Business vs. Personal Use of Your Car: How to Tell the Difference

by | Jul 14, 2017 | Self-Employed, Tax Advice

In today’s always-on world, it’s often hard to tell where your work ends and your personal life begins. With that blurring of lines, it can be difficult to determine when you’re driving your car for business and when it’s personal use. Using your car for business — whether it’s your own business or as an employee of a business — can save you on taxes, but first you need to tease out what portion of all that driving is deductible and what’s strictly personal.

Let’s work through that with a few examples.

Home —> Main Job
Danielle commutes 14 miles from her home to work every day. Commuting from your home to a regular job is always considered personal and is never deductible.

Home —> Temporary Work Location
For six weeks, Danielle is assigned to work at a satellite office to help train new employees. At the end of that six weeks, she’ll return to her regular office. She drives 18 miles each way from her home to the new work location. All of that driving is considered business use, and her 36 miles round trip drive is now deductible. However, if she files expense reports for her mileage and is reimbursed by her employer, that mileage is no longer deductible.

Temporary Living Location —> Temporary Work Location
Danielle is such an exemplary trainer that her company sends her to a new location out of state to train the new employees. During her three-week stay, her drives from the hotel to the new location are all business use and are all deductible. In addition, her living expenses — meals, laundry, lodging — and her transportation from home to the temporary work site are also deductible to the extent that they’re not reimbursed by her employer. If this assignment is expected to last for more than 12 months, it’s not considered a temporary work location. Neither her living expenses nor her mileage will be deductible in that case.

Home —> Main Job —> Temporary Work Location —> Home
Danielle occasionally spends part of her day at the satellite office in town, which is 22 miles from her main workplace. Her main workplace is where she spends the majority of her time. The 22-mile drive to the satellite office is business use and is deductible. If she returns to the main office before heading home for the day, that drive is also deductible. Her drive home — whether from the main office or the satellite office — is considered commuting and is not deductible.

Home —> Temporary Work Location or Client —> Main Job
Sometimes Danielle goes to the satellite office first before heading into her main job. This transforms her commute into business use. All of her driving from home to the satellite office to the main office is deductible. Stopping at a client’s office on her way into work also transforms the drive into business use, and the entire drive is deductible.

Home —> First Job —> Second Job —> Home
Leo juggles two part-time jobs. On the days when he works both jobs, the 8-mile drive between the two jobs is business use and is deductible. Driving between his home and either job is commuting and isn’t deductible.

Working while commuting
Sherry spends her 45-minute commute from home to her office in the city either making phone calls or listening to training audios. None of these activities transform her commute to business use and none of that is deductible.

Home office —> Main Job or Client
Peter has a home office where he performs administrative and management tasks for his main job. This makes his home office a qualifying home office. All of his drives between home and his main job are deductible.

Self-employed Home Office —> Business-related Destination
Laurie is self-employed and works at home. Because she performs most of her work there, her home office is a qualifying home office. Anytime she drives from her home to meet with a client or to perform business errands is business use and is deductible.

Magnetic Ads on Car
Laurie has a magnetic and on her car that advertises her business. The presence of the ad does not transform all of her driving into business use. Only her drives with legitimate business purposes — meeting with a client, attending networking events, or running business errands — are deductible.

Besides following the IRS rules for personal and business use of your car, you’ll also need documentation of your business use. Stay tuned for an upcoming article that will explain exactly what you need to do to pass IRS scrutiny!

Do you have questions about deducting your business miles? Do you have a unique situation not described in these examples? Call our office at 561-624-2118 and we’ll help you find the answers!

Schanel & Associates is a CPA firm specializing in accounting, tax, business valuation and litigation support serving Palm Beach, Martin and St. Lucie Counties and beyond since 1993. Our CPAs and accounting professionals work with individuals, businesses, estates and trusts to provide everything you need under one roof. For more information, contact us today at 561-624-2118.

Glenn Schanel is the founding Principal of Schanel and Associates. Glenn Schanel is a CPA with over three decades of experience helping people and organizations manage, make sense of and benefit from their finances. He oversees areas that include auditing, accounting, tax, business valuation, forensic accounting, litigation support and other consulting services to both business and individual clients.