Local Transportation and Commuting Costs

Our firm is not engaged by this text in the rendering of legal, tax, accounting, or similar professional services.  While the legal, tax, and accounting issues discussed in this material have been reviewed with sources believed to be reliable, concepts discussed can be affected by changes in the law or in the interpretation of such laws since this text was printed.  For that reason, the accuracy and completeness of this information and the opinions based thereon cannot be guaranteed.  Before taking any action, all references and citations should be checked and updated accordingly.

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 from there 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 because 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.

We hope you have found this letter helpful in explaining the rules associated with commuting and local transportation.