Understanding how to deduct transportation costs can help reduce your small business's tax burden. Each year, you and your employees may incur local transportation expenses that could offer tax deductions. Let’s break down what qualifies and how to maximize your deductions.
What is Local Transportation?
Local transportation refers to travel that doesn’t require an overnight stay away from your tax home. Your “tax home” is the city or general area where your primary business is located. If your trip requires you to be away overnight, different tax rules apply.
Commuting Costs: What’s Not Deductible
One key rule: commuting expenses aren’t deductible. The cost of traveling between your home and your regular workplace—whether by car, bus, subway, or rideshare—is considered a personal expense. This remains true even if you perform business tasks during your commute, such as taking calls or working on your laptop.
Exception: If you’re traveling to a temporary work location outside your metropolitan area, those costs may be deductible. To qualify, the assignment must realistically be expected to last (and actually last) for no more than a year.
Business Travel Between Work Locations
Once you arrive at your main work location, the cost of traveling to other sites for business purposes is deductible. Examples include:
Visiting a client’s office or meeting a client for a work meeting
Picking up supplies
Traveling between multiple business locations or offices
Commuting to a temporary work site outside your metro area (lasting no more than a year)
Trips to the bank, post office, or for other business purchases
These expenses are considered business-related and qualify for deductions.
Recordkeeping Is Essential
Accurate records are crucial if you want to deduct transportation expenses, especially if the IRS ever audits you. Depending on how you travel, here’s what to track:
Public Transportation or Taxi: Keep receipts and record the date, amount, destination, and business purpose.
Personal Vehicle: Track the miles driven for business purposes. Also, record tolls, parking fees, and keep receipts.
If you’re using your car for both personal and business purposes, you must allocate your expenses accordingly, based on miles driven for each.
How to Calculate Your Deduction
You have two options for deducting car expenses:
Standard Mileage Rate: For 2024, you can deduct 67 cents per business mile, plus tolls and parking fees.
Actual Expenses: Deduct a percentage of your total car costs (based on business miles driven). This includes expenses such as gas, repairs, maintenance, insurance, depreciation (subject to limits), and loan interest.
Employees vs. Self-Employed Individuals
The tax rules for local transportation costs differ depending on your employment status:
Employees: Under the Tax Cuts and Jobs Act (TCJA), employees can’t deduct unreimbursed transportation expenses from 2018 to 2025. Miscellaneous itemized deductions—including employee business expenses—are suspended during this period.
Self-Employed: If you’re self-employed, you can continue to deduct business-related transportation costs.
In 2026, employees are scheduled to regain the ability to deduct these expenses, but only if their total miscellaneous deductions exceed 2% of their adjusted gross income (AGI). However, this provision could change if Congress extends the current rules.
Understanding these rules and keeping thorough records can make a big difference at tax time. Consider consulting with a tax professional to ensure you’re taking full advantage of every deduction available to your business.