Commuting Expenses of Taxpayers with Home Office

By | January 23, 2014

Taxpayers who work from home and who have a home office enjoy many different tax benefits. 

For most people, the cost of daily travel between home and a regular work location is a nondeductible commuting expense because it is personal in nature. However, if a taxpayer  maintains home office, they may be entitled to take a special tax break for their commuting costs. Commuting costs are deductible if the taxpayer has a regular place of work outside of the home or has a home office as the principal place of business but needs to travel to temporary job locations on particular days Be aware though, that even though there special rules for this, the IRS pays close attention to home office deductions and taxpayers will need to be able to substantiate these deductions with their records.


Deducting Commuting Expenses with Home Office

The IRS has special rules for taxpayers who have an office at home can deduct the daily costs of travel between home and another work location in the same business, regardless of distance and regardless of whether the other location is regular or temporary. The 1997 Taxpayer Relief Act changed the requirements to qualify a residence as a “principal place of business” for purposes of the home office deduction. The IRS amended IRC section 280A to provide that a home office qualifies as a principal place of business if–

* the taxpayer uses the office to conduct administrative or management activities of a trade or business and
* there is no other fixed location of the trade or business where the taxpayer conducts substantial administrative or management activities of the trade or business.


Commuting Expenses of Taxpayers with Home Office

As under prior law, the IRS will allow home office deductions only if the taxpayer uses the office exclusively on a regular basis as a place of business. In addition, if the taxpayer is an employee, use of the home office must be for the convenience of the employer.


Requirements to get Commuting Tax Deduction

The most important thing to note is that you will only get this deduction if your home is your principal place of business. If you do not meet this important requirement, taxpayers may be exposing themselves to IRS penalties and the IRS does focus heavily on the deduction of home office expenses. Also, remember this important exception, if you are an employee and your employer reimburses your travel expenses, you do not need to report the reimbursements as income if they are made under a so-called “accountable plan.”


What is an Accountable Plan?

An accountable plan is one that reimburses only deductible business expenses, requires you to substantiate your expenses, and requires you to return amounts in excess of your substantiated expenses. If the plan is not an accountable plan, the reimbursement must be reported as income, and your deductible expenses must be claimed as employee business expenses. Employers will have intern company policies on accountable plans and how they apply to employees business expenses deductions.


Records for Commuting Expense Deduction

It is absolutely essential that a taxpayer is able substantiate the auto expenses that you claim through adequate records. You can substantiate commuting expenses for the tax deduction by keeping a log (there is even a special smart phone app for tracking this for tax deductions).  The taxpayer has the  option to either use the standard mileage rate or deduct your actual expenses.

Also remember, that if your office at home isn’t your principal place of business, the costs of travel between your home and the first and last business stops of the day are nondeductible commuting expenses. However, the costs of going between home and a temporary work location are deductible, if you have a regular work location away from home. Generally speaking, employment at a work location is temporary if it is realistically expected to last (and does in fact last) for no more than a year.