Updated: Jul 7, 2021
Commuting miles is another one of those tax deductions that confuse many people. Mostly because they have been informed, or often misinformed, by their family member or friend (who heard from a friend) how they counted their miles for driving to work as a tax deduction, and apparently this friend is an expert at tax deductions too. However, let's try to clear this up. There is a definite IRS ruling on transportation, and which miles count, and which miles are considered "commuting miles" and as such do NOT count.
First off, this is similar to travel expenses that we discussed a few posts ago, but for tax purposes there is a difference.
Travel refers to business expenses that are incurred while one is traveling to an area outside his or her “tax home.”
Transportation refers to a business expense of getting from one place to another within the area that is considered the taxpayer’s “tax home.”
Here we are talking about transportation, not travel. In general, starting tax year 2018 and set to continue through tax year 2025, an employee is not currently allowed to count auto expenses such as miles driven for work as a deduction. This is due to the suspension of the miscellaneous itemized deductions that were subject to a 2% AGI (adjusted gross income, your income minus deductions used to determine how much tax you owe) limit, that used to be allowed on schedule A. As an employee, that was really the only place to take such a deduction. Therefore, currently this topic now mostly applies to only business owners.
Let’s first of all clarify a few things. Transportation between the taxpayer’s home (where they reside) and their regular place of work are personal commuting expenses and are NOT deductible. “Commuting” expenses are NOT deductible no matter how far the taxpayer’s home is from the regular place of work.
For example, a woman owns her own retail store. She lives 20 miles away in her own house. The store is her main place of business. The miles driving to and from the store to her home are considered personal commuting miles. The 40 miles a day of commuting are not deductible.
But now let's say the woman drives from her home to the store, then during the work day drives to see a distributor 15 miles away in the same city to discuss a new product to be sold. She then drives back to the store to finish out her work day. At the end of the day she drives back home. In this case the 30 miles between the store and the distributor (15 miles each way) count as a deductible business expense. The 40 commuting miles from home still do NOT count.
In general the IRS basically says the cost to get to and from work is on you, so there is no deduction. There is however one major commuting exception. If a taxpayer has an office at home that passes the “principal place of business” test, the transportation expenses from the residence to other work locations in the same business, qualify for a deduction.
In order for the home office to meet the principal place of business test, it must meet this criteria.
The home office is used exclusively and regularly for administrative or management activities of the business.
There is no other fixed location where substantial administrative or management activities are conducted.
With this in mind, let’s go back to our retail store owner’s example. Let’s say she has a section of her home where she works from. At night and on the weekends, she is doing administrative activities and conducting business. While she might be doing such work, it is not exclusively used for business, and she has another fixed location (the store) where management activities are conducted. Therefore the miles to and from her home office and the store still do NOT qualify for a business deduction.
There are definitely an unlimited amount of circumstances and situations that can be discussed in regards to this deduction and there are ones who do meet all the right criteria to count miles driven from their home office to other locations for business. In general though, commuting miles are not a deductible expense. If you need help figuring out your own personal circumstances in this regard, please don’t hesitate to reach out to us.