do a substantial amount of driving for business or work and who are unsure how to deduct transportation expenses.
Commuting expenses fall into four categories:
4. Transportation from your home office
1. Transportation from Your Home to Your Regular Place of Business.
None of these expenses are deductible business expenses. They are considered personal expenses and are therefore not deductible. Simple enough…
2. Transportation between Places of Business
These expenses are deductible.
Example: Jane runs a dry cleaner with two locations. The drive from her home to either dry cleaner is not deductible. However, any travel between dry cleaners is a deductible business expense. At the end of the day, her drive home from the dry cleaner is not deductible.
Example 2: Joe is an attorney who often participates in seminars. Joe is going into the office to do some work, and then will give a seminar later in the day. Again, Joe’s drive from home to the office is not deductible. Joe’s drive from his office to the seminar location is deductible because it is travel between places of business.
3. Temporary Versus Regular Place of Business
As mentioned above, travel between your home and your place of business is not deductible. The IRS provides exceptions for temporary work locations. Under certain circumstances, travel between your home and a temporary work location is deductible. A temporary work location is a location you expect to work at for one year or less.
There are two situations where this exception applies:
You have no regular work location:
If you work in a metro area, but not regularly at any specific location in that metro area, the commute between your home and a temporary work location in that metro area is not deductible. However, the commute between your home and a temporary work location outside the metro area is deductible.
The term metro area is not defined, however the Tax Court has held that travel greater than 35 miles from home is outside the metro area.
Example: Jenny is a salesperson who lives in Warren, MI. She does not work out of an office, but travels to locations within Metro Detroit to make sales calls. Even though every call Jenny goes on is to a temporary work location, none of her commuting expenses are deductible because they are within the metro area.
Example 2: Same facts as above, except that Jenny now has a sales call in Traverse City, MI. Because Traverse City is outside the metro area, commuting expenses to Traverse City are deductible.
You have an regular work location:
Again, travel between your home and your regular work location is not deductible.
However, travel between your home and a temporary work location in the same trade of business (inside or outside the metro area) is deductible.
Example: Joe is a CPA (a complete incompetent!) with an office in Birmingham, MI. Joe is hired to conduct an audit of a company in Ferndale. The audit is expected to last less than one year. Any travel between Joe’s home and Ferndale is deductible because it is a temporary work location. This is so even though it is within the metro area.
4. Transportation from Your Home Office
If your home office qualifies as your principal place of business (see my prior blog post on here) commuting expenses between your home office and another work location are deductible. Claiming all commuting expenses between your home office and other work locations is a huge advantage of claiming a home office deduction through the principal place of business criteria.
Where to Deduct Commuting Expenses
If you are a business owner, commuting expenses are deducted on your business return (i.e., Schedule C for proprietorships, Form 1120S for S corporations, or Form 1065 for partnerships). If you are an employee, commuting expenses are deducted on Schedule A of your personal tax return as a miscellaneous itemized deduction. Miscellaneous itemized deductions must be reduced by 2% of your Adjusted Gross Income (the bottom line on page 1 of your Form 1040). So, if your Adjusted Gross Income is $50,000, your miscellaneous itemized deductions in excess of $1,000 ($50,000 * 2%) are deductible.
This posting contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.
Buzzkill Disclaimer: Any tax advice contained in the body of this post was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. Any information contained in this post does not fall under the guidelines of IRS Circular 230.