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While running your business, you can deduct certain transportation expenses without having to travel far from home. These deductions cover a variety of transportation modes including air, rail, bus, taxi, and notably, the use of your personal car. There are several ways to qualify.
Costs incurred while traveling between different work locations within your tax home area qualify for deductions. Your tax home is the city or general area where your business is based. Expenses for visiting clients or attending business meetings away from your regular workplace are deductible. You can deduct expenses when traveling from your home to a temporary workplace, provided you also have one or more regular workplaces. These temporary workplaces can be within or outside your tax home area.
If you travel overnight, different rules apply, particularly in calculating car expenses.
This brief on Publication 463, Travel, Gift, and Car Expenses, provides a basic understanding to help you get started with your deductions for business transportation. Pub 463 is sixty-one pages long and this brief covers Chapter 4 Transportation and Chapter 5 Recordkeeping. Refer to the comprehensive rules laid out in the IRS documentation for detailed guidance on car expenses and other specific situations.
Commuting costs are daily expenses of driving between home and regular workplaces. Generally, they are not deductible but there are some exceptions. Traveling to a temporary workplace outside your metropolitan area is deductible. If your home is your principal place of business, you can deduct transportation costs between your home and another work location in the same trade or business, regardless of the work's duration or distance.
Figure B. When Are Transportation
Expenses Deductible?
If your home is your principal place of business, do not use this
chart.
If you frequently travel between your home and a temporary work location, you might be able to deduct these transportation costs.
If the temporary work location is far enough from your regular work area that you need to stay overnight, different rules apply. In this case, you may be eligible for travel expense deductions.
If you do not have a fixed workplace but usually work within the metropolitan area where you reside, you can deduct transportation cost.
You can deduct transportation costs for travel between your home and a temporary work location outside your metropolitan area. The metropolitan area typically includes the city and its suburbs.
Daily transportation costs between your home and any temporary work sites within your metropolitan area are not deductible. These are considered regular commuting expenses and are not eligible for tax deductions.
When your workday involves traveling between two different job locations, there are deductions you can take. You can deduct the costs of traveling directly from one workplace to another within the same day, regardless of whether these locations belong to the same employer. If you do not travel directly from one job to the other due to personal reasons, you can only deduct the amount it would have cost you to travel directly between the two.
Costs associated with traveling between your home and a part-time job on your days off from your main job are considered commuting expenses and are not deductible.
When it comes to commuting between your home and your primary workplace, certain costs are not deductible. Expenses incurred while taking public or driving a car between your home and your main or regular workplace are non-deductible. These are personal commuting expenses. This non-deductibility applies regardless of the distance between your home and your workplace or whether you engage in work-related activities during the commute.
Business discussions or phone calls made during these trips do not change their classification from personal to business. Only expenses directly related to business activities, like visiting clients, are deductible.
If you maintain a qualifying home office that serves as your principal place of business, you are eligible to deduct certain travel expenses.
You can deduct the transportation costs for travel between your home office and another work location within the same trade or business. This includes the costs of driving your car or using other modes of transportation to get to these other work locations.
To determine if your home office qualifies as your principal place of business, refer to IRS Publication 587, Business Use of Your Home and Get the most out of your Home Office Deduction for 2024.
Business use of your car makes you eligible to deduct car expenses using one of two different methods. The Standard Mileage Rate allows you to deduct a set amount for each mile driven for business purposes. The Actual Car Expenses method involves deducting the actual costs of operating your car for business, including gas, repairs, insurance, and depreciation.
If you qualify to use both the standard mileage rate and actual expenses, try to calculate your deduction using both methods to see which one offers a larger deduction.
The standard mileage rate is an efficient way to calculate deductible costs. The rate is 65.5 cents per mile. If you cannot or choose not to use the standard mileage rate, you will calculate your car deduction using actual expenses.
If you switch to actual expenses after initially using the standard mileage rate, you must use straight-line depreciation for the remaining estimated life of the vehicle, adhering to specific depreciation limits.
If you switch to actual expenses after initially using the standard mileage rate, you must use straight-line depreciation for the remaining estimated life of the vehicle, adhering to specific depreciation limits.
If you switch to actual expenses after initially using the standard mileage rate, you must use straight-line depreciation for the remaining estimated life of the vehicle, adhering to specific depreciation limits.
If you are self-employed and use your car for business, you can deduct the portion of the interest expense that corresponds to the business use of the car. For example, if 60% of your car's use is for business, you can deduct 60% of the interest expense on Schedule C (Form 1040).
If you finance your car purchase through a home equity loan, you might be able to deduct the interest. Reference IRS Publication 936, "Home Mortgage Interest Deduction," for more details.
You can deduct the business portion of state and local property taxes for motor vehicles.
Business-related parking fees and tolls are deductible, even if you use the standard mileage rate. However, parking fees at your regular place of work are considered nondeductible commuting expenses.
If you sell, trade in, or dispose of your car in any way, you may need to calculate gain or loss for the transaction, or adjust the basis of your new car.
If you opt not to use the standard mileage rate, you can deduct the actual expenses associated with using your car for business. If your car serves both personal and business purposes, you must allocate expenses based on usage. For example, if 60% of your driving is for business, you can deduct 60% of your total car expenses.
Even if your car is fully depreciated, you can continue to deduct other operating costs associated with business use. Maintain proper records to support your deduction.
Vehicles modified for business (e.g., with permanent shelving or company logos) and unlikely to be used for personal purposes, like certain delivery trucks, qualify for different depreciative treatment.
Section 179 deductions allow businesses to deduct the full purchase price of qualifying vehicles and other assets used in a business, subject to certain limits.
You can elect to deduct the cost of a car that qualifies as Section 179 property in the year you place it in service. The vehicle must be used more than 50% for business to qualify for the Section 179 deduction. If it's used less, the benefit might be reduced or eliminated.
If you claim the Section 179 deduction, you must consider the first-year depreciation limits, which vary based on when the vehicle was acquired and placed in service:
The election must be made in the year the car is placed in service. Use Form 4562 for depreciation and amortization.
When you dispose of a vehicle on which you've claimed the Section 179 deduction, the deduction is treated like any other depreciation for recapture purposes. Any gain on the sale is considered ordinary income up to the amount of the Section 179 deduction plus any allowable depreciation.
Refer to IRS Publication 946, How to Depreciate Property, for comprehensive information on depreciation rules.
When leasing a vehicle for business, you can choose between the standard mileage rate or actual expenses to calculate your deductible costs.
Reporting for sole proprietors and farmers should be done through Schedule C or Schedule F of Form 1040, respectively
When you dispose of a car used for business, consider the various tax outcomes selling, trading in, or losing the car to a casualty or theft.
Imagine you purchased a car for $25,500 in 2018 and used the standard mileage rate to calculate car expenses. Over the years, you accumulated a total depreciation deduction of $24,415. By the end of 2023, the adjusted basis of the car is $1,085. If you dispose of the car at this point, any sale price above $1,085 would potentially be subject to tax as a gain, largely as ordinary income due to depreciation recapture.
Proper recordkeeping is essential for proving transportation expenses and staying ready to withstand scrutiny if necessary. To effectively prove your business expenses, you need to maintain timely and accurate records that can support each element of the expense. Document the cost of the car, the date you started using it for business, business mileage, and total annual mileage.
Adequate records include an account book, diary, log, trip sheet, or similar record, and must be kept in a written format. A computer record is considered written documentation.
Documentary evidence generally includes receipts, canceled checks, bills, or similar documentation.
Keep your records for at least three years from the date you file your income tax return on which the deduction is claimed. For business use of a car, maintain records for each year of the recovery period.
Horacio Bermudez