How to Turn Non-Deductible Commuting Mileage Into A Deductible Business Expense — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily
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How to Turn Non-Deductible Commuting Mileage Into A Deductible Business Expense

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in Tax Matters

For most folks, commuting mileage is a non-deductible expense -- unless you know the legal tax loophole I'm about to reveal.

The non-deductibility of commuter miles is painfully true for the employee who fights rush hour traffic every day, twice a day, for 5 to 10 hours a week. All that hassle, and what does he have to show for it? Just gas money down the drain, not to mention the wear and tear on both his vehicle and his stress-o-meter.

You can deduct virtually all your mileage, including the miles you log from your home to the office or other place of business, if you meet the following two criteria:

1. You are a small business owner or self-employed person, and
2. You have two offices or work locations: one outside the home (Office #1) and one inside the home (Office #2).

Having two offices is very common for today's self-employed professional. The store owner, the shopkeeper, the salesman, the plumber, the consultant -- all these folks are typically self-employed and have two offices: one where they meet with the public (Office #1), the other at home, where they get their paperwork done (Office #2).

Here's how it works:

Every day you get up and "go to work." But you don't get in the car and drive to Office #1 right away. If you did that, even as a self-employed person, you would be racking up non-deductible commuting miles, just like the employee.

Instead, you grab a cup of coffee and head to Office #2 first, which takes all of 30 seconds. After working in Office #2 for awhile, then you hop in the car and head to Office #1, where you work for the bulk of the day.

Then, when you're done at Office #1, you get back in the car and go "home" -- except when you get inside your house, you don't head for the living room, you go straight to Office #2, where you finish up your daily routine with a final round of paperwork.

What have you just done? You daily round-trip "commute" is now a business deduction, due to a simple tax loophole that says: Any miles driven between two business locations are deductible business miles. The fact that one of those two locations just happens to be your Home Office is fine and dandy with the IRS.

By following this route each day, you can save hundreds, even thousands of dollars in taxes. The proof is in the numbers:

Let's say your round-trip between Office #1 and Office #2 is 20 miles per day.

20 miles x 5 days = 100 miles per week.
100 miles per week x 50 weeks = 5,000 miles per year.
5,000 business miles x 50 cents = $2,500 deduction

(NOTE: 50 cents/mile is the IRS standard mileage rate for 2010. For 2011 the rate is 51 cents/mile.)

So you just got yourself a nice $2,500 deduction -- a deduction that you've probably been entitled to for years but didn't know it.

And $2,500 deduction x 30% income tax rate = $750 in actual tax savings (25% federal tax + 5% state tax). Not too shabby for a deduction that doesn't cost you a dime.

{ 3 comments… read them below or add one }

William Rogers April 22, 2017 at 6:57 am

I am living with an older relative and I am operating an LLC can I claim a home office to take advantage of this loophole even if I do not pay anything for the house? I do not want my contributions to the household to become income for my relative.


John King April 13, 2015 at 9:10 pm

This is still valid for 2014?


A. Miller January 12, 2015 at 4:39 pm

Does the strategy outlined in the article also work if off-site Office 1 is where a primary job is worked as a government employee and Office 2 is the home-based office for a small sole proprietor business?


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