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2012 Mileage Rates 
Reason Vehicle Used Cents Per Mile
Business 55.5 cpm
Medical 23 cpm
Moving 23 cpm
Charity 14 cpm

Turning Nondeductible Commuting Mileage into a Tax Deductible Business Expense

Question: "If I'm self-employed and drive between my home and my place of business, can I deduct the mileage?"

Question: If I'm an employee and drive between my home and my employer's place of business, can I deduct the mileage?

I'll cover both situations.

The Basics About Commuting Mileage

Is commuting mileage deductible?

No.

What is Commuting Mileage?

Travel between your home and your place of business is commuting mileage. This is true whether you're an employee or self-employed.

Why Commuting Mileage is not Deductible

Commuting mileage in not deductible because it is considered a personal expense and not a business expense. But, there is a loophole for self-employed persons who travel between their home and their place of business which will turn commuting mileage into a tax deductible business expense.

NOTE: This loophole does not apply to employees who travel between their home and their employer's place of business.

Self-Employed Person

To deduct transportation from your home to your place of business and back home, you must satisfy BOTH of the following:

  1. You must be self-employed AND
  2. Have at least two business locations

Here's the loophole that lets a self-employed person deduct mileage from home to another business location and back home:

Any miles driven between TWO or more BUSINESS locations are deductible business miles. The key is understanding just what the IRS considers a "business" location. Read on...

Two business locations may include:

  1. Your home office:
    • Your home office is considered a business location.
    • It must be used regularly and exclusively for business and not for personal use (i.e., no entertaining guests in this location).
    • Your home office may be a room in your house or designated space in an apartment or condo.
    • Under the Administrative Management Rule, your home office may be used to perform administrative duties such as bookkeeping, billing, setting appointments, business planning, etc.
  2. A location outside your home:
    • Your other business location may be outside your home where you meet clients or customers to transact business. For example, you may have a facility where you perform some type of service such as physical therapy or perhaps you have a retail store where you sell products. So, since your home office and your other business facility are two separate business locations, you may deduct the mileage between these locations.

TIP: If you don't currently have a home office in your house or apartment, simply set one up (a desk, chair, and file cabinet, and telephone). If you have a house, use a separate room. If you rent an apartment, designate area in your bedroom or living room to be use regularly and exclusively for business-related purposes; no computer games or other nonbusiness activities. Upon learning of any personal use in the space, the IRS may disallow your dedution.

CAUTION!

Let's say you get up in the morning and dash out of the house to go to your place of business. And suppose you left your house without first stopping off in your home office to do some work such as checking your emails or filing some papers or whatever.

Guess what?

Technically, your mileage would be nondeductible commuting mileage because you didn't travel between TWO business locations; you never stepped foot into your home office before leaving the house.

Now obviously no IRS agent will know whether or not you stopped off in your home office. But this is a technicality that you should be aware of. Remember the rule: You must travel between two or more business locations. Your home office is a business location. The other rooms in your house are not.

In addition, you must comply with the regular and exclusive rule too.

Your Home May Be Your Principal Place of Business in Two Ways

There are two ways for your home to considered your principle place of business:

  1. You operate a service regularly and exclusively out of your home where you see clients or patients, such as dentistry, physical therapy, law, accounting.
  2. Under the administrative and management rule:
    • You use your home office regularly and exclusively for administrative duties to manage your business.
      • For example, if you use your home office for doing your bookkeeping, setting appointments, and making sales calls, your home office is considered your principal place of business.

Other Costs You May Deduct

You may deduct other costs besides just the mileage allowance.

They include:

Commuting Costs for Employees

If you have one job:

Transportation costs from your home to your main place of business and back home are nondeductible commuting costs; they are considered a personal (as opposed to business) expense.

If you have two or more jobs:

If you have two or more jobs, although the cost of transportation from your home to your main job is not deductible, the costs of transportation between each job is deductible.

Going from your home to a second job:

If you have the day off from your regular, or main job, and travel to a second job and back home, the cost of transportation is not deductible.

In addition to the business mileage allowance, you can deduct:

Interest On a Car Loan

Self-Employed

Only self-employed persons may deduct interest on a car loan when the vehicle is used for business purposes.

The following persons are considered self-employed:

When an election is made to treat an LLC as either a C-corporation or S corporation, the owners are treated as employees of the corporation and not as self-employed persons.

The C or S corporation files Form 1120 or 1120S, respectively. Shareholder/employees receive Form W-2 to report their compensation and withholding taxes.

Employees:

An employee may NOT deduct interest on a car loan regardless of the amount of mileage an employee travels in his or her vehicle on behalf of an employer.