As we talk about how great the Lansing area is to live in and work in, questions arise about how to achieve the lowest income tax liability while working in and around our beautiful, historic city. One of these income tax planning areas involves the tax deductibility of transportation costs incurred while traveling for work.

Local transportation refers to travel in which you aren’t away from your tax home (the city or general area in which your main place of business is located) long enough to require sleep or rest. Different rules apply if you are away from your tax home for significantly more than an ordinary work day and need sleep or rest in order to do your work.

The most important feature of the local transportation rules is that your commuting costs are not deductible. That is, the fare you pay or the miles you drive simply to get to work and home again are personal and not business miles and no deduction is available. This is the case even if you work during the commute; e.g., via a cell phone. An exception applies for commuting to a temporary work location that is outside of the metropolitan area in which you live and normally work. “Temporary,” for this purpose, means a location where your work is realistically expected to last (and does in fact last) for no more than a year.

On the other hand, once you get to work, the cost of any local trips you take for business purposes is a deductible business expense. So, for example, the cost of travel from your office to visit a client, pick up supplies and so on, is deductible. Similarly, if you have two business locations, the costs of travel between them is deductible.

Recordkeeping. If your deductible trip is by taxi or public transportation, save a receipt if possible or make a notation of the expense in a logbook, and record the date, amount spent, destination and business purpose. If you use your car, note miles driven instead of amount spent. Note also any tolls paid or parking fees (with receipts).

You will need to allocate your automobile expenses between business and personal use based on miles driven during the year. Proper recordkeeping is crucial in the event of an IRS challenge. Your deduction can be computed using (1) a standard mileage rate (for 2010, 50 cents per business mile driven plus tolls and parking), or (2) actual expenses (including depreciation, subject to limitations) for the portion of car use allocable to the business. For method (2), you will need to keep track of all costs for gas, repairs and maintenance, insurance, interest on a car loan and any other car-related cost.

Visit our website for more income tax information at www.GWBcpas.com.

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This article provides general information and may not apply to your particular situation. In addition, this article does not offer legal or tax advice. 

		Connie L. Berg cofounded Godfrey Wise Berg, CPAs and Advisors, LLC in 1995 with Godfrey after 26 years of experience as an office professional in a variety of diverse business arenas. She currently serves as business manager and director of human resources and marketing. D. Craig Godfrey, firm managing partner of Godfrey Wise Berg, CPAs and Advisors, LLC (GWB), has over 20 years of experience in taxation. Godfrey has a diverse client base and provides a wide range of services specializing in the areas of individual and business taxation.