(if you have Acrobat reader, you can look at an example prepared by the IRS - Daily car Log Weekly Travel Expense )
This letter is in response to your inquiry regarding whether certain costs incurred by
you for local work-related transportation and commuting are deductible. In general, in
order for transportation costs to be deductible they must be ordinary and necessary and
incurred in the pursuit of business or an investment. Generally, the costs you incur when
traveling from one job to another, or from one client to another, are deductible. However,
the costs associated with commuting between your residence and principal place of business
are not deductible.
Although the costs of getting to your first work site are not deductible, local
transportation costs incurred in traveling to another work site are deductible. Similarly,
the transportation costs incurred in traveling from one employer or client to another are
deductible expenses of carrying on your trade or business. For example, your travel
expenses to and from your office are not deductible. However, the expenses you incurred in
visiting clients during the day from your office are deductible. Also, if you drive
directly to a client in the morning, the added cost of getting to the client's location is
deductible.
If your principal place of business is located in your residence, you may deduct the
cost of all local transportation relating to your business. This rule applies even if the
business is not your sole source of income, as long as your residence is the principal
location for the secondary business. If your principal business is located outside the
home, you cannot deduct the transportation costs between the principal business site and
the home business site.
Unreimbursed employee business expenses, including travel and transportation costs, are
deductible only if you itemize deductions. Unreimbursed employee business expenses are
grouped with other miscellaneous deductions and are deductible only to the extent that
they exceed 2% of your adjusted gross income. However, the 2% floor does not apply to the
unreimbursed employee business costs of self-employed people. A self-employed person, such
as a partner or sole proprietor, can deduct unreimbursed business travel and
transportation costs on Schedule C or E without limit. The 2% floor also does not affect
the deductibility of reimbursed employee business expenses to the extent of the
reimbursement. Thus, an employee who incurs travel and transportation costs solely for the
benefit of his employer and who is reimbursed for such costs under an accountable plan
need not report the reimbursement as gross income nor claim the offsetting deduction.
I hope you have found this letter helpful in explaining the rules associated with commuting and local transportation. If you have any questions, please feel free to call me.
Bob Parrish CPA