We absolutely, positively don’t like commuting mileage. You should dislike it, too. It’s personal. It’s not deductible.
But with knowledge, it’s avoidable.
Let’s eliminate commuting and make those trips from your home to your office deductible.
The law gives you two ways to eliminate commuting from your home to your outside-the-home office:
Make a temporary business stop on the way to the office.
Establish a home office that qualifies as a principal office.
Temporary Business Stop
The temporary business stop strategy is designed for the home that contains no home office. In this case, the stop turns a commute from your home to the office into a deductible business trip.
Example 1. Sam, a property and casualty insurance agent, does not claim a home-office deduction. He has to photograph a property before the insurance company will issue the policy. Sam’s trip from his home to the property and from the property to his downtown office produces business miles.
Example 2. Sam, the guy from Example 1, drives from his home to his downtown office. That’s a non-deductible commute.
Caution. If your only office is in your home and that office does not qualify as a principal office, then the IRS labels your trip from your home to a business stop the “first stop,” and that trip is a non-deductible commute.
Example 3. You have an office inside your home that does not qualify as a principal office, and you have no office outside the home. You drive 17 miles to a business stop and then return home. Because your only office is inside the home and it does not qualify as a principal office, your 34-mile round trip is a personal non-deductible commute under the IRS’s first and last stop rule.
If you have both a downtown office and a principal office inside your home, you have no commuting mileage from your home to your downtown office. You don’t need to work in your home before you leave for the office. You simply need an office in the home that qualifies under the law as a principal office.
Example 4. You have an administrative office in your home that qualifies as a principal office. You drive 11 miles from your home to your downtown office, work all day in your downtown office, and then drive the 11 miles from your downtown office back home. This 22-mile round trip to and from your downtown office is deductible as business mileage.
What happens to those trips that begin and end at your downtown office? If your trip from your downtown office is to a business stop, you have business mileage. If it’s to a personal stop, you have personal mileage.
If the trip from your office involves both business and personal stops, and if the personal stops are not too far out of the way, you can ignore the personal stops and count all of the mileage as business.4
Example 5. You drive 10 miles to Staples to buy office supplies, but on the way you take a 1-mile detour to pick up your dry cleaning. Thus, the direct trip to this business stop was 9 miles and your round trip on this day is 19 miles. The 1-mile detour is considered de minimis (in other words, minor). You may count the entire 19 miles as business miles.
In your mileage record, you would write something like this: round trip to Staples for office supplies, 19 miles (1-mile side stop at dry cleaners, minor).
You should make your notations as to business and personal miles for a minimum of three consecutive months during the year so that you can comply with the easy requirement for mileage log sampling under IRS Regulation 1.274-5T(c)(3)(ii).
Key point. Keeping the mileage log for three months works, but keeping the mileage log for the entire year is perfect.
You have deductible mileage when you
drive from your home to a business stop (such as visiting a prospect or colleague) and then drive from that stop to your downtown office;
drive from your home, which contains a “principal office” (think administrative office), to your downtown office;
drive from your downtown office to a business stop;
drive from one business stop to another business stop; or
drive from one business stop to another business stop and make a de minimis (minor) out-of-the-way personal stop.
You have personal, non-deductible mileage when you
drive from your home to a business stop and return home (assuming no principal office inside the home);
drive from your home to your first business stop and from your last business stop back home (assuming no principal office inside the home and no stop at your downtown office); or
drive from your home to your downtown office (assuming that you have no principal office at your home).
If you would like to discuss business mileage, please don’t hesitate to contact us at 480-771-4941.