Local Transportation Costs
Do you travel from your office to see clients or customers? Do you have more than 1 business location? Do you have an office in your home but go into the field to transact business? If the answer to any of these questions is yes, you may be able to deduct local transportation costs. More specifically, local transportation costs include the cost of work-related travel within the area of your tax home.
Tax home
In general, your tax home is the entire city or general area of your regular place of business. If you have more than 1 business interest, then it is the location of your main business interest based on the comparative time spent in each location and the income derived from each business interest. If you do not have a regular place of business, you are considered an itinerant without any tax home.
Deductible Costs
Local transportation costs include the cost of driving and maintaining your car (including tolls and parking) or the cost of taxis, bus fare, train fare, or airfare. Computing the cost of driving and maintaining your car is discussed in Chapter 9.
Commuting Costs
As a general rule, the costs of commuting between your home and workplace are not deductible. Thus, your bus or train fare, gas for your car, bridge and highway tolls, and parking fees are nondeductible. This rule does not change merely because the commute is unusually long or you do work on the way (e.g., reading reports on the train, talking to clients on your car phone, or displaying advertising on your car). Commuting costs are considered nondeductible personal expenses. However, there are a few exceptions that make certain commuting expenses deductible:
Example
You have a medical practice with an office across the street from the hospital in which you practice. You sometimes stop to see patients in their homes before going to the office or the hospital. You can deduct the cost of travel from your home to the patients’ homes, as well as the cost of travel from their homes to your office or the hospital.
NOTE
If you do not have a regular place of business but work at temporary work sites in the metropolitan area of your home, you cannot deduct your transportation costs. Thus, according to the IRS, a lumberjack who worked at a number of temporary cutting sites was not allowed to deduct the cost of transportation to those sites. The entire area of the cutting sites was considered his regular place of business. However, the Tax Court has allowed a deduction for transportation costs in this instance, so the issue is not yet settled.
1. If you have 1 or more regular places of business but work at different locations on a temporary basis (as defined under the following exception), you can deduct the daily cost of travel between your home and the other work site.
2. If you travel from your home to a temporary work site outside the metropolitan area where you live and normally work, you can deduct the daily cost of travel between your home and the temporary work site, regardless of the distance. Temporary means that work is realistically expected to last for 1 year or less. If it turns out to last longer, the period up until the realistic expectation change is treated as temporary.
Example
You have an office downtown but work on a 2-month project at a client’s facilities in the next city. You can deduct the cost of travel from your home (which is in the same metropolitan area as your office) to the client’s facilities (and back) each day.
If you travel outside your metropolitan area, both the IRS and courts agree that the costs of traveling between your home and a temporary work site outside your area are deductible.
Metropolitan area
The area within a city and its surrounding suburbs.
3. If you have a home office that is the principal place of business for the activity conducted there (see Chapter 18), the cost of traveling from your home to your clients or customers or to other business locations is deductible.
Example
You run a tax return preparation business from your home and generally meet clients in your home office. Occasionally you go to clients’ homes to do your work. You may deduct the cost of traveling between your home and the clients’ homes and back again.
4. If you must haul tools or equipment to your job site and you use a trailer or have to make other special arrangements, the additional cost of commuting with the tools is deductible. The basic transportation costs are still treated as nondeductible commuting expenses.
Example
You rent a trailer to haul tools to and from home and business. You may not deduct the expenses of using your car; however, you can deduct the cost of renting the trailer that you haul with your car.
Local Overnight Stays
The IRS has liberalized the rules for deducting the cost of local overnight stays. As long as this is not a compensatory benefit, but done for a business purpose, the employee is not taxed on the overnight stay(s) and the employer can deduct the cost. For example, an employer may require its employees to stay at a local hotel for the bona fide purpose of facilitating training or team building directly connected with the employer’s trade or business.
