When you leave your home office and climb into your car, it's
a good idea to know whether or not the trip will be deductible
so you can record the mileage in your expense log. Generally,
commuting between home and a place of business is considered personal
and nondeductible, while transportation from one place of business
to another is deductible. However, if you go from your home office
to the office supply store, for example, the trip might fall under
both the general categories, so special rules apply.
When Home Office Expenses Are Deductible
First, if your home office qualifies as your "principal
place of business," you can deduct daily transportation expenses
incurred in going between your home and another business location
in the same trade or business, regardless of whether the other
business location is regular or temporary, and regardless of the
distance. So if your home office qualifies as your principal place
of business, and the primary purpose of your trip to the office
supply store is to buy something for your home-based business,
the trip is deductible. This is a great extra benefit for the
legion of home-based business owners who can take advantage of
the new easier home-office deduction rules.
When Home Office Expenses Are Not Deductible
Regular business locations outside the home
Perhaps your home office does not qualify as your principal place
of business, and you have one or more regular business locations
outside the home. In this case, transportation between your residence
and the regular work locations is considered nondeductible personal
commuting. On the other hand, the IRS allows you to deduct daily
transportation expenses in going between your home and temporary
business locations in the same trade or business, regardless of
the distance.
Now you have to determine the difference between a "regular"
work location and a "temporary" one — something
that is not always easy to do. According to the IRS, you may be
considered to be working or performing services at a particular
location on a regular basis whether or not you are there every
week or on a fixed schedule. In contrast, a temporary place of
business, according the IRS, is any location at which you perform
services on an irregular or short-term basis. For example, if
a doctor leaves from home and pays daily visits to a patient at
the patient's home for a short period while the patient is sick,
the transportation is deductible.
Before you get too creative with these rules concerning temporary
work locations, you should read this warning from the IRS:
If it is determined upon examination that there is a clear
pattern of abuse by the taxpayer in claiming a business expense
deduction for daily transportation expenses paid or incurred
in going between the taxpayer's residence and asserted temporary
work locations without proof of a valid business purpose, the
Service will disallow any deduction for such expenses and impose
appropriate penalties (Rev. Rule. 90-23).
Since places like the office supply store are commonly paid
regular visits, it's best to be cautious here.
No regular business locations outside the home
If your home office is not your principal place of business,
and if you have no regular work locations outside your home, then
you cannot deduct the cost of transportation between your home
and any temporary work locations within the metropolitan area
where you live. However, you can deduct daily transportation expenses
incurred in going between your home and a temporary business location
outside the metropolitan area where you live and normally work.
So, if instead of going to the office supply store, you take a
day-trip from home to a near-by city to attend a business seminar,
the transportation to and from the seminar is deductible.
The New Home Office Deduction Rules
You can see that the deductibility of your car expenses is greatly
affected by whether your home office qualifies as your principal
place of business. The Taxpayer Relief Act of 1997 expands the
deductibility of home offices, effective for 1999 and later. The
new law says a home office will qualify as a principal place of
business if it is the only place used by the taxpayer to conduct
administrative or management activities essential to the taxpayer's
business, and its use is regular and exclusive.
What You Need to Show
To deduct local business use of your car you must be able to
prove the following:
-
the amount expended if you use actual costs in computing
your car expenses,
-
the mileage for each business use and the total miles you
drove your car during the year,
-
the date of the expense or use, and
-
the business purpose of the expense or use, unless it is
clear from the surrounding circumstances.
Whether you are using the actual expense method or the standard
mileage allowance you still
need to determine your allowable business mileage and total mileage
for the year.
