Each year, you and your small business are likely to spend money on various local transportation costs. These expenses have a number of tax implications.
But what does “local transportation” mean? It describes travel where you don’t spend enough time away from your tax home (the city or general area where your main place of business is located) to warrant sleeping or taking a break. If you are away from your tax residence for a period of time that is much longer than a typical workday and you require sleep or rest to complete your task, then different restrictions apply.
Transportation Costs to get to Work
The fact that your commute costs are not deductible is the key aspect of the local transportation regulations. To put it another way, the fare you pay or the miles you log just to commute to and from work are personal, not business, miles. As a result, no deduction is possible. This holds true even if you work while commuting (for example, via a cell phone, or by performing business-related tasks while on the subway).
A commute to a temporary workplace outside of the metro region where you typically live and work is an exception. For the purposes of this definition, “temporary” refers to a site where your job is actually intended to last no more than a year.
Transportation Costs from the Workplace to Other Locations
On the other hand, once you are at your workplace, any local trips you take for work-related reasons are tax-deductible transportation costs. So, for instance, travel expenses from your workplace to see a client or get supplies are tax deductible. The costs of traveling between your two business locations are also deductible.
If you are using a cab or public transit for your deductible trip, keep the receipt or record the cost in a logbook. Keep track of the date, sum spent, location, and business objective. If you use your own vehicle, record the number of miles driven rather than the amount spent. Keep receipts for any tolls or parking charges you pay.
Based on the number of miles you travel during the year, you must divide your car expenses between personal and professional use. Maintaining accurate records is essential in case the IRS challenges you.
You can calculate your deduction by using:
1. A standard mileage rate, plus tolls and parking (58.5 cents for business miles traveled between January 1 and June 30, 2022, and 62.5 cents for business miles driven between July 1 and December 31, 2022);
2. Actual costs for the portion of car use that can be attributed to the business (including depreciation, subject to restrictions). You must record all fuel, maintenance, repair, insurance, loan interest, and other car-related expenses if you choose to use this method.
Self-employed versus employees
Employees are not allowed to deduct unreimbursed local transportation expenditures from 2018 to 2025. This is due to the fact that for the years 2018 through 2025, “miscellaneous itemized deductions,” a category that includes employee business costs, are suspended (not permitted). However, the expenses covered in this article are deductible for self-employed taxpayers. Starting in 2026, employees’ business expenditures (including uncovered employee auto expenses) will once again be deductible, provided that their total miscellaneous itemized deductions exceed 2% of their adjusted gross income.
For more information or questions, contact our team.