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Commute to and from work on Uncle Sam’s dime

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in Small Business Tax,Small Business Tax Deduction Strategies

Normally, you can't deduct the cost of traveling back and forth from work every day. The IRS considers this a nondeductible commuting expense. But that tax story may change if you're working at a location that's different from your regular workplace.

Strategy: Keep records of your expenses while you're working away from the main office. The IRS says you can generally deduct travel costs between a temporary job site and your home. It's like taking a business trip and writing off the cost.

Specifically, you can deduct the cost of air fare or other transportation, lodging and 50 percent of your meal expenses, as long as the assignment is temporary and outside the metropolitan area where you normally live and work. In other words, you can fly home on weekends to visit the family and have Uncle Sam help pay for it!

What is "temporary" under the tax law? The IRS uses a one-year rule as a guideline. If the work assignment lasts for less than a year, it's treated as being temporary, and you can deduct your travel expenses. However, if you're working at a different location for a year or longer, the assignment is considered "indefinite" and no deduction is allowed.

How do you define a "metropolitan area" for this purpose? No hard-and-fast rule exists. But take a look at what a taxpayer did in a new case.

Facts of the case: Mr. Wheir received job assignments from his union at power plants across Wisconsin. All assignments were temporary. Wheir lived in the center of the state and drove back and forth for short shifts, but on long trips he'd stay overnight in motels. The farthest he had to drive was 115 miles from home.

In one tax year, Wheir racked up $10,000 in travel expenses. He wasn't reimbursed, so he deducted the expenses outside a 35-mile radius around his home. The IRS disallowed all the expenses as commuting expenses. Reason: Since Wheir's hometown didn't qualify as a "metropolitan area" under Census Bureau stats, it treated the entire state as one giant metropolitan area.

Not so fast: The U.S. Tax Court reversed the IRS's ruling, saying the agency can't simply establish metropolitan areas based on Census Bureau data. That could lead to illogical results like this one. As a result, the Tax Court allowed Wheir to deduct his travel expenses that were outside the designated metropolitan area. (Wheir, TC Summary Opinion 2004-117)

Tip: Deduct your unreimbursed employee business expenses, including travel costs, as a miscellaneous deduction on your personal return. You can only start deducting those costs after they surpass 2 percent of your AGI.

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