When you ride a cab or get in your own car to do business somewhere, have you ever thought of your transportation costs and how much of it you can actually write off? So many materials have been written about deductible expenses when people travel away from their tax homes for business, but those that tackle deductible expenses when not traveling away from home are scarce.
Here, let’s focus on your transportation costs when you are technically not traveling away from home. But before we go to your expenses, remember first that you are considered traveling away from home if you meet the following criteria:
Your business or job requires you to be away from your tax home considerably longer than your ordinary day at work.
You need to sleep to meet the demands of your work.
If you don’t meet the above-mentioned criteria, then you are not traveling away from home so this chapter is for you.
You probably know that the law mostly does not allow deductions for personal expenses, so we’re talking about business expenses here.
By definition, transportation expenses cover your cost of transportation– may it be by rail, bus, taxi or air, as well as the cost of maintaining and driving your own car.
According to the IRS rule, these expenses include all ordinary and necessary costs of the following:
Going from one location to another while conducting business or performing your profession, as long as you are traveling within the general area of your tax home.
Visiting your customers or clients.
Going to a business meeting that is not within the area of your regular workplace.
Temporarily going from your home to a workplace when your business or job requires you to have more than one regular place of work. Here, it doesn’t matter whether your temporary workplaces are within the general area of your tax home or not.
Remember that generally, the transportation expenses that will be discussed in this chapter do not include those that you incur when you travel away from your tax home overnight, though the rules here apply when you use your own car to travel away from home overnight as this will cover car expense deductions.
Basically, the transportation expenses that you incur daily when traveling from your home to one or more of your regular workplaces are considered nondeductible. That means that if you ride a bus to travel from your home to one of your regular workplaces, you are generally not allowed to write off the commuting expenses that you incur. However, there are certain exceptions to this rule.
If you go between your home and your temporary workplace outside the general area of your residence, you are allowed to deduct the transportation expenses that you incur. You can also deduct your daily transportation expenses in the following situations:
If you have at least one regular work location away from your home.
If your home is your regular workplace or place of business and you incur transportation expenses when you go to your home and another work location. However, that work location should fall in the same industry or business, regardless of the distance and regardless of whether the work you do there is permanent or temporary.
When Transportation Expenses are Deductible
Before we go into the finest details, here is a summary of the key locations you should consider and the instances when you can and cannot deduct your transportation expenses:
This home is not necessarily your tax home but the place where you live. The transportation expenses that you incur when you travel to and from your regular or main place of work are considered personal commuting expenses and are therefore nondeductible.
Regular or Main Job. This refers to your main place of work or business. In the event that you have more than one job, you can determine which of your workplaces your main workplace is by considering the time you spend at each, as well as the activities you have at each and the income you earn at each. While your transportation expenses from your main job to your home are nondeductible, your expenses from your main work location to your temporary work location or second job and vice-versa are always deductible.
Temporary Work Location. Your temporary work location is any place where you are expected to perform your job in a year or less. You can only write off your transportation expenses to your temporary work location if it is not within your metropolitan area unless you have a regular workplace or place of business.
Second Job. You are allowed to deduct your transportation expenses when you get from one workplace to another if you have more than one job and are required to regularly work in more than one place in a day. Whether or not your two or more jobs are for the same employer, your transportation expenses are always deductible. However, you cannot deduct your transportation expenses if you’re coming from your home going to your second job. Remember that you have to go directly from your first job to your second job for your transportation expenses to be deductible. If you go somewhere else after leaving your first job, the amount you spend on your transportation going to that place is nondeductible.
The above-mentioned rules apply when you incur transportation expenses since you have a regular job away from your home. If your main workplace or place of business is your home, do not use the rules for reference.
How to Know if Your Work Location is Temporary
If your regularly incur commuting expenses because you have more than one regular work location in the same business away from your residence, you can write off the transportation expenses that you incur for your daily round trip between your home and your temporary workplace, regardless of how near or far that workplace is from your home.
In case you are expected to complete your employment at a particular workplace in a year or less, then your employment is considered temporary. Your employment is not considered temporary if your employment at a work location is expected to last for more than a year.
But what if your employment was initially expected to last for less than a year, but due to unavoidable circumstances, you are suddenly expected to work for more than a year?
In that case, your employment will be treated as temporary and the same rules on tax deductions apply. If your temporary workplace is not within the general area of your regular work and you stay there overnight, then you are considered traveling away from home and the treatment of your transportation expenses depends on the rules under the Traveling Away From Home section of the IRS Publication 463.
If You Do Not Have a Regular Place of Work
If you do not have a regular place of work but usually works in the metropolitan area of your residence, you can write off your daily transportation expenses between your home and temporary workplace that goes beyond that metropolitan area. The IRS defines this metropolitan area as the area which covers the area within the city boundaries, as well as the outskirts of the city.
Keep in mind that you cannot write off your daily transportation costs if your temporary workplace is located just within the metropolitan area because these expenses are considered nondeductible.
When You Have Two Places of Work
Some people have more than one job in a day, and therefore have to go to two work locations in a day. If you are one of them, you are allowed to deduct your transportation expenses when you get from your first work location to the other and vice-versa. That is regardless of whether or not your two jobs are for the same employer.
But what if for some personal reason you fail to go directly from your first work location to the next?
In that case, you are not allowed to deduct your transportation expenses because the rule states that you cannot write off more than the amount it costs you to go directly from your first workplace to the next.
For instance, it’s your day off from your main job and you incur transportation expenses when you go between your home and your part-time job, such costs are considered commuting expenses and are therefore nondeductible.
When You are a Member of the Armed Forces Reserve Unit
Specific laws are set in place for people who are members of the Armed Forces reserve unit.
Say you have a meeting in that unit. If that meeting is held on a day when you are not off from your main job, then the venue of the meeting is considered as a second place of business and the transportation expenses you incur in getting there from your main workplace is deductible.
However, if the meeting is held on a day when you don’t work at your regular job, your transportation expenses become nondeductible.
The story is different if the place where the meeting is held is temporary and you have more than one regular place of work.
Say you regularly work in a certain metropolitan area but not at any specific location in that area, and the meeting is temporarily held outside that metropolitan. In that case, you are allowed to deduct your travel expenses.
Your transportation expenses also become deductible if your being a reservist requires you to travel more than 100 miles away from your residence. If you travel that distance in connection with your performance as a reservist, you can deduct some of your costs not as itemized deductions but as an adjustment to your gross income.
Generally, commuting expenses are the transportation costs you incur when you commute from your home to your main place of work and vice-versa. The costs of taking a trolley, bus, taxi or subway between your home and your regular work location are nondeductible since the law sees them as personal commuting expenses.
Regardless of how far your residence is from your regular place of work, you cannot deduct your transportation expenses.
You may ask, what if you still work during the commuting trip?
Performing your job during your commuting trip does not change your commuting expenses from personal to business expenses.
Take this as an example. You use your phone to make business calls while commuting. Or you have your own car and colleague rides with you on your way home. During your travel, you engage in a business discussion. In both cases, your transportation expenses remain personal and nondeductible.
When you commute to and from work, your taxi fare usually is not the only cost covered by your transportation. Take a look at these accompanying commuting expenses:
Parking Fees. When you bring your own car to work and pay to park your car at the parking lot of your business location, the parking fee is nondeductible. The only parking fee that is considered deductible is that which you pay for when you visit a client.
Advertising Display on Car. Just because you put display material advertising your company does not necessarily mean that your car is for business use, so the expenses you incur for putting such displays on your car are all nondeductible.
Car Pools. When you use your car in a nonprofit car pool, you still cannot write off the cost of doing that. You should not include the payments that you receive from your passengers in your income. However, you may do otherwise if you operate a carpool for a profit. In that case, you may include their payments in your income and then deduct your car expenses.
Hauling Tools or Instruments. Hauling instruments in your car when you are commuting to and from work does not make your transportation expenses deductible.
When Your Home Qualifies as a Principal Place of Business
If you consider the place where you live as your main place of work or business, your daily transportation costs between your home and your other work location are deductible. Take note, however, that the work you do in your home and in the other work must be in the same business.
All things considered, it is safe to say that nothing in tax law is straightforward, no matter how easy you may find identifying deductible transportation expenses is.