How to Use Transportation Expenses as a Tax Deduction

Small business owners who file Schedule C may deduct all business-related transportation expenses. Employees and independent contractors may use their job-related travel as a tax deduction by filing Form 2106. Other types of transportation expenses may be deductible on the forms for which their underlying purposes are deductible.

Difficulty: Moderate

Instructions

Things You'll Need:

• Schedule C for business transportation expenses
• Form 2106 for employee business travel expenses

Prepare to Use Transportation Expenses as a Tax Deduction

1. Keep a small notebook or calendar booklet in your glove compartment to enter all deductible automobile travel, including distance traveled, starting and ending odometer readings.

2. Include the purpose of trip and expenses paid for gasoline, oil and maintenance.

3. Check the Instructions for Schedule A to determine the deductibility of your transportation expenses for purposes such as making charitable donations, attending job-related educational programs and going to the doctor or the hospital. Use these related transportation expenses as a tax deduction by including the expenses, according to the applicable instructions, when you take the deduction for the underlying purposes.

Use Schedule C to Deduct Business Transportation Expenses

4. Fill out the information section on your car in Part IV of Schedule C and total your business car and truck expenses on line 9 of Part II.

5. Record other business travel expenses, including train, air, taxi, parking, public transportation and leased or rented vehicles as part of your total for line 24a. This total may include other costs such as lodging.

6. Complete the rest of Schedule C and file it with your Form 1040 to deduct your business transportation expenses.

Use Form 2106 to Deduct Employee Transportation Expenses

7. Complete Parts A through D of Form 2106 to calculate your vehicle expense. You may disregard Parts C and D if you opt to use the standard mileage rate instead of calculating actual expenses.

8. Enter your vehicle expense from line 22 or line 29 at line 1 of Form 2106.

9. Provide the total of all other non-overnight employee transportation costs including parking, tolls, mass transit and train travel on line 2 of Form 2106.

10. Finish filling out Form 2106 and file it with Schedule A and Form 1040 to take your deduction for employee transportation costs.

Tips & Warnings

• Get a monthly public transportation pass if you frequently use the bus or subway to get around town to do your job. You will then be able to deduct a percentage of its monthly cost rather than trying to document and record the cost of dozens of tiny fare or token purchases.
• Be sure to keep records differentiating personal use of your automobile or other transportation from business use. The IRS generally requires a percentage breakdown of the uses to which you put any vehicle, with specific questions about odometer readings and whether you have access to other means of transportation.