Deducting Business Travel to and From a Home Business
Car Expenses and Mileage To and From a Home Business
If you operate your business from your home, you can deduct business-related car expenses for travel back and forth from home to business locations for business purposes. These expenses include all of the costs of running your car, under these circumstances:
- You work at home in your home-based business.
- Your home is your principal place of business (the place where you earn most of your income or where you do your administrative or management tasks).
- You can prove that the car expenses were business-related, not personal.
To be deductible, all costs for travel to and from your home business must be business-related.
Can I Deduct Commuting Expenses?
Commuting expenses are generally not deductible because they are considered personal expenses. But driving from your home business to a client location or for business errands is not considered commuting, as long as you can meet the principal-place-of-business qualification.
Can I Deduct Mileage To and From My Home Based Business?
Yes, your mileage to work sites and back are business miles that must be supported by written documentation of where you went and how many business miles you traveled. Trips to the bank and post office also qualify as business mileage if documented. Trips for personal errands are ignored.
The result of your records should be business miles for the year (with a backup written log) and total miles that were driven for the year. To document your total miles driven, take your odometer reading at the beginning and end of the year. The IRS often looks at the odometer reading on auto repair bills to see if your total miles are reasonable.
How Do I Prove Car Expenses Are Business Related?
The IRS looks very carefully at car expenses for small businesses. They want to see that the expenses were truly business-related because non-business expenses for use of a car are not deductible. The IRS requires that you have detailed records that are:
- Noted at the time of the expense (not weeks or months later)
- Detail the date, the reason for the trip, and other information to show that the car travel was business-related
You don't have to include these records with your business tax return, but you must have them in case of an IRS audit. Since you can't make them up after you are notified of an audit, you will need to keep good travel records for your business from the very beginning, making it a habit of tracking the information noted above.
What Car Expenses Can I Deduct?
You can deduct all ordinary and necessary expenses related to business travel, but no personal travel. If you have met the qualification noted above for your home business as your primary location, you can then deduct expenses from your home for car travel to and from locations where you do business. For example, you can deduct travel to and from:
- The home of a client
- The office store where you buy office supplies
- Temporary job sites where you work for clients
- Places where you meet with clients, customers, or business advisers
- Your warehouse or the place where you keep your business inventory
- A convention center where you participated in a business seminar
You can also deduct expenses for overnight business travel to and from your home based business, just as you can for other business travel, including mileage or airfare, lodging, meals, and entertainment expenses.
How Do I Determine These Car Expenses?
You can use the standard mileage deduction rate set by the IRS, which changes every year, or you can keep track of actual costs for all car-related expenses.
Both the standard mileage and actual costs methods have advantages and drawbacks. Using the standard mileage rate is less trouble because all you have to do is set out the miles traveled for business purposes, but the actual cost method sometimes results in higher deduction amounts.
Be Sure to Keep Good Records on Business Travel From Your Home Business
Remember, although business travel to and from your home-based business is deductible, it must be documented and recorded at the time of the trip. Don't get caught shorthanded without these documents in the event of an IRS audit of your business.
The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. For current tax or legal advice, please consult with an accountant or an attorney.