Understanding how to deduct local transportation expenses can help reduce your small business’s tax liability significantly. Both you and your employees likely incur transportation costs annually, and knowing which expenses are deductible can make a substantial difference come tax time.
What Is Local Transportation?
Local transportation refers to travel within your tax home when the trip doesn’t require sleep or rest. Your “tax home” is the city or general area where your primary place of business is located. If your travel takes you far enough to necessitate rest or sleep, different rules for travel deductions may apply.
Key Rules for Work Locations
The primary rule is that commuting costs are not deductible. This includes expenses for travel between your home and your regular workplace, even if you’re performing business-related tasks during the commute (e.g., making calls or sending emails).
An exception applies if you’re commuting to a temporary work location outside your usual metropolitan area. For tax purposes, a location is considered temporary if your work there is expected to last (and actually does last) for no more than a year.
Deductible Business Travel
Once you’ve reached your regular work location, local travel related to your business becomes deductible. For example:
- Travel from your office to meet a client.
- Trips to pick up supplies or visit a job site.
- Travel between two business locations you own or operate.
The Importance of Recordkeeping
Maintaining accurate records is essential for substantiating your deductions. Here’s what you need to track:
- Public transportation: Save receipts or log expenses with details about the date, destination, and business purpose.
- Personal vehicle use: Note the mileage driven for business purposes, along with tolls and parking fees. Receipts for expenses like gas, repairs, insurance, and maintenance are also necessary if you opt to deduct actual expenses instead of using the standard mileage rate.
Your transportation deduction can be calculated using either:
- The Standard Mileage Rate: In 2024, the rate is 67 cents per mile, plus tolls and parking.
- Actual Expenses: Include gas, maintenance, insurance, depreciation, and other car-related costs. Allocate expenses between personal and business use based on the miles driven for each.
Employees vs. Self-Employed Deductions
Under the Tax Cuts and Jobs Act (TCJA), employees cannot deduct unreimbursed transportation costs from 2018–2025. These deductions, previously classified as “miscellaneous itemized deductions,” are suspended during this period.
However, self-employed individuals can still deduct qualifying transportation expenses related to their business. Starting in 2026, employees may regain the ability to deduct certain transportation expenses, provided their total miscellaneous deductions exceed 2% of their adjusted gross income.
Seek Expert Advice
Navigating tax laws can be complex, especially with potential changes on the horizon. Our team is here to help you understand your options and ensure you’re maximizing your deductions.
FAQs
1. Can I deduct the cost of commuting to and from work?
No, commuting expenses are considered personal and are not deductible, even if you perform business-related tasks during your commute.
2. Are travel expenses between two business locations deductible?
Yes, travel between business locations or for business purposes (e.g., client meetings) is deductible.
3. What’s the best way to track deductible transportation expenses?
Maintain detailed records, including receipts for public transportation or mileage logs for personal vehicles. Use either the standard mileage rate or actual expenses for calculations.
4. Can employees deduct unreimbursed transportation expenses?
Not currently. From 2018–2025, employees cannot deduct these costs due to TCJA regulations. Self-employed individuals, however, can deduct business-related transportation expenses.
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Have questions or need help with your tax planning? Contact us to learn how to maximize your deductions and reduce your tax burden effectively.
