travel logbook for tax purposes

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• 1. Make Sure You Qualify
• 2. Determine Your Method
• 3. Record Your Odometer

4. Maintain a Driving Log

• 5. Maintain Record of Receipts
• 6. Record Year-End Odometer

7. Record Mileage on Tax Return

8. retain the documentation, the bottom line.

• Deductions & Credits
• Tax Deductions

Track Your Mileage for Taxes in 8 Easy Steps

Lea Uradu, J.D. is a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, and Tax Writer.

If driving is an essential part of your job, you may qualify to deduct the cost of travel on your federal income tax return . The Internal Revenue Service (IRS) annually adjusts the allowable deductible mileage rate for inflation.

Below are eight easy steps that you can follow to claim this tax deduction.

Key Takeaways

• The IRS allows taxpayers to claim deductions for the use of a vehicle.
• The standard mileage deduction requires you to log odometer readings from the beginning and end of a qualifying trip, along with its purpose and date.
• Taxpayers can also claim vehicle expenses, such as lease payments, insurance, gas, and tolls.
• Qualified expenses are eligible if you drive for business or medical purposes, move as an active-duty military member, or work for a charitable organization.

1. Make Sure You Qualify for Mileage Deduction

The most common reason for claiming the mileage deduction is travel from the office to a worksite or from the office to a second business-related location. You can also claim the deduction if you're using your vehicle to:

• Conduct business-related errands
• Traveling to and from medical appointments if you take the deduction for medical expenses
• Move between posts if you're an active member of the military
• Work with charitable organizations

In addition to mileage, you can claim unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI) .

2. Determine Your Method of Calculation

You can choose between two methods of accounting for the mileage deduction amount. The first is the standard mileage deduction, which requires tracking how many qualified miles you drive during the tax year. The second option is to claim deductions for vehicle expenses while performing qualified activities.

To claim the standard mileage deduction, you must maintain a log of your qualifying miles. Mileage rates for the 2023 tax year include:

• For business: 65.5 cents per mile
• For medical or moving for qualified active-duty Armed Forces members: 22 cents per mile
• For charitable organization services: 14 cents per mile

To claim the deduction for vehicle expenses, you must retain all receipts and relevant cost of driving documentation. You can factor in depreciation, lease payments, registration expenses, oil and gas, repairs, tires, tolls, parking, insurance, and any other costs that are directly related to your vehicle.

3. Record Your Odometer at the Start of the Tax Year

To take the standard mileage deduction, you'll have to report the total miles the vehicle was driven in the tax year. This figure is reported on Form 2106: Employee Business Expenses . Record the vehicle's odometer at the beginning and the end of the tax year.

But what if you purchase a used vehicle mid-year? In this case, record the odometer reading from the first day it is deployed until the end of the tax year.

An employee cannot claim the cost of a vehicle as an "unreimbursed employee travel expense as a miscellaneous itemized deduction" between December 2017 and January 2026.

You must keep a log of the total miles driven if you choose the standard mileage deduction. The IRS specifies:

• At the start of each trip, record the odometer reading and list the purpose, starting location, ending location, and date of the trip.
• After the trip, the final odometer must be recorded and then subtracted from the initial reading to find the total mileage for the trip.

Your mileage log must be precise and maintained consistently.

5. Maintain a Record of Receipts

If you choose the actual expense deduction, you don't need to maintain or record your mileage. Instead, keep copies of relevant receipts and documentation. Each document must include the date, dollar amount of the service or service purchased, and description of the product or service needed. The expense must be incurred within the tax year you submit the claim.

6. Record Your Odometer at the End of the Tax Year

At the end of the tax year , you should record the ending odometer reading. This figure is used in conjunction with the odometer reading at the beginning of the year to calculate the total miles driven in the car for the year. The information, including the percentage of miles driven for business purposes, is required on Form 2106.

When completing your tax return, list the total miles driven on Form 2106, Line 12. This figure is calculated by the standard mileage rate allowed by the IRS to determine the dollar deductible amount.

If you're using the actual expenses method, you'll need to group receipts of your expenses by gasoline, oil, repairs, insurance, vehicle rentals, and depreciation.

You must retain the documentation relating to a mileage deduction for at least three years for the IRS. Make sure you keep copies of the records and a personal copy and create a new log for each tax year.

What Is the Federal Tax Deduction for Mileage?

For 2023, the federal tax deduction for mileage is 65.5 cents per mile for business use, 22 cents per mile for medical purposes and if you're claiming moving expenses as an active military member going to a new post, and 14 cents per mile for charitable services.

Is It Better to Claim Mileage or Gas for Taxes?

Claiming mileage or gas for taxes depends entirely on your situation. If you choose to take the standard mileage, you can claim 65.5 cents per mile during 2023. If you want to claim gas, you must keep all your receipts. You can also claim other vehicle-related expenses, such as insurance, depreciation, lease payments, parking, toll, and repairs. You are not permitted to claim mileage and expenses at the same time.

What Is the Tax Deduction for Medical Mileage and When Volunteering?

For 2023, the tax deduction for medical mileage is 22 cents per mile. The same rate applies to active duty military members who move to a new post. For those who volunteer, the tax deduction for mileage for the tax year 2023 is 14 cents per mile.

If you qualify, you can claim mileage or vehicle expenses on your tax return. Your choice depends on how often and how far you drive for business, medical care, or volunteer work. The IRS requires clear and concise documentation to support your claims.

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Pages 13-14.

Internal Revenue Service. " Publication 502, Medical and Dental Expenses ," Page 14.

Internal Revenue Service. " Topic No. 455, Moving Expenses for Members of the Armed Forces ."

Internal Revenue Service. " Publication 526, Charitable Contributions ," Pages 5-6.

Internal Revenue Service. " Topic No. 502 Medical and Dental Expenses ."

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Pages 14-16.

Internal Revenue Service. " IRS Issues Standard Mileage Rates for 2023 ."

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Pages 15, 24-27.

Internal Revenue Service. " Instructions for Form 2106, Employee Business Expenses ," Page 5.

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Page 14.

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Page 26.

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Pages 24-27.

Internal Revenue Service. " Form 2106, Employee Business Expenses ," Page 2.

Internal Revenue Service. " How Long Should I Keep Records? "

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What Is a Mileage Log, and How Does It Affect Your Taxes?

A mileage log is an essential tool for any driver who intends to get a tax deduction or employee reimbursement based on their car usage. Its role is to keep travel records for tax purposes. Mileage logs are mostly used by businesses and self-employed drivers, but you may also need one to get a tax deduction for medical, charitable, or moving-related travel. 

In addition to setting yearly mileage rates, the Internal Revenue Service (IRS) provides clear instructions on tracking mileage and what information has to be included in the mileage log to get a tax deduction. 

To keep track of your mileage, you can use an actual logbook or take advantage of a dedicated app to make things much easier. While the first option might be viable if you don’t travel a lot, the second one is highly recommended as it helps keep crucial data in order, including trip purpose, dates, and actual mileage. 

So, if you want to stay on point with the IRS regulations and ensure you receive a fair tax deduction, learn how to run a perfect mileage log.

What Is a Mileage Log book?

A mileage log-book is a record you keep for tracking distances traveled for work purposes. A logbook can help you deduct expenses from your tax payments, whether you are self-employed, or own a small business.

There are four types of travel that qualify for a tax deduction and require mileage tracking. For each category, the IRS provides standard mileage rates that define how much you can deduct on your tax return:

• business (67 cents per mile in 2024)
• charitable (14 cents per mile in 2024)
• medical (21 cents per mile in 2024)
• moving but only in the case of military personnel (21 cents per mile in 2024)

As a taxpayer, you can use those mileage rates to reduce your taxable income as long as you meet certain conditions and have qualifying travel. But most importantly, you need to track and record your mileage. And that’s why you need a mileage logbook. 

What to Record in Your Mileage Logbook?

The IRS specifies what additional details must be included in your mileage log. If you want to get your full tax deduction, your log must have:

• The date and purpose of each trip
• Total miles driven
• Odometer reading at the start of each trip
• Starting location
• Ending location

The IRS even provides a mileage log template that may help you to ensure all necessary information is recorded, keeping you compliant and ready for tax time. However, it’s fair to say that the pen-and-paper method may be inconvenient and prone to error. 

With mileage-tracking apps like MileIQ, you can simplify and automate the entire process, ensuring that all required information will be recorded. These apps work like digital logbooks and can be exported into IRS-compliant formats, making tax filing a breeze.

Recordkeeping is also much easier with software-based solutions. In the case of an audit, the IRS can ask for proof of mileage from the past three3 years., Keeping all your mileage data in a secured cloud is much easier than maintaining a filing cabinet stuffed with papers.

Impact of Mileage Logs on Taxes

Mileage tracking can save you quite a lot on your tax return, especially if you drive a lot of miles for qualifying purposes. 

Consider this scenario: If you drive 10,000 business miles in a year, and the IRS standard mileage rate for 2024 is 67 cents, you could deduct $6,700 from your taxable income. And if all that’s necessary to get that deduction is accurately tracking your mileage throughout the year, you must agree that it’s a pretty good deal.

Download MileIQ to start tracking your drives

Automatic, accurate mileage reports.

Audits and Mileage Logs

The most common reasons for an IRS audit regarding mileage are:

• missing data or documentation
• calculation errors
• incorrect mileage rate applied
• unusual patterns or changes
• mileage much higher than the average
• prior audit history

As you see, a mileage log can be a critical piece of evidence in the case of an IRS audit. If you’re audited, the IRS may ask for detailed information about each trip. And if you run a business, they will ask for mileage data about all the employees who received reimbursements. That’s why recording and reporting all business trips accurately is so important.

Should I Track Personal Mileage ?

Tracking personal mileage isn’t mandatory for tax purposes, but it still may be helpful for a busy car owner like yourself. By understanding your driving habits, you can better assess the expenses related to personal trips. Maybe it will lead you to change how you transport and explore other methods like biking or public transportation. 

More importantly, though, maintaining a separate record of personal mileage can prevent the inaccurate claiming of personal miles as business deductions, which can result in audit and tax penalties. 

What Are Mileage Deductions?

The role of mileage deductions is to allow businesses and individuals to reduce their taxable income by subtracting the costs of using personal vehicles. Besides work-related usage, mileage tax deductions are allowed for medical, moving, and charity-related travel.

The IRS establishes a standard mileage rate per mile annually. For example, in 2024 the standard business mileage rate is $0.67 per mile. 

In addition to businesses and self-employed people, a mileage tax deduction can also be claimed by individual taxpayers for:

• medically-motivated travel
• travel for charity-related reasons
• moving-related travel (but only in the case of military personnel)

Each type of travel has specific regulations set by the IRS. 

What Are IRS Requirements for Mileage Deduction?

The IRS has set specific guidelines for each category of eligible travel, but the three are basic  rules for all mileage tracking:

• Use the correct standard mileage rates for the current year
• Record and properly categorize your mileage throughout the year
• Calculate your deduction, fill out your tax return, and keep records for at least 3 years.

In addition to that, each category has its own much more specific regulations regarding what exactly qualifies as deductible mileage and in what situations you qualify for a deduction as a taxpayer. 

For example:

• Daily commutes from home to work don’t qualify as a business trip. 
• Medical expenses, including mileage, can be deductible only if their total exceeds 7.5% of your adjusted gross income.
• Moving mileage deduction can be claimed only by active duty military members, following The Tax Cuts and Jobs Act.

It’s also worth noting that IRS regulations regarding mileage deductions are revised yearly and, in special circumstances, even twice a year. Any errors or miscalculations may lead to IRS audits and potential penalties. 

How to Calculate Deductions from Mileage?

The formula for  standard calculating mileage for tax deductions is quite simple. You need just two numbers to figure out what to write on your tax return:

• Number of eligible miles driven: You should be able to find this number in your mileage log or tracking app. If you track more than one category (business, medical, charitable, moving), you need to do separate calculations. 
• The standard mileage rate for the year. 

After you have your numbers, use this formula:

Number of eligible miles driven * mileage rate = tax deduction

In mileage rate, put $0.67 for business, $0.21 for medical or moving, and $0.14 for charitable (rates for 2024).

Actual Expenses Method for Tax Deductions

There’s an alternative for standard mileage deduction, which can be more appealing to those who use their vehicles very frequently. By choosing the actual expenses method, you need to maintain comprehensive records and receipts for all vehicle-related deductible expenses such as:

• parking fees

It takes much more recordkeeping over the year but may help you get significantly higher deductions. 

The choice between the standard mileage rate and the actual expense method depends on your situation. Generally speaking, if you use your car very frequently for work-related purposes, you should consider choosing the actual expense method.

Still tracking miles by hand?

Check out more mileage guides.

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Keeping track of your work related car expenses with the logbook is simple. It could also boost your tax refund.

If you use your car for work purposes and travel more than 5000km for work, the best way to claim these expenses is using the log book method.

If you travel less than 5000km per year for work, then you are usually better claiming the Cents per KM method .

But either way you need to keep a record, so a log book will work for both methods.

The purpose of a logbook is to determine your business usage versus your private usage.

If we work out your work usage is 60% of the overall usage of your car, we can then claim 60% of your fuel, rego, insurance, tyres, repairs, etc., so if it costs $10,000 to run your car, we can claim $6000 as a tax deduction. but, you need a log book to do this., how to complete your car logbook.

You need to keep a logbook for a 12 week period . These must be 12 consecutive weeks (i.e. 12 weeks in a row).

Your logbook must include  every trip you take  – not just your business related trips.

Your logbook must contain:

• Speedo reading on 30 June each year
• the make, model, engine capacity and registration number of the car
• the car’s speedo readings at the start and end of the 12 week period
• the number of kilometres travelled for each journey. If you make two or more journeys in a row on the same day, you can record them as a single journey
• the business-use percentage for the logbook period

For  each journey , record the:

• start and end date of the journey
• speedo readings at the start and end of each journey
• reason for the journey (such as a description of the business reason or whether it was for private use)
• kilometres travelled on each journey

Simply put, write down the date and speedo when you get in the car. Do your work or private travel. When your trip is complete, record the speedo reading again. Then records why you travelled. Usually travelling to and from work is private, but if you visit clients directly from home and then travel to work, that journey is claimable.

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Expenses for a car you own or lease

Deductions for work-related use of your own car.

Last updated 24 June 2024

Claiming a deduction for car expenses

To claim a deduction for car expenses:

• Your vehicle must meet the definition of a car .
• You do not own or lease the car if you use it under a salary sacrifice or novated lease arrangement.
• You can claim for trips between workplaces or to perform your work duties.
• You can't claim for trips between your home and place of work, except in limited circumstances.
• You must have spent the money yourself and weren't reimbursed.
• You must have the required records.

If it's someone else's car or it's another type of vehicle (such as a truck or motorcycle), see Expenses for a vehicle that isn't yours or isn't a car .

If your travel is partly private, you can only claim a deduction for the work-related portion of your expenses.

You claim the tax deduction in your income tax return as a work-related car expense .

If you receive an allowance from your employer for car expenses, you must include it as assessable income in your tax return. The allowance amount is shown on your income statement or payment summary.

For a summary of this information in PDF format, see Car expenses (PDF, 1.5MB) This link will download a file .

Definition of a car

To claim a work-related car expense, the vehicle must be a car.

A car is a motor vehicle that carries a load of less than one tonne and fewer than 9 passengers (including the driver). This includes electric (zero emissions) and hybrid vehicles if they meet this definition. Motorcycles and similar vehicles are not cars.

If the vehicle does not meet this definition, you claim your work-related expenses using the approach for a vehicle that isn't a car .

You must own or lease the car

To claim car expenses you must own or lease the car, or hire it under a hire-purchase arrangement.

You can't claim running costs for a car you use under a salary sacrifice or novated lease arrangement. In this situation the car is usually leased by your employer from a financing company, and your employer typically pays for the running costs and claims deductions. You can claim additional expenses, like parking and tolls associated with your work use of the car.

If you use a car owned by a family member, and you can show there is a private arrangement that made you the owner or lessee of the car (even if you aren't the registered owner), you work out your car expenses as though it is your car.

If you don't own or lease the car (or don't have a private arrangement that makes you the owner or lessee), you claim your work-related expenses using the approach for a vehicle that isn't yours .

Example: private arrangement

When Rory turned 18 she bought a car from her parents for $1,000. She now pays the insurance, fuel, registration, and other running costs, and no one else uses the car. However, the registration has not been updated and the car is still registered in her mother's name.

Rory is eligible to claim her work-related car expenses even though the registration has not been changed to her name. She would be treated as the owner because she can show that:

• she bought the car from her parents
• she is now responsible for all of the ownership and running costs of the car.

Calculating your car expense deductions and keeping records

You use either of 2 methods to calculate deductions for car expenses:

Cents per kilometre method

Logbook method.

Use the calculator to work out your deduction for either method.

If you are claiming car expenses for more than one car, you can use a different method for each car. You can also change the method you use in different income years for the same car.

To calculate your deduction using this method, multiply the number of work-related kilometres you travel in the car by the rate per kilometre for that income year.

'Work-related kilometres' are the kilometres your car travels in the course of earning your assessable income.

• 2024–25: use 88 cents per kilometre
• 2023–24: use 85 cents per kilometre
• 2022–23: use 78 cents per kilometre
• 2020–21 and 2021–22: use 72 cents per kilometre
• for rates in earlier years, see Prior year tax return forms and schedules .
• You can claim a maximum of 5,000 work-related kilometres per car.
• You need to keep records that show how you work out your work-related kilometres.

If you and another joint owner use the car for separate income-producing purposes, you can each claim up to 5,000 work-related kilometres.

The cents per kilometre rate covers all car expenses, including:

• decline in value
• registration
• maintenance
• fuel costs.

You can’t add any of these expenses on top of the rate when you work out your deduction using this method.

Example: car deduction using cents per kilometre

Once per week, Johan makes a 27-kilometre round trip in his own car from his head office in the city to meet with clients. In addition, once per month he makes a 106-kilometre round trip to visit clients at another location.

When Johan consults his diary at the end of the 2023–24 income year, he works out he was at work for 47 weeks, but he missed one weekly meeting with clients as he was sick. He also determines that, although he was on leave for 5 weeks during the income year, he still made 12 × 106-kilometre round trips to visit clients.

He works out his work-related kilometres as:

Number of weekly trips × distance of weekly trip = total weekly trip kilometres

46 × 27 km = 1,242 km

Number of monthly trips × distance of monthly trip = total monthly trip kilometres

12 × 106 km = 1,272 km

Total weekly trip kilometres + total monthly trip kilometres = total trip kilometres

1,242 + 1,272 km = 2,514 km

Johan works out his deduction for the 2023–24 income year as:

2,514 km × 0.85 = $2,137

Keeping records for cents per kilometre method

If you use the cents per kilometre method, you don't need receipts.

You do need to be able to show that you own the car and how you work out your work-related kilometres. For example, you could record your work-related trips:

• using the myDeductions tool in the ATO app.

To calculate your deduction using the logbook method, you need to:

• keep a logbook that shows your work-related trips for a continuous period of at least 12 weeks (your logbook is valid for up to 5 income years)
• keep receipts or other records of your car expenses
• use your logbook to calculate the deductible portion of your car expenses .

Keeping a logbook

Your logbook must:

• cover at least 12 continuous weeks and be broadly representative of your travel
• include the destination and purpose of every journey, the odometer reading at the start and end of each journey, and the total kilometres travelled during the period
• include odometer readings for the start and end of the logbook period.

Your logbook is valid for 5 years. However, if your circumstances change (for example, if you change jobs or move to a new house), and the logbook is no longer representative of your work-related use, you will need to complete a new 12-week logbook.

In each of the 4 years following the first year, you need to keep:

• odometer readings for the start and end of the full period you claim
• your work-related use percentage based on the logbook.

If you are using the logbook method for 2 or more cars, keep a logbook for each car and make sure they cover the same period.

You can keep an electronic logbook using the myDeductions tool in the ATO app, or keep a paper logbook.

You must retain your logbook and odometer records for 5 years after the end of the latest income year that you rely on them to support your claim.

Keeping records of car expenses for logbook method

You can claim running costs and decline in value of your car.

You must keep:

• receipts for your fuel and oil expenses, or a record of your reasonable estimate of these expenses based on the odometer readings for the start and end of the period for which you are claiming
• receipts for other expenses for your car – for example, registration, insurance, lease payments, services, tyres, repairs, electricity expenses and interest charges
• a record of the purchase price of the car and how you work out your claim for the decline in value of your car, including the effective life and method you use.

Electric cars - records of electricity expenses

If your car is electric, instead of keeping receipts for fuel and oil, you must keep:

• receipts for electricity from commercial charging stations
• evidence that shows you incur electricity costs to charge your car at home, such as an electricity bill and how you calculated the direct cost of charging your car
• odometer readings for the start and the end of the period that you are claiming.

Alternatively, you can use the electric vehicle (EV) home charging rate of 4.2c per kilometre to make a reasonable estimate of your home charging expenses based on your odometer readings. If you choose to use this rate but you also used commercial charging stations to charge the car during the income year, you must disregard your commercial charging station costs. They can't be claimed as a separate deduction.

Hybrid cars - records of fuel, oil and electricity expenses

If your car is a hybrid, instead of keeping receipts for fuel and oil expenses you must keep all of the following:

• receipts for your fuel and oil
• receipts for commercial charging stations

You can't use the EV home charging rate if the car you own and use for work is a hybrid.

You can't claim capital costs, such as the purchase price of your car, the principal on any money borrowed to buy it, or improvement costs (for example, adding paint protection or tinted windows).

How to calculate your deduction using a logbook

• Work out the total number of kilometres you travelled during the logbook period.
• Work out the number of kilometres you travelled for allowable work-related trips during the logbook period.
• Divide the work-related kilometres (2) by the total kilometres (1), then multiply by 100. This is your work-related use percentage.
• Add up your total expenses for the period that you are claiming.
• Multiply your work-related use percentage (3) by your car expenses (4). This is the amount you claim as a deduction.

Ultimate Guide to Work Related Car ATO Logbook Expenses

The Australian Taxation Office (ATO) is looking more closely than ever before at our claims for work-related car expense claims . This is a good enough reason to go over your tax-claiming practices and make sure you are 100% squeaky clean.

Why is this particular type of claim under the magnifying glass of the ATO?

According to Kath Anderson, the ATO assistant commissioner, the reason is the unusually high percentage of work-related car expense claims during previous years.

Anderson told The Australian that more than 40 per cent of all work-related deductions were car expenses. This adds up to billions being drained from the tax system and is clearly why the ATO has chosen to spotlight this issue.

A potential solution is the Easy 12-week Tracking with GOFAR ATO Logbook App , but let’s look more deeply into the issue of tracking.

There are two things you need to take away from this article:

• The ATO has increased the scrutiny of work-related car expenses since back in 2018 which means you should revise your tax-claiming practices
• The ATO has enhanced technology that will make this more efficient than ever, which means that you should consider your own car diagnostic technology to keep in compliance.

“Ms Anderson said enhanced ATO technology made it easier to detect potential tax rorters, ­revealing nearly 3.75 million ­people claimed the expense last year at a cost of $8.8 billion.” – Kath Anderson for The Australian

What You’ll Learn

1. Which Work-Related Car Expenses Can Be Claimed?

You can only  claim expenses that are work-related and that have not been reimbursed to you in any other way. This is the same regardless of whether you drive a company-owned car, leased vehicle or your own car.

The following work-related travel expenses fall into that category:

• Using a car for business related trips, including conferences, but also company-related daily errands.
• Using a car to load, transport and unload work-related tools and objects that cannot be otherwise stored at your workplace.
• Using a car to travel between your two workplaces, your workplace and the alternative workplace and your workplace and the client’s premises while you’re on duty.

These potential expense claims DO NOT include:

• Travelling from home to work and back.
• Travelling back to work due to a work-related matter (security call, parent-teacher meeting).
• Travelling back home after overtime work with no public transportation available.
• Travelling privately and doing small business related errands like picking up mail on your way.

Let’s repeat this one more time, since it is extremely important – you can claim these expenses only if they haven’t been reimbursed to you by your employer.

“In other words, you cannot claim expenses that have already been paid by your employer, including salary sacrificing arrangements.” – Kath Anderson for Business Insider Australia

Now, let’s just take a quick moment to clear up some details and explain which vehicles you use that can be considered.

You can claim expenses when it comes to:

• Your own car or a car you leased yourself
• Your company car or a company-leased car
• Motorcycles and other vehicles that are not considered to be a car

It is clear enough what a motorcycle is, but let’s define what the ATO considers to be a “vehicle other than a car”. This includes all vehicles that can carry more than a tonne load OR nine or more passengers.

These include mini-vans, trucks, panel vans and similar means of transport.

Here is a good illustration of what can and cannot be claimed as an ATO car expense:

2. Who Can Claim Work-Related Travel Expenses?

Those who can claim work-related travel expenses are:

• Companies, trusts and partnerships
• Sole-traders

Companies, Trusts and Partnerships

As a company or trust, you can use the actual costs method to claim the following:

• Strictly business-related expenses for a vehicle that the company owns or leases, including the costs of providing the car to the employee.
• When an employee is given a company car, they can use it for private purposes, as well. In that case, the company may pay for the Fringe Benefit Tax (FBT) , which is tax deductible.

Sole Traders

As a sole trader, most of the rules above apply to you. You can also claim the following:

• Fuel, oil, repairs and servicing
• Lease payments and interest on your car loan
• Insurance and registration

However, if you work from a home office you can also claim some of those expenses. Again – only if you are driving the car for business purposes.

Sole Trader Example

Let’s say you are an interior designer who works from home. If you are going to a restaurant to discuss business with a restaurant owner and examine the place that needs to be decorated – you are entitled to claim expenses.

If you are going for dinner and you happen to get approached by the restaurant owner who heard you are a designer and wants to hire you – this is not something you can claim.

If you are going out to meet friends, spot great wallpapers that are perfect for your restaurant project, go in and buy them – but this is still not a business-related expense.

In other words, your purpose needs to be work-related in order to be able to claim the expenses.

Employees can claim travel-expense deductions if:

• The travel fits within the employment duties and costs are directly tied to the employee’s income-generating activities
• They incurred travel expenses travelling between work locations, neither of which is the employee’s home
• The employer asked for the travel to be undertaken
• The travel occurred during work time
• It occurs when the employee is under the direction of the employer

The employee must consider all the aspects of their job, both the official terms and the actual practice. They shouldn’t consider just one aspect to determine whether the expense is deductible.

The table below highlights travel-related expenses employees can claim and which ones are not.

Work-related Car Claims Example for an Employee

Michael is a Safety Officer in a factory. His tasks include making sure all the danger signs are positioned and that safety is ensured for everyone in the factory. He is also obliged to go to regular seminars and training when needed.

If Michael uses his car to drive to a work-related seminar that his employer asked him to attend, he can claim car expenses.

If Michael drives a company car to work every day, saying that he has to carry danger signs on and off work, the situation is different.

Generally, he cannot claim car expenses for this, unless in the following situations:

• His employer asked him to carry those signs every day
• It is, for some reason, impossible to store the signs in Michael’s workplace.

All that has been explained so far is mostly referring to the company employees. To some degree, there are differences in tax claiming if you are claiming taxes as an employee or if you are claiming as a sole trader or as a company.

Get a Logbook App to Track Vehicle Expense

3. Calculating Your Deductions

There are two methods to do this: the cents per kilometre method and the ATO logbook method . To decide which method to use, you first need to determine whether you drive over 5,000 kilometres a year for business or not.

• If you don’t – use cents per kilometre method.
• If you do – use the ATO logbook method.

Knowing what you can and cannot claim is the first step of your road toward neatly and tightly done taxes. The next step is to understand how to calculate your deductions.

Here are some more detailed explanations about both of these methods that are recommended to calculate work-related travel expenses.

The Cents per Kilometre Method

Best for: Those who want to claim less than 5000 km travelled

The standard rate per kilometre is 85 cents in 2023-24 . This rate includes all the expenses of your vehicle, including depreciation. To calculate your claim value, you multiply 85c by the total business kilometres travelled.

Rate per Kilometre By Financial Year:

• 85 cents per kilometre for 2023–24
• 78 cents per kilometre for 2022–23
• 72 cents per kilometre for 2020–21 and 2021–22
• 68 cents per kilometre for 2018–19 and 2019–20
• 66 cents per kilometre for 2017–18.

While you don’t need written evidence, it is important that you can explain and support your calculations during a possible audit.

Using a good and reliable ATO logbook app such as GOFAR (which has over 1000 four and five star ratings on the app store) is the most convenient way to do this.

It tracks my car travel fine. Easy to tag specific trips as business-related for reporting purposes at tax time. Anthony Bennett, Verified Customer, Oct 2020

Here is an example of this type of calculation, with the 2022-23 price per kilometre rate, which was 78 cents:

• Motor vehicle tax receipt exception: ‘set rate per kilometre method’ 78c per kilometre x up to 5,000 kms.
• This means that the maximum claim using this method will be 78c x 5,000 kms = $3,900.

Practical Example

“James is a carpenter and carries bulky equipment to and from work as there is no secure lock up on site. James has kept a log book for 12 weeks which shows his work travel is 95%. James purchased a Toyota Hilux which has a 2 litre engine on 01/07/2019 for $25,000 which he financed through a hire purchase chattel mortgage at an interest rate of 6%. His odometer reading on 30 June 2022 was 25,000 kms and his car does 500 kms on a 55 litre tank of petrol. The average cost for petrol in QLD was $1.95 per litre.” – Source: David Douglas Accountants

Here is more valuable information from Thompsons Australia which will help you keep on track when using the cent per kilometre method:

“Business kilometres under the cents per kilometre method is determined by ITAA 1997 s 28-25(3). These are kilometres the car travelled in the course of:

• producing assessable income, or
• travel between workplaces.

The idea of “reasonable estimate” does not have any further clarification in the tax law and takes its ordinary meaning. From a practical perspective: irregular work-related travel would need to be specifically listed down in a written record, and regular work-related travel (say between two work sites) may be calculated with reference to the number of trips made.

The written evidence of business kilometres travelled for an income year under the cents per kilometre deduction must be retained for five years. There is no need to lodge it with the income tax return, however, details relating to the calculation will be the initial question asked by the ATO in a review.” – Thompsons Australia

The ATO Logbook Method

Best for: Those who want to claim more than 5000 km travelled.

You should use the ATO logbook method if you exceed the 5,000 km limit.

It means you need the best ATO logbook app , like GOFAR and a way to track all your work-related car expenses.

Now, let’s get into the details of your ATO logbook .

Here is what it needs to contain:

• Precise time of ATO logbook start and end, with included odometer readings
• The total sum of kilometres driven
• Percentage of business-related drives

You need to do something quite similar for each of your journeys:

• Precise start and end of the journey, including the odometer readings
• Total kilometres
• Reason for the journey

“Your claim is based on the business use percentage of each car expense. This is determined by a log book that must have been kept for a minimum 12-week period, and must be updated every 5 years. Through your ATO logbook you can claim all expenses that relate to the operation of the car, at your percentage of business use.” – H&R Block Tax Accountants

If you have more than one vehicle, keep in mind that the 5,000 km limit is per vehicle and not per person. Still, if you exceed this, it’s time to learn how to do the ATO logbook method properly.

To properly claim your expenses in this way, you need to keep track of all the receipts. The necessary receipts will include those for car maintenance and insurance.

As for the fuel, it can be calculated from the odometer readings. Here is an example of the ATO logbook method from ATO Tax Rates Info .

Here is an example and a neat explanation of the ATO logbook method:

“At the end of the 12-week period, the work-related percentage can be determined. To do this, divide your business use kilometres by your total kilometres, then multiply by 100. For example: You’ve travelled a total of 5,000Km; 3,000km related to work, the calculation is therefore 3,000 / 5,000 x 100 = 60%.

Now that you’ve determined your work-related percentage, it’s important to know what expenses you are entitled to include as part of your claim. These expenses include:

• The running cost such as fuel and oil
• Registration
• Repairs and maintenance
• Depreciation
• Interest on motor vehicle loan
• Lease payments

Your total motor vehicle expenses are added up and then apportioned based on your ATO logbook percentage. Continuing on with the above example, your ATO logbook percentage is 60% and your total motor vehicle expenses are $10,000 so your deduction will be 10,000 x 0.60 = $6,000.”

Francis A Jones

4. How to Record Work-Related Car Expenses

There are different ways to keep a valid ATO logbook. You can use the e GOFAR adapter with an ATO logbook app, a mobile app, a simple spreadsheet or even just pen and paper.

ATO created a basic app themselves. You can see if it works for you and your business:

You can print out the template that was created by the Synectic group and enter your data manually:

For those that like to keep all their records in Excel, here is one that Coleman Advisory created.

Also, here is a video created by Ascent Accountants, explaining, step by step, how to use a spreadsheet ATO logbook .

However, for those who really want to make this method as easy as possible, they can simply use the GOFAR adapter . It works with cents per kilometre as well and it helps keep valid records.

Once you have your logs all sorted out and ready, visit the ATO website and put them into the online Work-related car expenses calculator .

Grab the Easiest Car Expense Tracker

5. Recent History of Tax Rates for Vehicles

The big change in the Australian tax return system happened on 1st July 2015. Before this date, there were 4 different ways to your work-related car expense deductions. The first two are still in use today.

• Logbook method
• Cents per kilometre method

The second two are NO LONGER in use:

• 12% of original value method – you could claim 12% of the original value of your car, in case your car value is less than $57,466. For leased cars you could claim 12% of its market value from the first time it was leased.
• one-third of actual expenses method – you were obliged to save written evidence of your fuel and oil costs, or odometer readings, and written evidence of all other car expenses.

The cents per kilometre method was allowed only for those who drove less than 5 000 km a year. For more kilometres, the remaining three methods were used. Only the ATO logbook method could be used regardless of the kilometres driven.

Are you wondering which method is the best one for you? The table below compares the logbook method and the cents per kilometre method to help you choose.

Another change happened in 2016, which affected the cents per kilometre method. Up to 2016, the price per kilometre depended on the size of your car engine. Ever since 2016, it’s been the same for all vehicles.

Before this change, this is how the prices looked:

6. Penalties for Fraudulent or Careless Claiming of Car Expenses

Penalties and their amounts depend on many factors. The factors taken into consideration include whether it is a late payment, incomplete payment or a missing payment.

Also, the amount of tax plays an important role. And last, but not least, it is critical whether you have knowingly tried to commit fraud or made a genuine mistake.

When it comes to car allowances, the Australian Taxation Office (ATO) is particularly vigilant.

If you receive a car allowance, which appears on your payslip, it is imperative to declare it as part of your taxable income, adhering to the car allowance ATO guidelines. This is because the ATO has measures in place to prevent ‘double dipping,’ which occurs when an individual claims more in deductions than they are entitled to.

The ATO relies on the fact that Australian citizens pay their taxes accurately and on time. However, that doesn’t always happen, so some of the measures to eliminate mistakes have been put to work.

Mainly, they are to fix the issue and, as the last resort, to penalise the taxpayer. These are:

• Interest (General and shortfall interest charges)

“CPA Australia head of policy Paul Drum said while penalties of up to 200 per cent of tax avoided may be applied under the law, the size of any penalty would depend on the nature of the breach. “Ordinarily … if a person makes an honest mistake, you’ll have to pay the primary tax, so the tax you avoided plus [interest],” Mr Drum said. For false or misleading statements, the ATO applies a penalty based on a percentage of the shortfall between the correct tax liability and the amount paid by the individual. Penalties range from 25 per cent to 75 per cent of the shortfall amount, depending on whether the breach was due to carelessness, recklessness or intentional disregard.” ABC News

Here are some of the claims that were targeted by the ATO:

“An employee manager claimed $3,800 in work-related car expenses. When we asked the taxpayer to verify that they owned the car and it was registered in their name, we discovered the car was under a novated lease arrangement. Employees who have a novated lease arrangement are not considered to have expenses in relation to the car, as their employer leases the car on their behalf. Claiming a deduction for these expenses is considered double-dipping. All deductions were disallowed and we applied a penalty.” – ATO Media release

“Some examples of the ATO uncovering incorrect claims for work-related deductions include the following:

1) A medical professional made a claim for attending a conference in America and provided an invoice for the expense. When the ATO checked, they found that the taxpayer was still in Australia at the time of the conference. The claims were disallowed and the taxpayer received a substantial penalty.

2) A taxpayer claimed deductions for car expenses using the ATO logbook method. The ATO found they had recorded kilometres in their log book on days where there was no record of the car travelling on the toll roads, and further enquiries identified that the taxpayer was out of the country. Their claims were disallowed.”

7. Most Common Questions about Claiming ATO Car Expenses

First of all, check how much you know about what an ATO car expense is and what can or cannot be claimed :

Let’s look into some of the questions people ask when it comes to claiming their work-related car expenses.

Q: Can I claim my car for work travel?

Answer by RJSanderson :

You can claim your car for travel between your home and your workplace if:

• you used your car because you had to carry bulky tools or equipment that you used for work and could not leave at your workplace (for example, an extension ladder or cello)
• your home was a base of employment (that is, you started your work at home and travelled to a workplace to continue your work for the same employer)
• you had shifting places of employment (that is, you regularly worked at more than one site each day before returning home).

Work-related car and travel expenses also include the cost of trips:

• between two separate places of employment (for example, when you have a second job)
• from your normal workplace to an alternative workplace while you are still on duty and back to your normal workplace or directly home
• from your home to an alternative workplace and then to your normal workplace or directly home (for example, if you travel to a client’s premises to work there for the day).

If the travel was partly private, you can claim only the work-related part. You cannot claim normal trips between your home and your workplace, even if:

• you did minor work-related tasks at home or between home and your workplace
• you travelled between your home and workplace more than once a day
• you were on call
• there was no public transport near work
• you worked outside normal business hours
• your home was a place where you ran your own business and you traveled directly to a place of employment where you worked for somebody else.

Q: What counts as business mileage?

Answer by MJA Business Solutions :

The ATO considers business mileage to be the kilometres traveled in a car for work-related purposes. This includes commuting from your usual workplace to meet clients, and:

• Attend off-site work-related meetings or conferences.
• Transport goods or retrieve supplies for work.
• Travel directly between multiple job locations, excluding your home.
• Move between your usual workplace and an alternate work site (not regularly visited), then return to your usual workplace or go straight home.
• Travel from home to an alternate work site (not regularly visited) for work duties, then proceed to your usual workplace or directly home, unless the alternate location has become a regular workplace.

Be aware that the ATO does NOT generally consider kilometres driven between work and home as “business” travel. Even if you stop off to pick up the mail on the way, or have to take multiple trips each day, travel between home and work is still considered private use.

There are exceptions. For example, if your home is your primary workplace and you need to travel to another workplace this would be classified as business use.

Q: If the business owns the car how much can I claim for depreciation?

The business will be able to depreciate the business-use percentage of the value of the car.

It is really important to remember that if you are classified as a small business by the ATO then you will be able to immediately claim the entire purchase price of a vehicle costing less than $20,000 including GST. A good incentive not to buy more cars than you really need!

Q: If I’ve got sign writing on the car can I write off the costs for my personal mileage?

Answer by MJA Business Solutions:

Wouldn’t this be nice? Unfortunately, the answer is no. If you put business advertising on your motor vehicle, the actual cost of the signwriting is tax deductible. However, to claim a deduction for the motor vehicle running costs all the normal rules apply.

Usually, the costs associated with personal use of the vehicle are not deductible . You can only claim deductions for the business use portion of the vehicle expenses, and you need to be able to substantiate these claims with appropriate records, such as a logbook.

Q: I am working in Sydney and visit a vendor in Sydney on a working day to discuss a business matter. Is this a FBT-related Expense? How about a business meal?

Answer by ATO:

If you are paying for your own meals, then it is not a fringe benefit. As meal expenses are generally considered to be a private expense, you will not be able to claim a deduction for your meal, even if it is related to a business matter.

If your employer is paying for your meals, or reimbursing your costs, this is a non-cash benefit and may require your employer to pay FBT. This will depend on the amount and frequency that your employer is paying for your meals. More information on FBT can be found at Fringe Benefits Tax.

Q: I’m a subcontractor – every day I pay my own petrol and travel expenses to and between my jobs – however I get this reimbursed back. However – On my weekly payslip it’s under “mobility allowance”. Do I claim this as a part of my income?

As your allowance appears on your payslips, you will need to declare it as part of your taxable income. This is considered a car allowance by the ATO, and it is important to understand the car allowance tax implications.

You may be entitled to claim certain deductions for vehicle and travel expenses. Please refer to vehicle and travel expenses to see if you are eligible and what you will need to claim these deductions.

It’s also crucial to keep detailed records of your travel expenses, including dates, distances, and purposes of your trips, as this information will be required when making your ATO car expense claims.

Q: My job requires me to travel frequently for a long distance. As a result, my employer reimburses my fuel expense. However, since fuel expense is only a small part of the operating expense, I am wondering if I could use the cost/kilometre method for claiming car expenses.

Answer by ATO Community Member :

To claim a work-related deduction:

• you must have spent the money yourself and weren’t reimbursed
• it must be directly related to earning your income
• you must have evidence

If you are paid a travel allowance, have a record to prove it.

If you receive a travel allowance:

• you must declare the allowance on your tax return as income
• you are entitled to claim a deduction for the actual expenses you incur, less any private component.

If you get paid an allowance for some travel expenses (including overtime meal allowances, and domestic and overseas travel allowances), you do not have to keep written evidence of your expenses provided your claim does not exceed the reasonable allowance amount we set for each year.

If you want to claim more than the reasonable car allowance amount we set, you need to keep evidence of your expenditure.

More questions and answers can be found on the ATO community website . You can see the concerns other people had and the answers given to them by other members of the community. You can also post your own questions about the specifics of your taxes and ask for useful tips and opinions.

You Need an ATO Logbook, ASAP

Since the tax system in Australia depends on Australian citizens being diligent about lodging their own taxes, it is important that you do so properly.

While this sounds reasonable, the Australian Taxation Office still reports that over-claiming taxes is one of the main forms of tax system abuse.

In 2018, the ATO announced increased monitoring of all work-related car expense claims.

You definitely want to make sure your taxes are 100% in order and that’s why you should review your practices and make sure your tax lodging is absolutely flawless.

Here is a checklist you can always come back to:

First of all, you can claim expenses for your own car or a company car. This includes cars that have been bought, but also leased cars.

Keep in mind that a car is considered to be a vehicle that can carry less than a tonne and/or nine passengers.

Two factors are essential to remember:

• You can only claim the expenses that occurred while you were doing business and not the ones that occurred while you used the vehicle for private purposes.
• You can only claim expenses that you paid for yourself and for which you weren’t reimbursed by your employer in any way.

While keeping these two factors in mind, you can now start to calculate your taxes, using one of the two methods.

• The cents per kilometre method for those vehicles that are not used for more than 5,000 kilometres a year.
• The ATO logbook method for all those cars whose odometer shows more than 5,000 kilometres a year.

You don’t have to hold on to all the receipts if you are using the cent per kilometre method. However, if you are being audited, you have to be able to support your claims and explain your calculations.

As for the ATO logbook method, it is necessary to have a precisely and diligently filled out ATO logbook that monitors a period of at least 12 weeks.

This ATO logbook needs to be updated every 5 years. For each trip, you need the following:

Additionally, you will need the receipts for all the expenses.

Unfortunately, this means that you have to think about all these details every time you drive your car. You need to record the odometer reading, your destination and the reason why you are going there. It takes a lot of time and if you forget any of these steps – you could be in trouble.

How to Make This Easier

One of the easiest, hassle-free and, in the long run, cheapest ways to do this every day is to use your smartphone and an app like GOFAR. The app tracks all the details you need for your tax and more.

What’s even more convenient is that you just jump into the car and start driving. When you’re done, you just swipe left or right and let the app know if that was a business or private trip.

GOFAR then holds on to those logs and you can email them to yourself in two taps on your phone screen. They’re delivered in a convenient spreadsheet format that makes calculations a breeze.

Now that you’ve settled on the ATO logbook method, consider downloading the GOFAR App like thousands of others.

I’ve had a good run with the device and it helps a lot so I don’t need to worry and sweat the small stuff. Ben Douglass, Verified Customer, Mar 2022

With a 4.5 star rating on the App Store, join over 20,000 users worldwide tracking their car expenses with their GOFAR.

Download GOFAR

Danny Adams

Co-founder of GOFAR and with a Computer Science background from Harvard University, and a Bachelor of Aerospace, Aeronautical & Astronautical Engineering (Honours), UNSW. I want to transform data from cars into useful services so -> drivers save time & money -> emissions fall -> Australian roads are safer. So we built an ATO-compliant logbook app called GOFAR . I write to help you understand how to use GOFAR to maximise business travel . Reach out via [email protected] .

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Track mileage automatically

Ato car log book requirements, in this article, what is a car log book, ato logbook method requirements, actual costs method logbook requirements, the cents per kilometre method requirements, car log book formats, keeping records and ato audits.

You have to follow specific requirements for your car log book depending on the reimbursement or deduction method you use.

If you drive your personal vehicle for work, you might receive business-related car expenses reimbursement if you are employed, or claim a tax deduction from the ATO as an employee, self-employed, or company.

In order to prove the kilometres you’ve driven and the expenses associated with owning and operating your car, you need to have records - a car log book, also known as a vehicle log book.

The ATO also has rules that apply if you are claiming a tax deduction on your work-related car expenses.

Kilometre tracking made easy

Trusted by millions of drivers

Automatic mileage tracking and ATO-compliant reporting.

If you use the ATO logbook method, you will need to record your business-related kilometres to ensure that you are getting reimbursed for all relevant expenses, with no limitation on how much you can claim (unlike the simpler cents per kilometre method, which has a cap of 5000 business km per year).

How long is a logbook valid for?

You must keep track of your business and personal driving for a minimum of 12 weeks. The kilometres logged can be extrapolated to cover the rest of the year (assuming that your driving will remain similar). You can use the same logbook for the next 5 years of your tax claims , and you can start a new car log book at any time.

This 12 week period can take place at any time throughout the financial year - and if your car expenses fluctuate month-to-month, recording your kilometres and expenses year-round is a clever way to ensure that you maximise your tax deduction by accounting for all expenses and prioritising peak months.

What to record in your log book

• The period of time being tracked
• Odometer readings at the beginning and end of the period
• The total kilometres driven
• The percentage of kilometres travelled for business
• Total distance travelled
• Odometer readings at the start and end of each trip
• Reason for the journey

The second ATO logbook method requirement is that you keep all receipts and invoices of the car expenses you have throoughout the year.

Based on the percentage of business kilometres you’ve driven, you’ll be able to claim that same percentage from all car expenses. For example, if 50% of your driving was work-related, you’ll be able to claim 50% of your car expenses.

Don’t forget - If you're claiming your car expenses as a tax deduction, you can only use the logbook method to claim expenses for a car that you own. The ATO will require evidence that you own the car to approve any car expense deductions. On the positive side, depreciation is also accounted for under the logbook method. See our dedicated article on claiming vehicle depreciation .

To submit a claim using the actual costs method, you need to have records of the following:

• The kilometres you’ve driven for business and private purposes, including all details listed above for the logbook
• All receipts and invoices related to maintaining your car, such as fuel, repairs, servicing etc.
• Loan or lease documents, and your registration papers
• Details of how you calculated your claim

The biggest difference between the actual costs method and the logbook method is that you are required to record all of your driving throughout the whole year . Compare this to the logbook method, where you are able to calculate your deduction based on any 12 week period.

Under the cents per kilometre method, the records you need to keep are much more straightforward. The rate for the 2024/2025 tax year is 88 cents per km. See more about the new ATO cents per km 2024 rates applicable to the 2024/2025 tax year. Whether your employer is reimbursing your expenses or you are claiming a tax deduction, your requirements are simple. You will need to add to your car log:

• The percentage of kilometres driven for business purposes

If you are using the cents per kilometre method for your tax return, you will also need to show evidence that you own the car, as the standard rate accounts for ownership costs including depreciation, registration, insurance, fuel, and maintenance.

Although you don’t need to provide written evidence, you have to be able to show that you drove the kilometres being claimed and how you calculated your claim. Common ways of showing this are through an automatic logbook application, or by providing diary records of work-related driving.

Paper, diary, account book, digital spreadsheets, CSV files, PDF files, and XLSX (Microsoft Excel) are all accepted by the ATO. In other words, the format does not matter as long as the right records are present. Most logbook apps nowadays will allow you to save your report in multiple formats.

Your employer should inform you which records they need, which includes the formats that they can process.

The ATO actually provides a digital logbook, but it does not include automatic trip logging. Paper logbooks are available from many newsagents and are suitable so long as you remember to fill them in at the start and end of each trip when using the logbook method. 

Should you prefer an automatic solution, an automated car log book app can help you to record everything you need to claim your work-related car expenses from the ATO or your employer. Alternatively, you can also try an ATO compliant log book template in PDF or Excel .

Remember to keep your car log books for five years in case of audits by the ATO.

If you get audited, the ATO can ask to see your km log book, which will be accepted in any of the formats mentioned above. They will also ask for proof of your car expenses in the form of tax invoices or receipts.

To speed up the process and avoid errors, you can order your car mileage logs and records by year, of course maintaining a minimum of five years’ data as per the ATO vehicle log book requirements. A km logbook app such as Driversnote can be incredibly useful in this case as it can automatically track all your trips - that way even if you forget to track a trip manually, you will be covered through automatic tracking.

If you use the ATO logbook method, you are required to record the odometer readings of your car at the beginning and end of the logbook period, as well as the readings at the start and end of each trip you take.

The actual expenses and cents per km method do not require odometer readings, so long as you have another way of recording each trip, e.g. an automatic mileage tracker.

If you receive car expenses reimbursement from your employer, it will be up to them to decide the frequency of odometer readings you must note down.

Tired of logging mileage by hand?

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ATO Mileage Guide

• For Self-Employed
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• The Cents per Kilometre Method
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• ATO Log Book Requirements
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• ATO Car Expenses Deductions
• Car Fringe Benefits Tax
• Is Mileage Reimbursement Taxed?
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How To Keep a Mileage Log To Claim Vehicle Expenses

A log book is key to substantiating automobile expense claims

Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

How To Keep a Mileage Log

Sample paper mileage log, automatic mileage tracking, business use vs. personal use.

• Business Use vs. Personal Use for Employees

The Bottom Line

Frequently asked questions (faqs).

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If you have used one or more of your vehicles to earn business income over the past year, you can claim the related expenses as a business expense on your income tax in the United States by using a mileage log. But as always, if you want to deduct these expenses, you need to substantiate your claim with evidence in the form of an automobile mileage log book.

Key Takeaways

• The IRS requires business owners to keep good records of business expenses, including for business use of a car.
• You can use a purpose-designed log book to track your mileage and expenses, a simple sheet of paper, or a smartphone app that captures the details automatically,
• A log can be especially helpful if the vehicle is used for both business and personal use.

The Internal Revenue Service (IRS) says you must keep accurate records of business expenses, including for business automobile expenses. This is true whether you choose to claim the deduction using the standard mileage method or the actual expenses method.

The following details should be recorded in your log book any time the vehicle is used for business purposes:

• Destination
• Business purpose of your trip
• Vehicle starting mileage
• Vehicle ending mileage
• Total miles driven
• Vehicle expenses, type (gas, oil, tolls, etc) and amount

Mileage log books are usually available at office supply stores or you can make your own. You can use the example from the IRS below to create your own in a spreadsheet or word processor.

IRS / The Balance

Manually entering trip information in a log book is tedious, particularly if you make a lot of business trips. Fortunately, there are several mileage tracking applications available for Apple and Android smartphones that make use of the phone's GPS to keep track of every mile driven for business purposes. These apps will log your business trip information and enable you to download a mileage summary on your tax return. Some of the more popular mileage tracking apps include:

• MileIQ : IiS and Android
• Mileage Expense Log : iOS only
• TripLog : iOS and Android
• QuickBooks : Mileage tracking is included with QuickBooks Self-Employed

The IRS is vigilant about excessive claims for business use of personal vehicles, claiming most or all of your vehicle mileage for business use may attract extra scrutiny from the tax authorities and a possible audit. 

Therefore, when it's time to claim your motor vehicle business expenses , you will need to know how many non-business-related miles you drove. This can be easily accomplished by determining the total miles you’ve driven in a year by comparing your vehicle’s odometer reading at the end of the tax year to what it was at the beginning of the year.

You can keep an accurate record of your car expenses for parts of the year ("sampling") and use that to extrapolate for the entire year. Just be prepared to demonstrate that your sample period is representative of the entire year.

Once you have your data for the year, to calculate your motor vehicle expenses claim, you need to tally all of the miles you’ve driven for business use over the course of the year. Your personal use is then the total mileage for the year minus the business mileage.

Business Use vs. Personal Use for Employees

Employees who use company vehicles must also keep track of mileage driven for business purposes versus personal use mileage. Mileage driven for personal reasons is a taxable benefit that has to be included in employee income. Note that mileage driven to and from a regular place of employment—other than to the location of a business call—is considered commuting and is classed as personal use.

Make sure you have a clear policy on the personal use of company vehicles, including:

• Who can drive the vehicle, such as the employee only or spouse
• What is allowable for personal use, for example, using a company truck to tow a camper or boat
• How to keep accurate mileage records 

Keeping good records of business expenses is important for accuracy at tax time, and for ensuring you claim all the deductions you're entitled to. Whether you track your business use of a car in a simple paper logbook or a smartphone app, make it habit to jot down the details as you go.

How do you keep your mileage record?

The simplest way to track your mileage is with your car's odometer and a paper log book, marking down the odometer reading at the start of a trip and again at the end. Simple subtraction will tell you how far you've traveled. Smartphone apps that track mileage make the process even easier.

How do I track my personal mileage on a company car?

Personal use of a car provided to you by an employer is considered a fringe benefit, and subject to income tax. You can use a log book, a spreadsheet, or a dedicated mileage app on your smartphone to track both business and personal use of a car.

Internal Revenue Service. " Topic No. 510 Business Use of Car ."

Internal Revenue Service. " Publication 463 (2021), Travel, Gift, and Car Expenses. "

Internal Revenue Service. " Publication 15-B (2022), Employer's Tax Guide to Fringe Benefits ."

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Expense tracking can be tricky, especially if you don’t keep everything in one place. let’s help you fix that.

Unfortunately, it’s common for many of us to leave money in the ATO’s pocket that should be in our tax refunds. Often, the reason is simply because we don’t have the right evidence to support a claim. At Etax, it’s our job to help you get the best possible tax refund each year, so we’ve created these tax resources to make it easier for you to keep track.

Use these tax resources, logbook templates and expense trackers to maximise your tax return this year – it can add $$$ to your tax refund.

The expense trackers and logbook templates on this page will save you lots of time and money! Use these resources and you’ll get the best tax refund possible on your next tax return.

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Work From Home Diary

Use our work from home diary to track your work from home (WFH) hours. Just put in the date and the number of hours you worked at home each day and the diary automatically keeps a tally of all your hours throughout the year. Simple!

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Read about changes to how you claim home office expenses

Vehicle Logbook Template

Our vehicle logbook template helps you get the most from your work-related car journeys. Get your hands on this free car logbook template to easily keep track of every business trip you take.

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Read our “how to claim your car expenses using the logbook method ” article for step by step instructions on how to claim car expenses correctly on your tax return.

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How to keep an irs-approved mileage log.

Last updated: September 15, 2023 

Driving is an essential part of everyday work for millions of Americans. If you’re one of them, you might be eligible for a cost deduction on your federal income tax return.

Gig workers , real estate agents , self-employed people , and small business owners are all able to deduct the miles they accrue while traveling for work. Members of the military and people who work for a charitable organization can also deduct a fixed amount for every mile they drive.

There are 2 ways to calculate the mileage deduction amount and I’m going to show you both, along with other details you need to know to keep a mileage log that is 100% sufficient for any IRS audits .

“How do I know if I qualify for mileage tax deduction?”

There are 4 kinds of mileage rates :

If you conduct business-related errands with your vehicle, you’re eligible for a business mileage tax deduction.

For instance, if you’re the owner of a construction working company, the miles you drive from the office to a worksite are considered business miles and, therefore deductible as a business expense.

How much is the standard mileage rate?

The IRS sets the standard mileage rate for businesses at the end of every year, adjusting it for inflation- in fact, the IRS increased the standard mileage rate from 62.5 cents to 65.5 cents per mile for 2023.

If you visit medical appointments, you’re able to deduct a certain amount of money per mile as a medical mileage tax deduction.

If you’re an active member of the military, moving between posts is deductible (the rate for moving is usually the same as the medical rate, in 2023 this number remains 22 cents per mile ).

If you work for a charity organization, you’re also able to deduct some money after every mile you drive. The charity mileage rate has been 14 cents per mile since 2011.

Standard Mileage Rate vs. Actual Expense Method

These are the 2 types of methods you can choose from when you start using a car for business purposes – these are the standard mileage rate and the actual expense method.

Most important notes about these 2 methods:

• If you choose the actual method for the first year of using a car for business, you must stick to using that method as long as you use that car for business
• If you choose the actual expense method, you don’t have to keep a mileage log, however, you must keep all the receipts from everywhere you go to purchase something related to that vehicle
• If you choose the standard mileage rate, you don’t have to keep your receipts, however, you must keep a mileage log of your business trips
• It’s recommended to go with the standard mileage rate for the first year and calculate your financials as you’ll be able to switch back and forth between the 2 methods for any year in that case
• The actual expense method is usually more profitable if you have a really expensive car that you spend lots of money on

Record Your Odometer at the Start & End of Each Year

As I mentioned above, if you go with the standard mileage rate, you’ll need to keep a mileage log. The very first step for that is to record your odometer at the beginning and the end of each year as you’ll need to put that number in your Form 2106 .

If you purchased a used vehicle, record the odometer reading on the first day you start using it.

It’s also imperative that you record the odometer reading at the end of each year as that number will be used to calculate your business miles for which you’ll get a business mileage tax deduction.

Note: Using MileageWise, you’ll be asked to record your mileage at the start & the end of each month to make this process easier. Recording your mileage once a year usually makes the calculation harder and can cause chaos if there’s any miscalculation.

For Actual Expense Method: Keep Your Receipts

For drivers who chose AEM (Actual Expense Method), the single most important thing for their business mileage tax deduction is to maintain their records of relevant receipts, invoices, and all other documentation. Each of these must contain the date, the price of the purchase, and the description of the service or the product purchased.

If you qualify for the AEM, you can deduct expenses from gas, oil, repairs, tires, lease payments, depreciation, registration expenses, tolls, parking, insurance, and any other vehicle-related expense.

For Standard Mileage Rate: Keep an IRS-approved mileage log

If you decide to go with the standard mileage rate as most Americans do, you’ll need to keep a mileage log.

There are 3 major methods to do that:

• Pen-and-paper
• Excel mileage log template or Google Sheets mileage log template
• Automatic mileage tracker app on your phone

The first and the second option take a massive amount of time to create and you can never be sure that the data you put there is valid and lacks any mistakes that would make the IRS decline your mileage tax claim.

This is why nowadays the most popular, efficient, quick, and profitable option is having a mileage tracker application like MileageWise on your phone.

The even better news is that MileageWise is not only a mileage tracker app on your phone: Every single trip you create automatically or manually will be stored in MileageWise’s web dashboard platform, where you can check, edit your monthly trips anytime and you can finalize your IRS-approved mileage log in 7 minutes a month.

It doesn’t sound like too much time, does it? 🙂

Before printing your mileage log, MileageWise’s built-in IRS auditor function checks and corrects 70 logical contradictions in your mileage log, making sure that the outcome is 100% IRS-compliant .

Did you forget to track your business miles?

No worries, MileageWise’s AI Wizard feature gives you recommendations for your lost miles, based on the locations of your clients.

The more clients you have added to the software, the more precise recommendation you can get for your forgotten past miles… if you’re not satisfied with the trip recommendation, you can restart AI Wizard and you get a new trip recommendation in a couple of minutes.

Google Maps Mileage Log

If you have GPS tracking turned on in your Google account, Google tracks you everywhere you go. If you need your past trips and you forgot to keep a mileage log, MileageWise helps you create an IRS-approved mileage log from those trips .

MileageWise is here to the rescue if you need a truly IRS-approved mileage log. 🙂

Try MileageWise for free

See Why The Wise Choose MileageWise

Similar blog posts:, the revolutionary ai mileage log by mileagewise, mileage log for taxes: the essentials explained, mileage log: the key to maximize your deductions, driver’s logbook: the essential guide for commercial drivers, mileage log checklist: your guide for submitting your 2024 log, how a daily mileage log revision will help you with your job, mileage tracker app.

This mileage tracker app knows everything other mileage trackers know. Plus, you can create mileage logs from scratch or pieces to support your past mileage claims. Create your IRS-proof mileage log in only 7 minutes/month!

Web Dashboard

AI Wizard for past trip recovery, built-in IRS auditor that checks and corrects 70 logical contradictions in your mileage log before printing – this is how MileageWise makes sure you’ll have 100% IRS-proof mileage logs!

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Tips, tricks, information for those who had trouble with a mileage log before and want to get rid of the pain permanently – in a clear, digestible form.

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ATO approved logbook apps for work travel

If you use your own car for performing work related duties (including a car you lease or hire), you may be able to claim a deduction on your tax return for vehicle expenses.

If the travel was partly private, you can only claim the work related portion of the trip. If you are using someone else’s car for work purposes, you may be able to claim the direct costs (such as fuel) as a travel expense.

As the number of Australians making work related car expenses continues to rise, the Australian Taxation Office (ATO) requires logbooks to be kept. By using a vehicle logbook, your tax deduction claim is based on your car’s “business use percentage”. Your business use percentage is the percentage of kilometres you travel in your car for business related purposes.

A logbook allows for easy calculation of business use percentage and easily provides evidence to the ATO. The ATO requires that logbooks are maintained for 12 continuous weeks, in which this period should be representative of your travel throughout the year.

If you started to use your car for work related purposes less than 12 weeks before the end of the income year, you can continue to keep a logbook into the next year to ensure its covers the required 12 weeks.

To be valid, your logbook must contain the following information:

• when the logbook period ends
• the car’s odometer readings at the start and end of the logbook period
• the total number of kilometres the car travelled during the logbook period
• start and finishing times of the journey
• odometer readings at the start and end of the journey
• kilometres travelled
• reason for the journey.
• the business use percentage for the logbook period.

ATO approved logbook apps

The ATO has created an app which has the ability to use GPS for a logbook, as well as approving a number of logbook and tracking systems which can be used to record work-related travel.

Whilst the following list is not all of the available travel recording systems, all have had a class ruling and received approval by the ATO.

ATO Logbook App

EROAD System

EZY2C GPS Tracking System

EZYCarLog Mobile App Logbook Solution

Smartrak Aust Pty Ltd Fleet Management System

GPSI ‘Vehicle Logbook Report’

TomTom Telematics System

LogbookMe In-Car Logbook Solution

MTData FBT Solution Telematics System (MTData Solution)

Helpten Pro Vehicle Telematics Solution (Helpten Pro)

Netstar Australia Pty Ltd telematics system

Fleetcare Pty Ltd telematics product

Quiktrak GPS tracking system

SmarTrak Aust Pty Ltd (PoolCar) booking system

Intelematics Australia Pty Limited CONNECT tracking and fleet management solution

If you have any questions in regards to any of the approved logbooks or for further assistance in keeping track of your work related travel, please give Samantha Oliver a call on 03 5443 0344.

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• Tax Deductions
• Work Related Car Expenses
• Log Book Method

Log Book Vehicle

Log book records of business journeys are used to substantiate actual business percentage claims for work related car expenses.

To be valid for tax purposes, a log book must contain specific information, but there is no compulsory format. Trips information must be recorded as soon as practicable after the completion of the journey.

Log Book claims are only allowed by a taxpayer who owns or leases the car for which expenses are being claimed.

A log book for tax purposes has the following key features:

• A log book record of car trips doesn’t need to be kept for the whole year. The minimum requirement is a continuous 12-week period which commences in or before the tax year.
• Unless there is a change of circumstances a log book claim established in this way is valid for 5 years, at which time the minimum 12-week log book record must be repeated.
• It is permissible to keep a vehicle log book in electronic form, such as a spreadsheet or other program. It can be quite convenient to keep the log book as a spreadsheet on your computer, and update it regularly with your journey records.

Spreadsheet Motor Vehicle Log Book Template

We’ve prepared a simple Excel spreadsheet which serves the purpose. It handles the basic arithmetic needed to work out a business expense percentage.

The Last Mileage Log You'll Ever Need (Free Template)

Sarah is an Enrolled Agent with the IRS and a former staff writer at Keeper. In 2022, she was named one of CPA Practice Advisor’s 20 Under 40 Top Influencers in the field of accounting. Her work has been featured in Business Insider, Money Under 30, Best Life, GOBankingRates, and Shopify. Sarah has spent nearly a decade in public accounting and has extensive experience offering strategic tax planning at the state and federal level. Her clients have come from a wide range of industries, including oil and gas, manufacturing, real estate, wholesale and retail, finance, and ecommerce, and she has handled tax returns for C corps, S corps, partnerships, nonprofits, and sole proprietorships. In her spare time, she is a devoted cat mom and enjoys hiking, painting, and overwatering her houseplants.

Looking for a painless way to track your business mileage? The search ends here. I’d like to introduce you to the last mileage logs you’ll ever need, updated with the latest IRS rates. ‍ Here's one for the 2023 tax year:

To use these spreadsheets, click on the links below and select “Make a copy” to make it your own.

How the Keeper mileage log works

This free mileage log template tracks your trips and automatically calculates your mileage deduction on each one. 

It’s user-friendly, compliant with IRS standards, and quite pretty to look at. All in all, it’s a perfect solution for your own taxes —  or for requesting a mileage reimbursement from a customer or employer.   

Entering your trip details

The bottom half of the log gives you plenty of room to record all your trip information. There are a few sample lines to show you how it works. Let’s take a look at each column, one at a time: 

• Trip Name : Use this to specify the purpose of your trip. For example, if you’re going to a meeting, it could be the name of the client you’re meeting with.
• Date : Here’s when you took the trip. This is an IRS requirement, so don’t forget to jot it down!
• Start and End : The beginning and ending addresses allow  the IRS to verify the mileage if required. You can enter the exact address, or use a close approximation. For example, “ABC warehouse on 6th.” 
• Miles : Enter the exact distance you drove. This will be used to calculate your deduction. 
• Business or Persona l: Use the dropdown menu to specify the nature of the trip. The mileage deduction won’t calculate unless “Business” is selected. However, “Personal” trips will be included in the “Total Mileage” shown at the top of your Mileage Dashboard. 
• Deduction : This column shows how much you can write-off per trip. The running total is listed under the Dashboard. 
• Notes : Use this column to jot down any necessary information relating to the trip. For instance, if it’s a routine trip but you had to stop for gas, leave a note to explain why the trip was slightly longer.

Understanding your Mileage Dashboard

As you begin to fill out the log, your Dashboard will automatically update.

The total tax deduction for the year will show up in the green box shown below. We calculate this automatically for you, using the latest mileage rate provided by the IRS.

Your cumulative business and total mileage will display as well.

If you prefer to use your odometer readings for your total miles, you can include those in the top right corner of the Dashboard. The “Total Mileage” box will update accordingly. (We’ll talk some more about odometer readings down below!)

What does the IRS require from your mileage log?

If your mileage deduction is ever challenged, this is what the IRS is going to expect to see included on your log:

• Date the trip happened
• Purpose of the trip
• Starting address and end destination
• Number of miles you drove

If you fail to adequately supply any of these things, your tax deduction would be disallowed. That’s why we made sure to include all of those on the Keeper log. 

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Do I need to provide odometer miles on my log?  

A common misconception is that the IRS requires your odometer readings on the log. That’s not true. As long as you’re able to document the other details, you don’t need to consult your odometer at all.  

However, when it comes to claiming your mileage deduction on your tax return, your odometer can come in handy. 

When to use your odometer readings

Your odometer can be helpful for figuring out your total mileage.

Let’s back up a second. When reporting your auto details, you’ll have to list two things: 

• Your business mileage for the year
• Your total mileage (including commuting ) for the year

Most people know to track their business mileage, but not everyone tracks their total mileage.

If you use the Keeper mileage log for both your work and personal trips, the total mileage listed at the top should be accurate.

However, what if you only track your business trips? Then you should record your odometer miles at the beginning and end of the year to get your total mileage. 

Just put in your starting and ending odometer readings, and the Dashboard will do the rest.

Understanding the mileage deduction

Our free spreadsheet is a great way to track your mileage deduction, but how does it actually work? The mileage deduction is calculated by multiplying your yearly business miles by the IRS’s standard mileage rate. For 2023, that’s $0.655. For 2024 , it'll be $0.67.

This rate is adjusted for inflation each year. It’s designed to reflect the average costs of car-related expenses , such as: 

• 🚙  Depreciation
• ☂️  Insurance
• 🏷️  Licenses and registration
• 🔧  Repairs and maintenance 

So if you have 5,000 in business mileage, your deduction would be $2,925. Not bad, right? 

This is a great deduction to take advantage of if you drive for work. However, it does come with the added recordkeeping requirement of a mileage log.  

What happens if you claim business miles but don’t keep a log?

Over the years, many taxpayers have gotten dinged for claiming the mileage deduction without good records. 

Here are a couple of tax court cases that show what can happen.

⚖️ Taylor v. Commissioner: A few bad trips can put your whole write-off at risk

In the case of Taylor v. Commissioner in 2017 , a small business owner’s mileage deduction was disallowed due to discrepancies on her log. Certain trips listed inaccurate mileage or showed distances that would be too long to complete in a single day.

Interestingly, Mrs. Taylor’s entire mileage deduction was disallowed, even though much of her documentation was up to the IRS’s standards. Having several major mistakes cost her the entire write-off.   ‍

⚖️  Kilpatrick v. Commissioner: There’s no point in creating a mileage log after the fact

In another case, Kilpatrick v. Commissioner , a business owner waited until after he received notice of an IRS audit to create his mileage log.

Mr. Kilpatrick was able to provide calendar records and MapQuest printouts of his routes. However, the tax court deemed his records inadequate since they were prepared more than two years after the driving had occurred.

Sadly, this has been the fate of many taxpayers over the years. The IRS is strict about requiring contemporaneous records, which means they are kept in real time.

Recreating your log after the fact could jeopardize your write-off. 

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Sarah York, EA

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Forms & Instructions

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Future Developments

Who should use this publication.

Users of employer-provided vehicles.

Who doesn’t need to use this publication.

Volunteers.

Comments and suggestions.

Getting answers to your tax questions.

Getting tax forms, instructions, and publications.

Ordering tax forms, instructions, and publications.

• Useful Items - You may want to see:

Travel expenses defined.

Members of the Armed Forces.

Main place of business or work.

No main place of business or work.

Factors used to determine tax home.

Tax Home Different From Family Home

Temporary assignment vs. indefinite assignment.

Exception for federal crime investigations or prosecutions.

Determining temporary or indefinite.

Going home on days off.

Probationary work period.

Separating costs.

Travel expenses for another individual.

Business associate.

Bona fide business purpose.

Lavish or extravagant.

50% limit on meals.

Actual Cost

Incidental expenses.

Incidental-expenses-only method.

50% limit may apply.

Who can use the standard meal allowance.

Use of the standard meal allowance for other travel.

Amount of standard meal allowance.

Federal government's fiscal year.

Standard meal allowance for areas outside the continental United States.

Special rate for transportation workers.

Travel for days you depart and return.

Trip Primarily for Business

Trip primarily for personal reasons.

Public transportation.

Private car.

Travel entirely for business.

Travel considered entirely for business.

Exception 1—No substantial control.

Exception 2—Outside United States no more than a week.

Exception 3—Less than 25% of time on personal activities.

Exception 4—Vacation not a major consideration.

Travel allocation rules.

Counting business days.

Transportation day.

Presence required.

Day spent on business.

Certain weekends and holidays.

Nonbusiness activity on the way to or from your business destination.

Nonbusiness activity at, near, or beyond business destination.

Other methods.

Travel Primarily for Personal Reasons

Daily limit on luxury water travel.

Meals and entertainment.

Not separately stated.

Convention agenda.

North American area.

Reasonableness test.

Cruise Ships

Deduction may depend on your type of business.

Exceptions to the Rules

Entertainment events.

Entertainment facilities.

Club dues and membership fees.

Gift or entertainment.

Other rules for meals and entertainment expenses.

Costs to include or exclude.

Application of 50% limit.

When to apply the 50% limit.

Taking turns paying for meals.

1—Expenses treated as compensation.

2—Employee's reimbursed expenses.

3—Self-employed reimbursed expenses.

4—Recreational expenses for employees.

5—Advertising expenses.

6—Sale of meals.

Individuals subject to “hours of service” limits.

Incidental costs.

Exceptions.

• Illustration of transportation expenses.

Temporary work location.

No regular place of work.

Two places of work.

Armed Forces reservists.

Commuting expenses.

Parking fees.

Advertising display on car.

Hauling tools or instruments.

Union members' trips from a union hall.

Office in the home.

Examples of deductible transportation.

Choosing the standard mileage rate.

Standard mileage rate not allowed.

Five or more cars.

Personal property taxes.

Parking fees and tolls.

Sale, trade-in, or other disposition.

Business and personal use.

Employer-provided vehicle.

Interest on car loans.

Taxes paid on your car.

Sales taxes.

Fines and collateral.

Casualty and theft losses.

Depreciation and section 179 deductions.

Car defined.

Qualified nonpersonal use vehicles.

More information.

More than 50% business use requirement.

Limit on the amount of the section 179 deduction.

Limit for sport utility and certain other vehicles.

Limit on total section 179 deduction, special depreciation allowance, and depreciation deduction.

Cost of car.

Basis of car for depreciation.

When to elect.

How to elect.

Revoking an election.

Recapture of section 179 deduction.

Dispositions.

Combined depreciation.

Qualified car.

Election not to claim the special depreciation allowance.

Placed in service.

Car placed in service and disposed of in the same year.

Methods of depreciation.

More-than-50%-use test.

Qualified business use.

Use of your car by another person.

Business use changes.

Use for more than one purpose.

Change from personal to business use.

Unadjusted basis.

Improvements.

Car trade-in.

Effect of trade-in on basis.

Traded car used only for business.

Traded car used partly in business.

Modified Accelerated Cost Recovery System (MACRS).

Recovery period.

Depreciation methods.

MACRS depreciation chart.

Depreciation in future years.

Disposition of car during recovery period.

How to use the 2023 chart.

Trucks and vans.

Car used less than full year.

Reduction for personal use.

Section 179 deduction.

Deductions in years after the recovery period.

Unrecovered basis.

The recovery period.

How to treat unrecovered basis.

• Table 4-1. 2023 MACRS Depreciation Chart      (Use To Figure Depreciation for 2023)

Qualified business use 50% or less in year placed in service.

Qualified business use 50% or less in a later year.

Excess depreciation.

Deductible payments.

Fair market value.

Figuring the inclusion amount.

Leased car changed from business to personal use.

Leased car changed from personal to business use.

Reporting inclusion amounts.

Casualty or theft.

Depreciation adjustment when you used the standard mileage rate.

Depreciation deduction for the year of disposition.

Documentary evidence.

Adequate evidence.

Canceled check.

Duplicate information.

Timely kept records.

Proving business purpose.

Confidential information.

Exceptional circumstances.

Destroyed records.

Separating expenses.

Combining items.

Car expenses.

Gift expenses.

Allocating total cost.

If your return is examined.

Reimbursed for expenses.

Examples of Records

Self-employed.

Both self-employed and an employee.

Statutory employees.

Reimbursement for personal expenses.

Income-producing property.

Value reported on Form W-2.

Full value included in your income.

Less than full value included in your income.

No reimbursement.

Reimbursement, allowance, or advance.

Reasonable period of time.

Employee meets accountable plan rules.

Accountable plan rules not met.

Failure to return excess reimbursements.

Reimbursement of nondeductible expenses.

Adequate Accounting

Related to employer.

The federal rate.

Regular federal per diem rate.

The standard meal allowance.

High-low rate.

Prorating the standard meal allowance on partial days of travel.

The standard mileage rate.

Fixed and variable rate (FAVR).

Reporting your expenses with a per diem or car allowance.

Allowance less than or equal to the federal rate.

Allowance more than the federal rate.

Travel advance.

Unproven amounts.

Per diem allowance more than federal rate.

Reporting your expenses under a nonaccountable plan.

Adequate accounting.

How to report.

Contractor adequately accounts.

Contractor doesn’t adequately account.

High-low method.

Regular federal per diem rate method.

Federal per diem rate method.

Information on use of cars.

Standard mileage rate.

Actual expenses.

Car rentals.

Transportation expenses.

Employee business expenses other than nonentertainment meals.

Non-entertainment-related meal expenses.

“Hours of service” limits.

Reimbursements.

Allocating your reimbursement.

After you complete the form.

Limits on employee business expenses.

1. Limit on meals and entertainment.

2. Limit on total itemized deductions.

Member of a reserve component.

Officials Paid on a Fee Basis

Special rules for married persons.

Where to report.

Impairment-Related Work Expenses of Disabled Employees

Preparing and filing your tax return.

Free options for tax preparation.

Using online tools to help prepare your return.

Need someone to prepare your tax return?

Employers can register to use Business Services Online.

IRS social media.

Watching IRS videos.

Online tax information in other languages.

Free Over-the-Phone Interpreter (OPI) Service.

Accessibility Helpline available for taxpayers with disabilities.

Getting tax forms and publications.

Getting tax publications and instructions in eBook format.

Access your online account (individual taxpayers only).

Get a transcript of your return.

Tax Pro Account.

Using direct deposit.

Reporting and resolving your tax-related identity theft issues.

Ways to check on the status of your refund.

Making a tax payment.

What if I can’t pay now?

Filing an amended return.

Checking the status of your amended return.

Understanding an IRS notice or letter you’ve received.

Responding to an IRS notice or letter.

Contacting your local TAC.

What Is TAS?

How can you learn about your taxpayer rights, what can tas do for you, how can you reach tas, how else does tas help taxpayers, low income taxpayer clinics (litcs), appendix a-1. inclusion amounts for passenger automobiles first leased in 2018, appendix a-2. inclusion amounts for passenger automobiles first leased in 2019, appendix a-3. inclusion amounts for passenger automobiles first leased in 2020, appendix a-4. inclusion amounts for passenger automobiles first leased in 2021, appendix a-5. inclusion amounts for passenger automobiles first leased in 2022, appendix a-6. inclusion amounts for passenger automobiles first leased in 2023, publication 463 - additional material, publication 463 (2023), travel, gift, and car expenses.

For use in preparing 2023 Returns

Publication 463 - Introductory Material

For the latest information about developments related to Pub. 463, such as legislation enacted after it was published, go to IRS.gov/Pub463 .

Standard mileage rate. For 2023, the standard mileage rate for the cost of operating your car for business use is 65.5 cents ($0.655) per mile. Car expenses and use of the standard mileage rate are explained in chapter 4.

Depreciation limits on cars, trucks, and vans. The first-year limit on the depreciation deduction, special depreciation allowance, and section 179 deduction for vehicles acquired before September 28, 2017, and placed in service during 2023, is $12,200. The first-year limit on depreciation, special depreciation allowance, and section 179 deduction for vehicles acquired after September 27, 2017, and placed in service during 2023 increases to $20,200. If you elect not to claim a special depreciation allowance for a vehicle placed in service in 2023, the amount increases to $12,200. Depreciation limits are explained in chapter 4.

Section 179 deduction. The maximum amount you can elect to deduct for section 179 property (including cars, trucks, and vans) you placed in service in tax years beginning in 2023 is $1,160,000. This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,890,000. Section 179 deduction is explained in chapter 4.Also, the maximum section 179 expense deduction for sport utility vehicles placed in service in tax years beginning in 2023 is $28,900.

Temporary deduction of 100% business meals. The 100% deduction on certain business meals expenses as amended under the Taxpayer Certainty and Disaster Tax Relief Act of 2020, and enacted by the Consolidated Appropriations Act, 2021, has expired. Generally, the cost of business meals remains deductible, subject to the 50% limitation. See 50% Limit in chapter 2 for more information.

Photographs of missing children. The IRS is a proud partner with the National Center for Missing & Exploited Children® (NCMEC) . Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 800-THE-LOST (800-843-5678) if you recognize a child.

Per diem rates. Current and prior per diem rates may be found on the U.S. General Services Administration (GSA) website at GSA.gov/travel/plan-book/per-diem-rates .

Introduction

You may be able to deduct the ordinary and necessary business-related expenses you have for:

Non-entertainment-related meals,

Transportation.

This publication explains:

What expenses are deductible,

How to report them on your return,

What records you need to prove your expenses, and

How to treat any expense reimbursements you may receive.

You should read this publication if you are an employee or a sole proprietor who has business-related travel, non-entertainment-related meals, gift, or transportation expenses.

If an employer-provided vehicle was available for your use, you received a fringe benefit. Generally, your employer must include the value of the use or availability of the vehicle in your income. However, there are exceptions if the use of the vehicle qualifies as a working condition fringe benefit (such as the use of a qualified nonpersonal use vehicle).

A working condition fringe benefit is any property or service provided to you by your employer, the cost of which would be allowable as an employee business expense deduction if you had paid for it.

A qualified nonpersonal use vehicle is one that isn’t likely to be used more than minimally for personal purposes because of its design. See Qualified nonpersonal use vehicles under Actual Car Expenses in chapter 4.

For information on how to report your car expenses that your employer didn’t provide or reimburse you for (such as when you pay for gas and maintenance for a car your employer provides), see Vehicle Provided by Your Employer in chapter 6.

Partnerships, corporations, trusts, and employers who reimburse their employees for business expenses should refer to the instructions for their required tax forms, for information on deducting travel, meals, and entertainment expenses.

If you are an employee, you won’t need to read this publication if all of the following are true.

You fully accounted to your employer for your work-related expenses.

You received full reimbursement for your expenses.

Your employer required you to return any excess reimbursement and you did so.

There is no amount shown with a code L in box 12 of your Form W-2, Wage and Tax Statement.

If you perform services as a volunteer worker for a qualified charity, you may be able to deduct some of your costs as a charitable contribution. See Out-of-Pocket Expenses in Giving Services in Pub. 526, Charitable Contributions, for information on the expenses you can deduct.

We welcome your comments about this publication and suggestions for future editions.

You can send us comments through IRS.gov/FormComments . Or, you can write to the Internal Revenue Service, Tax Forms and Publications, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224.

Although we can’t respond individually to each comment received, we do appreciate your feedback and will consider your comments and suggestions as we revise our tax forms, instructions, and publications. Don’t send tax questions, tax returns, or payments to the above address.

If you have a tax question not answered by this publication or the How To Get Tax Help section at the end of this publication, go to the IRS Interactive Tax Assistant page at IRS.gov/Help/ITA where you can find topics by using the search feature or viewing the categories listed.

Go to IRS.gov/Forms to download current and prior-year forms, instructions, and publications.

Go to IRS.gov/OrderForms to order current forms, instructions, and publications; call 800-829-3676 to order prior-year forms and instructions. The IRS will process your order for forms and publications as soon as possible. Don’t resubmit requests you’ve already sent us. You can get forms and publications faster online.

Useful Items

Publication

946 How To Depreciate Property

Form (and Instructions)

Schedule A (Form 1040) Itemized Deductions

Schedule C (Form 1040) Profit or Loss From Business (Sole Proprietorship)

Schedule F (Form 1040) Profit or Loss From Farming

2106 Employee Business Expenses

4562 Depreciation and Amortization (Including Information on Listed Property)

See How To Get Tax Help for information about getting these publications and forms.

If you temporarily travel away from your tax home, you can use this chapter to determine if you have deductible travel expenses.

This chapter discusses:

Traveling away from home,

Temporary assignment or job, and

What travel expenses are deductible.

For tax purposes, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job.

An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business. An expense doesn’t have to be required to be considered necessary.

You will find examples of deductible travel expenses in Table 1-1 .

Traveling Away From Home

You are traveling away from home if:

Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work, and

You need to sleep or rest to meet the demands of your work while away from home.

You are a railroad conductor. You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. During the run, you have 6 hours off at your turnaround point where you eat two meals and rent a hotel room to get necessary sleep before starting the return trip. You are considered to be away from home.

You are a truck driver. You leave your terminal and return to it later the same day. You get an hour off at your turnaround point to eat. Because you aren’t off to get necessary sleep and the brief time off isn’t an adequate rest period, you aren’t traveling away from home.

If you are a member of the U.S. Armed Forces on a permanent duty assignment overseas, you aren’t traveling away from home. You can’t deduct your expenses for meals and lodging. You can’t deduct these expenses even if you have to maintain a home in the United States for your family members who aren’t allowed to accompany you overseas. If you are transferred from one permanent duty station to another, you may have deductible moving expenses, which are explained in Pub. 3, Armed Forces' Tax Guide.

A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a tax home (explained next) aboard the ship for travel expense purposes.

To determine whether you are traveling away from home, you must first determine the location of your tax home.

Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. It includes the entire city or general area in which your business or work is located.

If you have more than one regular place of business, your tax home is your main place of business. See Main place of business or work , later.

If you don’t have a regular or a main place of business because of the nature of your work, then your tax home may be the place where you regularly live. See No main place of business or work , later.

If you don’t have a regular or main place of business or post of duty and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. As an itinerant, you can’t claim a travel expense deduction because you are never considered to be traveling away from home.

If you have more than one place of work, consider the following when determining which one is your main place of business or work.

The total time you ordinarily spend in each place.

The level of your business activity in each place.

Whether your income from each place is significant or insignificant.

You live in Cincinnati where you have a seasonal job for 8 months each year and earn $40,000. You work the other 4 months in Miami, also at a seasonal job, and earn $15,000. Cincinnati is your main place of work because you spend most of your time there and earn most of your income there.

You may have a tax home even if you don’t have a regular or main place of work. Your tax home may be the home where you regularly live.

If you don’t have a regular or main place of business or work, use the following three factors to determine where your tax home is.

You perform part of your business in the area of your main home and use that home for lodging while doing business in the area.

You have living expenses at your main home that you duplicate because your business requires you to be away from that home.

You haven’t abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging.

If you satisfy all three factors, your tax home is the home where you regularly live. If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. If you satisfy only one factor, you are an itinerant; your tax home is wherever you work and you can’t deduct travel expenses.

You are single and live in Boston in an apartment you rent. You have worked for your employer in Boston for a number of years. Your employer enrolls you in a 12-month executive training program. You don’t expect to return to work in Boston after you complete your training.

During your training, you don’t do any work in Boston. Instead, you receive classroom and on-the-job training throughout the United States. You keep your apartment in Boston and return to it frequently. You use your apartment to conduct your personal business. You also keep up your community contacts in Boston. When you complete your training, you are transferred to Los Angeles.

You don’t satisfy factor (1) because you didn’t work in Boston. You satisfy factor (2) because you had duplicate living expenses. You also satisfy factor (3) because you didn’t abandon your apartment in Boston as your main home, you kept your community contacts, and you frequently returned to live in your apartment. Therefore, you have a tax home in Boston.

You are an outside salesperson with a sales territory covering several states. Your employer's main office is in Newark, but you don’t conduct any business there. Your work assignments are temporary, and you have no way of knowing where your future assignments will be located. You have a room in your married sister's house in Dayton. You stay there for one or two weekends a year, but you do no work in the area. You don’t pay your sister for the use of the room.

You don’t satisfy any of the three factors listed earlier. You are an itinerant and have no tax home.

If you (and your family) don’t live at your tax home (defined earlier), you can’t deduct the cost of traveling between your tax home and your family home. You also can’t deduct the cost of meals and lodging while at your tax home. See Example 1 , later.

If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. See Example 2 , later.

You are a truck driver and you and your family live in Tucson. You are employed by a trucking firm that has its terminal in Phoenix. At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. You can’t deduct any expenses you have for meals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. This is because Phoenix is your tax home.

Your family home is in Pittsburgh, where you work 12 weeks a year. The rest of the year you work for the same employer in Baltimore. In Baltimore, you eat in restaurants and sleep in a rooming house. Your salary is the same whether you are in Pittsburgh or Baltimore.

Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. You can’t deduct any expenses you have for meals and lodging there. However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. You can deduct the cost of your round trip between Baltimore and Pittsburgh. You can also deduct your part of your family's living expenses for non-entertainment-related meals and lodging while you are living and working in Pittsburgh.

Temporary Assignment or Job

You may regularly work at your tax home and also work at another location. It may not be practical to return to your tax home from this other location at the end of each workday.

If your assignment or job away from your main place of work is temporary, your tax home doesn’t change. You are considered to be away from home for the whole period you are away from your main place of work. You can deduct your travel expenses if they otherwise qualify for deduction. Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less.

However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you can’t deduct your travel expenses while there. An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than 1 year, whether or not it actually lasts for more than 1 year.

If your assignment is indefinite, you must include in your income any amounts you receive from your employer for living expenses, even if they are called “travel allowances” and you account to your employer for them. You may be able to deduct the cost of relocating to your new tax home as a moving expense. See Pub. 3 for more information.

If you are a federal employee participating in a federal crime investigation or prosecution, you aren’t subject to the 1-year rule. This means you may be able to deduct travel expenses even if you are away from your tax home for more than 1 year provided you meet the other requirements for deductibility.

For you to qualify, the Attorney General (or their designee) must certify that you are traveling:

For the federal government;

In a temporary duty status; and

To investigate, prosecute, or provide support services for the investigation or prosecution of a federal crime.

You must determine whether your assignment is temporary or indefinite when you start work. If you expect an assignment or job to last for 1 year or less, it is temporary unless there are facts and circumstances that indicate otherwise. An assignment or job that is initially temporary may become indefinite due to changed circumstances. A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment.

The following examples illustrate whether an assignment or job is temporary or indefinite.

You are a construction worker. You live and regularly work in Los Angeles. You are a member of a trade union in Los Angeles that helps you get work in the Los Angeles area. Your tax home is Los Angeles. Because of a shortage of work, you took a job on a construction project in Fresno. Your job was scheduled to end in 8 months. The job actually lasted 10 months.

You realistically expected the job in Fresno to last 8 months. The job actually did last less than 1 year. The job is temporary and your tax home is still in Los Angeles.

The facts are the same as in Example 1 , except that you realistically expected the work in Fresno to last 18 months. The job was actually completed in 10 months.

Your job in Fresno is indefinite because you realistically expected the work to last longer than 1 year, even though it actually lasted less than 1 year. You can’t deduct any travel expenses you had in Fresno because Fresno became your tax home.

The facts are the same as in Example 1 , except that you realistically expected the work in Fresno to last 9 months. After 8 months, however, you were asked to remain for 7 more months (for a total actual stay of 15 months).

Initially, you realistically expected the job in Fresno to last for only 9 months. However, due to changed circumstances occurring after 8 months, it was no longer realistic for you to expect that the job in Fresno would last for 1 year or less. You can deduct only your travel expenses for the first 8 months. You can’t deduct any travel expenses you had after that time because Fresno became your tax home when the job became indefinite.

If you go back to your tax home from a temporary assignment on your days off, you aren’t considered away from home while you are in your hometown. You can’t deduct the cost of your meals and lodging there. However, you can deduct your travel expenses, including meals and lodging, while traveling between your temporary place of work and your tax home. You can claim these expenses up to the amount it would have cost you to stay at your temporary place of work.

If you keep your hotel room during your visit home, you can deduct the cost of your hotel room. In addition, you can deduct your expenses of returning home up to the amount you would have spent for meals had you stayed at your temporary place of work.

If you take a job that requires you to move, with the understanding that you will keep the job if your work is satisfactory during a probationary period, the job is indefinite. You can’t deduct any of your expenses for meals and lodging during the probationary period.

What Travel Expenses Are Deductible?

Once you have determined that you are traveling away from your tax home, you can determine what travel expenses are deductible.

You can deduct ordinary and necessary expenses you have when you travel away from home on business. The type of expense you can deduct depends on the facts and your circumstances.

Table 1-1 summarizes travel expenses you may be able to deduct. You may have other deductible travel expenses that aren’t covered there, depending on the facts and your circumstances.

If you have one expense that includes the costs of non-entertainment-related meals, entertainment, and other services (such as lodging or transportation), you must allocate that expense between the cost of non-entertainment-related meals, and entertainment and the cost of other services. You must have a reasonable basis for making this allocation. For example, you must allocate your expenses if a hotel includes one or more meals in its room charge.

If a spouse, dependent, or other individual goes with you (or your employee) on a business trip or to a business convention, you generally can’t deduct their travel expenses.

You can deduct the travel expenses of someone who goes with you if that person:

Is your employee,

Has a bona fide business purpose for the travel, and

Would otherwise be allowed to deduct the travel expenses.

If a business associate travels with you and meets the conditions in (2) and (3) above, you can deduct the travel expenses you have for that person. A business associate is someone with whom you could reasonably expect to actively conduct business. A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner, or professional advisor.

Table 1-1. Travel Expenses You Can Deduct

A bona fide business purpose exists if you can prove a real business purpose for the individual's presence. Incidental services, such as typing notes or assisting in entertaining customers, aren’t enough to make the expenses deductible.

You drive to Chicago on business and take your spouse with you. Your spouse isn’t your employee. Your spouse occasionally types notes, performs similar services, and accompanies you to luncheons and dinners. The performance of these services doesn’t establish that your spouse’s presence on the trip is necessary to the conduct of your business. Your spouse’s expenses aren’t deductible.

You pay $199 a day for a double room. A single room costs $149 a day. You can deduct the total cost of driving your car to and from Chicago, but only $149 a day for your hotel room. If both you and your spouse use public transportation, you can only deduct your fare.

You can deduct a portion of the cost of meals if it is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. Meal and entertainment expenses are discussed in chapter 2 .

You can't deduct expenses for meals that are lavish or extravagant. An expense isn't considered lavish or extravagant if it is reasonable based on the facts and circumstances. Meal expenses won't be disallowed merely because they are more than a fixed dollar amount or because the meals take place at deluxe restaurants, hotels, or resorts.

You can figure your meal expenses using either of the following methods.

Actual cost.

If you are reimbursed for the cost of your meals, how you apply the 50% limit depends on whether your employer's reimbursement plan was accountable or nonaccountable. If you aren’t reimbursed, the 50% limit applies even if the unreimbursed meal expense is for business travel. Chapter 2 discusses the 50% Limit in more detail, and chapter 6 discusses accountable and nonaccountable plans.

You can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50% deduction limit. If you use this method, you must keep records of your actual cost.

Standard Meal Allowance

Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. It allows you to use a set amount for your daily meals and incidental expenses (M&IE), instead of keeping records of your actual costs. The set amount varies depending on where and when you travel. In this publication, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance . If you use the standard meal allowance, you must still keep records to prove the time, place, and business purpose of your travel. See the recordkeeping rules for travel in chapter 5 .

The term “incidental expenses” means fees and tips given to porters, baggage carriers, hotel staff, and staff on ships.

Incidental expenses don’t include expenses for laundry, cleaning and pressing of clothing, lodging taxes, costs of telegrams or telephone calls, transportation between places of lodging or business and places where meals are taken, or the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings.

You can use an optional method (instead of actual cost) for deducting incidental expenses only. The amount of the deduction is $5 a day. You can use this method only if you didn’t pay or incur any meal expenses. You can’t use this method on any day that you use the standard meal allowance. This method is subject to the proration rules for partial days. See Travel for days you depart and return , later, in this chapter.

The incidental-expenses-only method isn’t subject to the 50% limit discussed below.

If you use the standard meal allowance method for non-entertainment-related meal expenses and you aren’t reimbursed or you are reimbursed under a nonaccountable plan, you can generally deduct only 50% of the standard meal allowance. If you are reimbursed under an accountable plan and you are deducting amounts that are more than your reimbursements, you can deduct only 50% of the excess amount. The 50% Limit is discussed in more detail in chapter 2, and accountable and nonaccountable plans are discussed in chapter 6.

You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses.

You can use the standard meal allowance to figure your meal expenses when you travel in connection with investment and other income-producing property. You can also use it to figure your meal expenses when you travel for qualifying educational purposes. You can’t use the standard meal allowance to figure the cost of your meals when you travel for medical or charitable purposes.

The standard meal allowance is the federal M&IE rate. For travel in 2023, the rate for most small localities in the United States is $59 per day.

Most major cities and many other localities in the United States are designated as high-cost areas, qualifying for higher standard meal allowances.

If you travel to more than one location in one day, use the rate in effect for the area where you stop for sleep or rest. If you work in the transportation industry, however, see Special rate for transportation workers , later.

Per diem rates are listed by the federal government's fiscal year, which runs from October 1 to September 30. You can choose to use the rates from the 2022 fiscal year per diem tables or the rates from the 2023 fiscal year tables, but you must consistently use the same tables for all travel you are reporting on your income tax return for the year. See Transition Rules , later.

The standard meal allowance rates above don’t apply to travel in Alaska, Hawaii, or any other location outside the continental United States. The Department of Defense establishes per diem rates for Alaska, Hawaii, Puerto Rico, American Samoa, Guam, Midway, the Northern Mariana Islands, the U.S. Virgin Islands, Wake Island, and other non-foreign areas outside the continental United States. The Department of State establishes per diem rates for all other foreign areas.

You can use a special standard meal allowance if you work in the transportation industry. You are in the transportation industry if your work:

Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck; and

Regularly requires you to travel away from home and, during any single trip, usually involves travel to areas eligible for different standard meal allowance rates.

Using the special rate for transportation workers eliminates the need for you to determine the standard meal allowance for every area where you stop for sleep or rest. If you choose to use the special rate for any trip, you must use the special rate (and not use the regular standard meal allowance rates) for all trips you take that year.

For both the day you depart for and the day you return from a business trip, you must prorate the standard meal allowance (figure a reduced amount for each day). You can do so by one of two methods.

Method 1: You can claim 3 / 4 of the standard meal allowance.

Method 2: You can prorate using any method that you consistently apply and that is in accordance with reasonable business practice.

You are employed in New Orleans as a convention planner. In March, your employer sent you on a 3-day trip to Washington, DC, to attend a planning seminar. You left your home in New Orleans at 10 a.m. on Wednesday and arrived in Washington, DC, at 5:30 p.m. After spending 2 nights there, you flew back to New Orleans on Friday and arrived back home at 8 p.m. Your employer gave you a flat amount to cover your expenses and included it with your wages.

Under Method 1 , you can claim 2½ days of the standard meal allowance for Washington, DC: 3 / 4 of the daily rate for Wednesday and Friday (the days you departed and returned), and the full daily rate for Thursday.

Under Method 2 , you could also use any method that you apply consistently and that is in accordance with reasonable business practice. For example, you could claim 3 days of the standard meal allowance even though a federal employee would have to use Method 1 and be limited to only 2½ days.

Travel in the United States

The following discussion applies to travel in the United States. For this purpose, the United States includes the 50 states and the District of Columbia. The treatment of your travel expenses depends on how much of your trip was business related and on how much of your trip occurred within the United States. See Part of Trip Outside the United States , later.

You can deduct all of your travel expenses if your trip was entirely business related. If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct only your business-related travel expenses. These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination.

You work in Atlanta and take a business trip to New Orleans in May. Your business travel totals 900 miles round trip. On your way home, you stop in Mobile to visit your parents. You spend $2,165 for the 9 days you are away from home for travel, non-entertainment-related meals, lodging, and other travel expenses. If you hadn’t stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,633.50. You can deduct $1,633.50 for your trip, including the cost of round-trip transportation to and from New Orleans. The deduction for your non-entertainment-related meals is subject to the 50% limit on meals mentioned earlier.

If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. However, you can deduct any expenses you have while at your destination that are directly related to your business.

A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, won’t change what is really a vacation into a business trip.

Part of Trip Outside the United States

If part of your trip is outside the United States, use the rules described later in this chapter under Travel Outside the United States for that part of the trip. For the part of your trip that is inside the United States, use the rules for travel in the United States. Travel outside the United States doesn’t include travel from one point in the United States to another point in the United States. The following discussion can help you determine whether your trip was entirely within the United States.

If you travel by public transportation, any place in the United States where that vehicle makes a scheduled stop is a point in the United States. Once the vehicle leaves the last scheduled stop in the United States on its way to a point outside the United States, you apply the rules under Travel Outside the United States , later.

You fly from New York to Puerto Rico with a scheduled stop in Miami. Puerto Rico isn’t considered part of the United States for purposes of travel. You return to New York nonstop. The flight from New York to Miami is in the United States, so only the flight from Miami to Puerto Rico is outside the United States. Because there are no scheduled stops between Puerto Rico and New York, all of the return trip is outside the United States.

Travel by private car in the United States is travel between points in the United States, even though you are on your way to a destination outside the United States.

You travel by car from Denver to Mexico City and return. Your travel from Denver to the border and from the border back to Denver is travel in the United States, and the rules in this section apply. The rules below under Travel Outside the United States apply to your trip from the border to Mexico City and back to the border.

Travel Outside the United States

If any part of your business travel is outside the United States, some of your deductions for the cost of getting to and from your destination may be limited. For this purpose, the United States includes the 50 states and the District of Columbia.

How much of your travel expenses you can deduct depends in part upon how much of your trip outside the United States was business related.

Travel Entirely for Business or Considered Entirely for Business

You can deduct all your travel expenses of getting to and from your business destination if your trip is entirely for business or considered entirely for business.

If you travel outside the United States and you spend the entire time on business activities, you can deduct all of your travel expenses.

Even if you didn’t spend your entire time on business activities, your trip is considered entirely for business if you meet at least one of the following four exceptions.

Your trip is considered entirely for business if you didn’t have substantial control over arranging the trip. The fact that you control the timing of your trip doesn’t, by itself, mean that you have substantial control over arranging your trip.

You don’t have substantial control over your trip if you:

Are an employee who was reimbursed or paid a travel expense allowance, and

Aren’t related to your employer, or

Aren’t a managing executive.

“Related to your employer” is defined later in chapter 6 under Per Diem and Car Allowances .

A “managing executive” is an employee who has the authority and responsibility, without being subject to the veto of another, to decide on the need for the business travel.

A self-employed person generally has substantial control over arranging business trips.

Your trip is considered entirely for business if you were outside the United States for a week or less, combining business and nonbusiness activities. One week means 7 consecutive days. In counting the days, don’t count the day you leave the United States, but do count the day you return to the United States.

You traveled to Brussels primarily for business. You left Denver on Tuesday and flew to New York. On Wednesday, you flew from New York to Brussels, arriving the next morning. On Thursday and Friday, you had business discussions, and from Saturday until Tuesday, you were sightseeing. You flew back to New York, arriving Wednesday afternoon. On Thursday, you flew back to Denver.

Although you were away from your home in Denver for more than a week, you weren’t outside the United States for more than a week. This is because the day you depart doesn’t count as a day outside the United States.

You can deduct your cost of the round-trip flight between Denver and Brussels. You can also deduct the cost of your stay in Brussels for Thursday and Friday while you conducted business. However, you can’t deduct the cost of your stay in Brussels from Saturday through Tuesday because those days were spent on nonbusiness activities.

Your trip is considered entirely for business if:

You were outside the United States for more than a week, and

You spent less than 25% of the total time you were outside the United States on nonbusiness activities.

You flew from Seattle to Tokyo, where you spent 14 days on business and 5 days on personal matters. You then flew back to Seattle. You spent 1 day flying in each direction.

Because only 5 / 21 (less than 25%) of your total time abroad was for nonbusiness activities, you can deduct as travel expenses what it would have cost you to make the trip if you hadn’t engaged in any nonbusiness activity. The amount you can deduct is the cost of the round-trip plane fare and 16 days of non-entertainment-related meals (subject to the 50% Limit ), lodging, and other related expenses.

Your trip is considered entirely for business if you can establish that a personal vacation wasn’t a major consideration, even if you have substantial control over arranging the trip.

Travel Primarily for Business

If you travel outside the United States primarily for business but spend some of your time on other activities, you generally can’t deduct all of your travel expenses. You can only deduct the business portion of your cost of getting to and from your destination. You must allocate the costs between your business and other activities to determine your deductible amount. See Travel allocation rules , later.

If your trip outside the United States was primarily for business, you must allocate your travel time on a day-to-day basis between business days and nonbusiness days. The days you depart from and return to the United States are both counted as days outside the United States.

To figure the deductible amount of your round-trip travel expenses, use the following fraction. The numerator (top number) is the total number of business days outside the United States. The denominator (bottom number) is the total number of business and nonbusiness days of travel.

Your business days include transportation days, days your presence was required, days you spent on business, and certain weekends and holidays.

Count as a business day any day you spend traveling to or from a business destination. However, if because of a nonbusiness activity you don’t travel by a direct route, your business days are the days it would take you to travel a reasonably direct route to your business destination. Extra days for side trips or nonbusiness activities can’t be counted as business days.

Count as a business day any day your presence is required at a particular place for a specific business purpose. Count it as a business day even if you spend most of the day on nonbusiness activities.

If your principal activity during working hours is the pursuit of your trade or business, count the day as a business day. Also, count as a business day any day you are prevented from working because of circumstances beyond your control.

Count weekends, holidays, and other necessary standby days as business days if they fall between business days. But if they follow your business meetings or activity and you remain at your business destination for nonbusiness or personal reasons, don’t count them as business days.

Your tax home is New York City. You travel to Quebec, where you have a business meeting on Friday. You have another meeting on the following Monday. Because your presence was required on both Friday and Monday, they are business days. Because the weekend is between business days, Saturday and Sunday are counted as business days. This is true even though you use the weekend for sightseeing, visiting friends, or other nonbusiness activity.

If, in Example 1 , you had no business in Quebec after Friday, but stayed until Monday before starting home, Saturday and Sunday would be nonbusiness days.

If you stopped for a vacation or other nonbusiness activity either on the way from the United States to your business destination, or on the way back to the United States from your business destination, you must allocate part of your travel expenses to the nonbusiness activity.

The part you must allocate is the amount it would have cost you to travel between the point where travel outside the United States begins and your nonbusiness destination and a return to the point where travel outside the United States ends.

You determine the nonbusiness portion of that expense by multiplying it by a fraction. The numerator (top number) of the fraction is the number of nonbusiness days during your travel outside the United States, and the denominator (bottom number) is the total number of days you spend outside the United States.

You live in New York. On May 4, you flew to Paris to attend a business conference that began on May 5. The conference ended at noon on May 14. That evening, you flew to Dublin where you visited with friends until the afternoon of May 21, when you flew directly home to New York. The primary purpose for the trip was to attend the conference.

If you hadn’t stopped in Dublin, you would have arrived home the evening of May 14. You don’t meet any of the exceptions that would allow you to consider your travel entirely for business. May 4 through May 14 (11 days) are business days and May 15 through May 21 (7 days) are nonbusiness days.

You can deduct the cost of your non-entertainment-related meals (subject to the 50% Limit ), lodging, and other business-related travel expenses while in Paris.

You can’t deduct your expenses while in Dublin. You also can’t deduct 7 / 18 of what it would have cost you to travel round trip between New York and Dublin.

You paid $750 to fly from New York to Paris, $400 to fly from Paris to Dublin, and $700 to fly from Dublin back to New York. Round-trip airfare from New York to Dublin would have been $1,250.

You figure the deductible part of your air travel expenses by subtracting 7 / 18 of the round-trip airfare and other expenses you would have had in traveling directly between New York and Dublin ($1,250 × 7 / 18 = $486) from your total expenses in traveling from New York to Paris to Dublin and back to New York ($750 + $400 + $700 = $1,850).

Your deductible air travel expense is $1,364 ($1,850 − $486).

If you had a vacation or other nonbusiness activity at, near, or beyond your business destination, you must allocate part of your travel expenses to the nonbusiness activity.

The part you must allocate is the amount it would have cost you to travel between the point where travel outside the United States begins and your business destination and a return to the point where travel outside the United States ends.

None of your travel expenses for nonbusiness activities at, near, or beyond your business destination are deductible.

Assume that the dates are the same as in the previous example but that instead of going to Dublin for your vacation, you fly to Venice, Italy, for a vacation.

You can’t deduct any part of the cost of your trip from Paris to Venice and return to Paris. In addition, you can’t deduct 7 / 18 of the airfare and other expenses from New York to Paris and back to New York.

You can deduct 11 / 18 of the round-trip plane fare and other travel expenses from New York to Paris, plus your non-entertainment-related meals (subject to the 50% Limit ), lodging, and any other business expenses you had in Paris. (Assume these expenses total $4,939.) If the round-trip plane fare and other travel-related expenses (such as food during the trip) are $1,750, you can deduct travel costs of $1,069 ( 11 / 18 × $1,750), plus the full $4,939 for the expenses you had in Paris.

You can use another method of counting business days if you establish that it more clearly reflects the time spent on other than business activities outside the United States.

If you travel outside the United States primarily for vacation or for investment purposes, the entire cost of the trip is a nondeductible personal expense. However, if you spend some time attending brief professional seminars or a continuing education program, you can deduct your registration fees and other expenses you have that are directly related to your business.

The university from which you graduated has a continuing education program for members of its alumni association. This program consists of trips to various foreign countries where academic exercises and conferences are set up to acquaint individuals in most occupations with selected facilities in several regions of the world. However, none of the conferences are directed toward specific occupations or professions. It is up to each participant to seek out specialists and organizational settings appropriate to their occupational interests.

Three-hour sessions are held each day over a 5-day period at each of the selected overseas facilities where participants can meet with individual practitioners. These sessions are composed of a variety of activities including workshops, mini-lectures, roleplaying, skill development, and exercises. Professional conference directors schedule and conduct the sessions. Participants can choose those sessions they wish to attend.

You can participate in this program because you are a member of the alumni association. You and your family take one of the trips. You spend about 2 hours at each of the planned sessions. The rest of the time you go touring and sightseeing with your family. The trip lasts less than 1 week.

Your travel expenses for the trip aren’t deductible since the trip was primarily a vacation. However, registration fees and any other incidental expenses you have for the five planned sessions you attended that are directly related and beneficial to your business are deductible business expenses. These expenses should be specifically stated in your records to ensure proper allocation of your deductible business expenses.

Luxury Water Travel

If you travel by ocean liner, cruise ship, or other form of luxury water transportation for business purposes, there is a daily limit on the amount you can deduct. The limit is twice the highest federal per diem rate allowable at the time of your travel. (Generally, the federal per diem is the amount paid to federal government employees for daily living expenses when they travel away from home within the United States for business purposes.)

The highest federal per diem rate allowed and the daily limit for luxury water travel in 2023 are shown in the following table.

You are a travel agent and traveled by ocean liner from New York to London, England, on business in May. Your expense for the 6-day cruise was $6,200. Your deduction for the cruise can’t exceed $4,776 (6 days × $796 daily limit).

If your expenses for luxury water travel include separately stated amounts for meals or entertainment, those amounts are subject to the 50% limit on non-entertainment-related meals and entertainment before you apply the daily limit. For a discussion of the 50% Limit , see chapter 2.

In the previous example, your luxury water travel had a total cost of $6,200. Of that amount, $3,700 was separately stated as non-entertainment-related meals and $1,000 was separately stated as entertainment. Considering that you are self-employed, you aren’t reimbursed for any of your travel expenses. You figure your deductible travel expenses as follows.

If your meal or entertainment charges aren’t separately stated or aren’t clearly identifiable, you don’t have to allocate any portion of the total charge to meals or entertainment.

The daily limit on luxury water travel (discussed earlier) doesn’t apply to expenses you have to attend a convention, seminar, or meeting on board a cruise ship. See Cruise Ships , later, under Conventions.

Conventions

You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. You can’t deduct the travel expenses for your family.

If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you can’t deduct the expenses.

The convention agenda or program generally shows the purpose of the convention. You can show your attendance at the convention benefits your trade or business by comparing the agenda with the official duties and responsibilities of your position. The agenda doesn’t have to deal specifically with your official duties and responsibilities; it will be enough if the agenda is so related to your position that it shows your attendance was for business purposes.

Conventions Held Outside the North American Area

You can’t deduct expenses for attending a convention, seminar, or similar meeting held outside the North American area unless:

The meeting is directly related to the active conduct of your trade or business, and

It is as reasonable to hold the meeting outside the North American area as within the North American area. See Reasonableness test , later.

The North American area includes the following locations.

The following factors are taken into account to determine if it was as reasonable to hold the meeting outside the North American area as within the North American area.

The purpose of the meeting and the activities taking place at the meeting.

The purposes and activities of the sponsoring organizations or groups.

The homes of the active members of the sponsoring organizations and the places at which other meetings of the sponsoring organizations or groups have been or will be held.

Other relevant factors you may present.

You can deduct up to $2,000 per year of your expenses of attending conventions, seminars, or similar meetings held on cruise ships. All ships that sail are considered cruise ships.

You can deduct these expenses only if all of the following requirements are met.

The convention, seminar, or meeting is directly related to the active conduct of your trade or business.

The cruise ship is a vessel registered in the United States.

All of the cruise ship's ports of call are in the United States or in territories of the United States.

You attach to your return a written statement signed by you that includes information about:

The total days of the trip (not including the days of transportation to and from the cruise ship port),

The number of hours each day that you devoted to scheduled business activities, and

A program of the scheduled business activities of the meeting.

You attach to your return a written statement signed by an officer of the organization or group sponsoring the meeting that includes:

A schedule of the business activities of each day of the meeting, and

The number of hours you attended the scheduled business activities.

2. Meals and Entertainment

You can no longer take a deduction for any expense related to activities generally considered entertainment, amusement, or recreation. You can continue to deduct 50% of the cost of business meals if you (or your employee) are present and the food or beverages aren't considered lavish or extravagant.

Entertainment

Entertainment—defined.

Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; on yachts; or on hunting, fishing, vacation, and similar trips. Entertainment may also include meeting personal, living, or family needs of individuals, such as providing meals, a hotel suite, or a car to customers or their families.

Your kind of business may determine if a particular activity is considered entertainment. For example, if you are a dress designer and have a fashion show to introduce your new designs to store buyers, the show generally isn’t considered entertainment. This is because fashion shows are typical in your business. But, if you are an appliance distributor and hold a fashion show for the spouses of your retailers, the show is generally considered entertainment.

If you have one expense that includes the costs of entertainment and other services (such as lodging or transportation), you must allocate that expense between the cost of entertainment and the cost of other services. You must have a reasonable basis for making this allocation. For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge.

In general, entertainment expenses are nondeductible. However, there are a few exceptions to the general rule, including:

Entertainment treated as compensation on your originally filed tax returns (and treated as wages to your employees);

Recreational expenses for employees such as a holiday party or a summer picnic;

Expenses related to attending business meetings or conventions of certain exempt organizations such as business leagues, chambers of commerce, professional associations, etc.; and

Entertainment sold to customers. For example, if you run a nightclub, your expenses for the entertainment you furnish to your customers, such as a floor show, aren’t subject to the nondeductible rules.

Examples of Nondeductible Entertainment

Generally, you can't deduct any expense for an entertainment event. This includes expenses for entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; on yachts; or on hunting, fishing, vacation, and similar trips.

Generally, you can’t deduct any expense for the use of an entertainment facility. This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection.

An entertainment facility is any property you own, rent, or use for entertainment. Examples include a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or home in a vacation resort.

You can’t deduct dues (including initiation fees) for membership in any club organized for business, pleasure, recreation, or other social purposes.

This rule applies to any membership organization if one of its principal purposes is either:

To conduct entertainment activities for members or their guests; or

To provide members or their guests with access to entertainment facilities, discussed later.

The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. You can’t deduct dues paid to:

Country clubs,

Golf and athletic clubs,

Airline clubs,

Hotel clubs, and

Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions.

Any item that might be considered either a gift or entertainment will generally be considered entertainment. However, if you give a customer packaged food or beverages that you intend the customer to use at a later date, treat it as a gift.

As discussed above, entertainment expenses are generally nondeductible. However, you may continue to deduct 50% of the cost of business meals if you (or an employee) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant, or similar business contact.

Food and beverages that are provided during entertainment events are not considered entertainment if purchased separately from the entertainment, or if the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. However, the entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.

Any allowed expense must be ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business. An expense doesn't have to be required to be considered necessary. Expenses must not be lavish or extravagant. An expense isn't considered lavish or extravagant if it is reasonable based on the facts and circumstances.

For each example, assume that the food and beverage expenses are ordinary and necessary expenses under section 162(a) paid or incurred during the tax year in carrying on a trade or business and are not lavish or extravagant under the circumstances. Also assume that the taxpayer and the business contact are not engaged in a trade or business that has any relation to the entertainment activity.

Taxpayer A invites B, a business contact, to a baseball game. A purchases tickets for A and B to attend the game. While at the game, A buys hot dogs and drinks for A and B. The baseball game is entertainment as defined in Regulations section 1.274-11(b)(1)(i) and, thus, the cost of the game tickets is an entertainment expense and is not deductible by A. The cost of the hot dogs and drinks, which are purchased separately from the game tickets, is not an entertainment expense and is not subject to the section 274(a)(1) disallowance. Therefore, A may deduct 50% of the expenses associated with the hot dogs and drinks purchased at the game.

Taxpayer C invites D, a business contact, to a basketball game. C purchases tickets for C and D to attend the game in a suite, where they have access to food and beverages. The cost of the basketball game tickets, as stated on the invoice, includes the food and beverages. The basketball game is entertainment as defined in Regulations section 1.274-11(b)(1)(i) and, thus, the cost of the game tickets is an entertainment expense and is not deductible by C. The cost of the food and beverages, which are not purchased separately from the game tickets, is not stated separately on the invoice. Thus, the cost of the food and beverages is also an entertainment expense that is subject to the section 274(a)(1) disallowance. Therefore, C may not deduct any of the expenses associated with the basketball game.

Assume the same facts as in Example 2 , except that the invoice for the basketball game tickets separately states the cost of the food and beverages. As in Example 2 , the basketball game is entertainment as defined in Regulations section 1.274-2(b)(1)(i) and, thus, the cost of the game tickets, other than the cost of the food and beverages, is an entertainment expense and is not deductible by C. However, the cost of the food and beverages, which is stated separately on the invoice for the game tickets, is not an entertainment expense and is not subject to the section 274(a)(1) disallowance. Therefore, C may deduct 50% of the expenses associated with the food and beverages provided at the game.

In general, you can deduct only 50% of your business-related meal expenses, unless an exception applies. (If you are subject to the Department of Transportation's “hours of service” limits, you can deduct 80% of your business-related meal expenses. See Individuals subject to hours of service limits , later.)

The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed.

Examples of meals might include:

Meals while traveling away from home (whether eating alone or with others) on business, or

Meal at a business convention or business league meeting.

Figure A. Does the 50% Limit Apply to Your Expenses?

There are exceptions to these rules. See Exceptions to the 50% Limit for Meals , later.

Figure A. Does the 50% limit apply to Your Expenses?TAs for Figure A are: Notice 87-23; Form 2106 instructions

Summary: This is a flowchart used to determine if employees and self-employed persons need to put a 50% limit on their business expense deductions.

This is the starting of the flowchart.

Decision (1)

Were your meal and entertainment expenses reimbursed? (Count only reimbursements your employer didn’t include in box 1 of your Form W-2. If self-employed, count only reimbursements from clients or customers that aren’t included on Form 1099-MISC, Miscellaneous Income.)

Decision (2)

If an employee, did you adequately account to your employer under an accountable plan? If self-employed, did you provide the payer with adequate records? (See Chapter 6.)

Decision (3)

Did your expenses exceed the reimbursement?

Decision (4)

Process (a)

Your meal and entertainment expenses are NOT subject to the limitations. However, since the reimbursement wasn’t treated as wages or as other taxable income, you can’t deduct the expenses.

Process (b)

Your nonentertainment meal expenses ARE subject to the 50% limit. Your entertainment expenses are nondeductible.

This is the ending of the flowchart.

Please click here for the text description of the image.

Taxes and tips relating to a business meal are included as a cost of the meal and are subject to the 50% limit. However, the cost of transportation to and from the meal is not treated as part of the cost and would not be subject to the limit.

The 50% limit on meal expenses applies if the expense is otherwise deductible and isn’t covered by one of the exceptions discussed later. Figure A can help you determine if the 50% limit applies to you.

The 50% limit also applies to certain meal expenses that aren’t business related. It applies to meal expenses you have for the production of income, including rental or royalty income. It also applies to the cost of meals included in deductible educational expenses.

The 50% limit will apply after determining the amount that would otherwise qualify for a deduction. You first have to determine the amount of meal expenses that would be deductible under the other rules discussed in this publication.

If a group of business acquaintances takes turns picking up each others' meal checks primarily for personal reasons, without regard to whether any business purposes are served, no member of the group can deduct any part of the expense.

You spend $200 (including tax and tip) for a business meal. If $110 of that amount isn’t allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. Your deduction can’t be more than $45 (50% (0.50) × $90).

You purchase two tickets to a concert for $200 for you and your client. Your deduction is zero because no deduction is allowed for entertainment expenses.

Exception to the 50% Limit for Meals

Your meal expense isn’t subject to the 50% limit if the expense meets one of the following exceptions.

In general, expenses for goods, services, and facilities, to the extent the expenses are treated by the taxpayer, with respect to entertainment, amusement, or recreation, as compensation to an employee and as wages to the employee for tax purposes.

If you are an employee, you aren’t subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan. Accountable plans are discussed in chapter 6.

If you are self-employed, your deductible meal expenses aren’t subject to the 50% limit if all of the following requirements are met.

You have these expenses as an independent contractor.

Your customer or client reimburses you or gives you an allowance for these expenses in connection with services you perform.

You provide adequate records of these expenses to your customer or client. (See chapter 5 .)

In this case, your client or customer is subject to the 50% limit on the expenses.

You are a self-employed attorney who adequately accounts for meal expenses to a client who reimburses you for these expenses. You aren’t subject to the limitation on meal expenses. If the client can deduct the expenses, the client is subject to the 50% limit.

If you (as an independent contractor) have expenses for meals related to providing services for a client but don’t adequately account for and seek reimbursement from the client for those expenses, you are subject to the 50% limit on non-entertainment-related meals and the entertainment-related meal expenses are nondeductible to you.

You aren't subject to the 50% limit for expenses for recreational, social, or similar activities (including facilities) such as a holiday party or a summer picnic.

You aren’t subject to the 50% limit if you provide meals to the general public as a means of advertising or promoting goodwill in the community. For example, neither the expense of sponsoring a television or radio show nor the expense of distributing free food and beverages to the general public is subject to the 50% limit.

You aren’t subject to the 50% limit if you actually sell meals to the public. For example, if you run a restaurant, your expense for the food you furnish to your customers isn’t subject to the 50% limit.

You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. The percentage is 80%.

Individuals subject to the Department of Transportation's “hours of service” limits include the following persons.

Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations.

Interstate truck operators and bus drivers who are under Department of Transportation regulations.

Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations.

Certain merchant mariners who are under Coast Guard regulations.

If you give gifts in the course of your trade or business, you may be able to deduct all or part of the cost. This chapter explains the limits and rules for deducting the costs of gifts.

You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. A gift to a company that is intended for the eventual personal use or benefit of a particular person or a limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who receive the gift.

If you give a gift to a member of a customer's family, the gift is generally considered to be an indirect gift to the customer. This rule doesn’t apply if you have a bona fide, independent business connection with that family member and the gift isn’t intended for the customer's eventual use.

If you and your spouse both give gifts, both of you are treated as one taxpayer. It doesn’t matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. If a partnership gives gifts, the partnership and the partners are treated as one taxpayer.

You sell products to a local company. You and your spouse gave the local company three gourmet gift baskets to thank them for their business. You and your spouse paid $80 for each gift basket, or $240 total. Three of the local company's executives took the gift baskets home for their families' use. You and your spouse have no independent business relationship with any of the executives' other family members. You and your spouse can deduct a total of $75 ($25 limit × 3) for the gift baskets.

Incidental costs, such as engraving on jewelry, or packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit.

A cost is incidental only if it doesn’t add substantial value to the gift. For example, the cost of gift wrapping is an incidental cost. However, the purchase of an ornamental basket for packaging fruit isn’t an incidental cost if the value of the basket is substantial compared to the value of the fruit.

The following items aren’t considered gifts for purposes of the $25 limit.

An item that costs $4 or less and:

Has your name clearly and permanently imprinted on the gift, and

Is one of a number of identical items you widely distribute. Examples include pens, desk sets, and plastic bags and cases.

Signs, display racks, or other promotional material to be used on the business premises of the recipient.

Figure B. When Are Transportation Expenses Deductible?

Most employees and self-employed persons can use this chart. (Don’t use this chart if your home is your principal place of business. See Office in the home , later.)

Figure B. When Are Local Transportation Expenses Deductible?TAs for Figure B are: Reg 1.162-1(a); RR 55–109; RR 94–47

Summary: This illustration depicts the rules used to determine if transportation expenses are deductible.

The image then lists definitions for words used in the graphic:

Any item that might be considered either a gift or entertainment will generally be considered entertainment. However, if you give a customer packaged food or beverages you intend the customer to use at a later date, treat it as a gift.

4. Transportation

This chapter discusses expenses you can deduct for business transportation when you aren’t traveling away from home , as defined in chapter 1. These expenses include the cost of transportation by air, rail, bus, taxi, etc., and the cost of driving and maintaining your car.

Transportation expenses include the ordinary and necessary costs of all of the following.

Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. Tax home is defined in chapter 1.

Visiting clients or customers.

Going to a business meeting away from your regular workplace.

Getting from your home to a temporary workplace when you have one or more regular places of work. These temporary workplaces can be either within the area of your tax home or outside that area.

Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. However, there may be exceptions to this general rule. You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. Also, daily transportation expenses can be deducted if (1) you have one or more regular work locations away from your residence; or (2) your residence is your principal place of business and you incur expenses going between the residence and another work location in the same trade or business, regardless of whether the work is temporary or permanent and regardless of the distance.

Illustration of transportation expenses.

Figure B above illustrates the rules that apply for deducting transportation expenses when you have a regular or main job away from your home. You may want to refer to it when deciding whether you can deduct your transportation expenses.

If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance.

If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise.

If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment isn’t temporary, regardless of whether it actually lasts for more than 1 year.

If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. It won’t be treated as temporary after the date you determine it will last more than 1 year.

If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. You may have deductible travel expenses, as discussed in chapter 1 .

If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area.

Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area.

You can’t deduct daily transportation costs between your home and temporary work sites within your metropolitan area. These are nondeductible commuting expenses.

If you work at two places in 1 day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. However, if for some personal reason you don’t go directly from one location to the other, you can’t deduct more than the amount it would have cost you to go directly from the first location to the second.

Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. You can’t deduct them.

A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work .

You usually can’t deduct the expense if the reserve meeting is held on a day on which you don’t work at your regular job. In this case, your transportation is generally a nondeductible commuting expense. However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work.

If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses.

If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. These expenses are discussed in chapter 1 .

If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to gross income rather than as an itemized deduction. For more information, see Armed Forces Reservists Traveling More Than 100 Miles From Home under Special Rules in chapter 6.

You can’t deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. These costs are personal commuting expenses. You can’t deduct commuting expenses no matter how far your home is from your regular place of work. You can’t deduct commuting expenses even if you work during the commuting trip.

You sometimes use your cell phone to make business calls while commuting to and from work. Sometimes business associates ride with you to and from work, and you have a business discussion in the car. These activities don’t change the trip from personal to business. You can’t deduct your commuting expenses.

Fees you pay to park your car at your place of business are nondeductible commuting expenses. You can, however, deduct business-related parking fees when visiting a customer or client.

Putting display material that advertises your business on your car doesn’t change the use of your car from personal use to business use. If you use this car for commuting or other personal uses, you still can’t deduct your expenses for those uses.

You can’t deduct the cost of using your car in a nonprofit car pool. Don’t include payments you receive from the passengers in your income. These payments are considered reimbursements of your expenses. However, if you operate a car pool for a profit, you must include payments from passengers in your income. You can then deduct your car expenses (using the rules in this publication).

Hauling tools or instruments in your car while commuting to and from work doesn’t make your car expenses deductible. However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car).

If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located.

If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. (See Pub. 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business.)

The following examples show when you can deduct transportation expenses based on the location of your work and your home.

You regularly work in an office in the city where you live. Your employer sends you to a 1-week training session at a different office in the same city. You travel directly from your home to the training location and return each day. You can deduct the cost of your daily round-trip transportation between your home and the training location.

Your principal place of business is in your home. You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business.

You have no regular office, and you don’t have an office in your home. In this case, the location of your first business contact inside the metropolitan area is considered your office. Transportation expenses between your home and this first contact are nondeductible commuting expenses. Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. While you can’t deduct the costs of these trips, you can deduct the costs of going from one client or customer to another.

Car Expenses

If you use your car for business purposes, you may be able to deduct car expenses. You can generally use one of the two following methods to figure your deductible expenses.

Actual car expenses.

The cost of using your car as an employee, whether measured using actual expenses or the standard mileage rate, will no longer be allowed to be claimed as an unreimbursed employee travel expense as a miscellaneous itemized deduction due to the suspension of miscellaneous itemized deductions that are subject to the 2% floor under section 67(a). The suspension applies to tax years beginning after December 2017 and before January 2026. Deductions for expenses that are deductible in determining adjusted gross income are not suspended. For example, Armed Forces reservists, qualified performing artists, and fee-basis state or local government officials are allowed to deduct unreimbursed employee travel expenses as an adjustment to total income on Schedule 1 (Form 1040), line 12.

If you use actual expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. See Leasing a Car , later.

In this publication, “car” includes a van, pickup, or panel truck. For the definition of “car” for depreciation purposes, see Car defined under Actual Car Expenses , later.

Standard Mileage Rate

For 2023, the standard mileage rate for the cost of operating your car for business use is 65.5 cents ($0.655) per mile.

You can generally use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. See chapter 6 for more information on reimbursements .

If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use either the standard mileage rate or actual expenses.

If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that is after 1997.

You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. You can’t revoke the choice. However, in later years, you can switch from the standard mileage rate to the actual expenses method. If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation for the car’s remaining estimated useful life, subject to depreciation limits (discussed later).

For more information about depreciation included in the standard mileage rate, see Exception under Methods of depreciation , later.

You can’t use the standard mileage rate if you:

Use five or more cars at the same time (such as in fleet operations);

Claimed a depreciation deduction for the car using any method other than straight line for the car’s estimated useful life;

Used the Modified Accelerated Cost Recovery System (MACRS) (as discussed later under Depreciation Deduction );

Claimed a section 179 deduction (discussed later) on the car;

Claimed the special depreciation allowance on the car; or

Claimed actual car expenses after 1997 for a car you leased.

You can elect to use the standard mileage rate if you used a car for hire (such as a taxi) unless the standard mileage rate is otherwise not allowed, as discussed above.

If you own or lease five or more cars that are used for business at the same time, you can’t use the standard mileage rate for the business use of any car. However, you may be able to deduct your actual expenses for operating each of the cars in your business. See Actual Car Expenses , later, for information on how to figure your deduction.

You aren’t using five or more cars for business at the same time if you alternate using (use at different times) the cars for business.

The following examples illustrate the rules for when you can and can’t use the standard mileage rate for five or more cars.

A salesperson owns three cars and two vans that they alternate using for calling on their customers. The salesperson can use the standard mileage rate for the business mileage of the three cars and the two vans because they don’t use them at the same time.

You and your employees use your four pickup trucks in your landscaping business. During the year, you traded in two of your old trucks for two newer ones. You can use the standard mileage rate for the business mileage of all six of the trucks you owned during the year.

You own a repair shop and an insurance business. You and your employees use your two pickup trucks and van for the repair shop. You alternate using your two cars for the insurance business. No one else uses the cars for business purposes. You can use the standard mileage rate for the business use of the pickup trucks, the van, and the cars because you never have more than four vehicles used for business at the same time.

You own a car and four vans that are used in your housecleaning business. Your employees use the vans, and you use the car to travel to various customers. You can’t use the standard mileage rate for the car or the vans. This is because all five vehicles are used in your business at the same time. You must use actual expenses for all vehicles.

If you are an employee, you can’t deduct any interest paid on a car loan. This applies even if you use the car 100% for business as an employee.

However, if you are self-employed and use your car in your business, you can deduct that part of the interest expense that represents your business use of the car. For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). You can’t deduct the part of the interest expense that represents your personal use of the car.

If you itemize your deductions on Schedule A (Form 1040), you can deduct on line 5c state and local personal property taxes on motor vehicles. You can take this deduction even if you use the standard mileage rate or if you don’t use the car for business.

If you are self-employed and use your car in your business, you can deduct the business part of state and local personal property taxes on motor vehicles on Schedule C (Form 1040), or Schedule F (Form 1040). If you itemize your deductions, you can include the remainder of your state and local personal property taxes on the car on Schedule A (Form 1040).

In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses.)

If you sell, trade in, or otherwise dispose of your car, you may have a gain or loss on the transaction or an adjustment to the basis of your new car. See Disposition of a Car , later.

Actual Car Expenses

If you don’t use the standard mileage rate, you may be able to deduct your actual car expenses.

Actual car expenses include:

If you have fully depreciated a car that you still use in your business, you can continue to claim your other actual car expenses. Continue to keep records, as explained later in chapter 5 .

If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. You can divide your expense based on the miles driven for each purpose.

You are a contractor and drive your car 20,000 miles during the year: 12,000 miles for business use and 8,000 miles for personal use. You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense.

If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. You can’t use the standard mileage rate. See Vehicle Provided by Your Employer in chapter 6.

If you are an employee, you can’t deduct any interest paid on a car loan. This interest is treated as personal interest and isn’t deductible. If you are self-employed and use your car in that business, see Interest , earlier, under Standard Mileage Rate.

If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. Enter the amount paid on Schedule A (Form 1040), line 5c.

Generally, sales taxes on your car are part of your car's basis and are recovered through depreciation, discussed later.

You can’t deduct fines you pay or collateral you forfeit for traffic violations.

If your car is damaged, destroyed, or stolen, you may be able to deduct part of the loss not covered by insurance. See Pub. 547, Casualties, Disasters, and Thefts, for information on deducting a loss on your car.

Generally, the cost of a car, plus sales tax and improvements, is a capital expense. Because the benefits last longer than 1 year, you generally can’t deduct a capital expense. However, you can recover this cost through the section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code), special depreciation allowance, and depreciation deductions. Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year. The section 179 deduction , special depreciation allowance , and depreciation deductions are discussed later.

Generally, there are limits on these deductions. Special rules apply if you use your car 50% or less in your work or business.

You can claim a section 179 deduction and use a depreciation method other than straight line only if you don’t use the standard mileage rate to figure your business-related car expenses in the year you first place a car in service.

If, in the year you first place a car in service, you claim either a section 179 deduction or use a depreciation method other than straight line for its estimated useful life, you can’t use the standard mileage rate on that car in any future year.

For depreciation purposes, a car is any four-wheeled vehicle (including a truck or van) made primarily for use on public streets, roads, and highways. Its unloaded gross vehicle weight (for trucks and vans, gross vehicle weight) must not be more than 6,000 pounds. A car includes any part, component, or other item physically attached to it or usually included in the purchase price.

A car doesn’t include:

An ambulance, hearse, or combination ambulance-hearse used directly in a business;

A vehicle used directly in the business of transporting persons or property for pay or hire; or

A truck or van that is a qualified nonpersonal use vehicle.

These are vehicles that by their nature aren’t likely to be used more than a minimal amount for personal purposes. They include trucks and vans that have been specially modified so that they aren’t likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat, are qualified nonpersonal use vehicles.

See Depreciation Deduction , later, for more information on how to depreciate your vehicle.

Section 179 Deduction

You can elect to recover all or part of the cost of a car that is qualifying section 179 property, up to a limit, by deducting it in the year you place the property in service. This is the section 179 deduction. If you elect the section 179 deduction, you must reduce your depreciable basis in the car by the amount of the section 179 deduction.

You can claim the section 179 deduction only in the year you place the car in service. For this purpose, a car is placed in service when it is ready and available for a specifically assigned use in a trade or business. Even if you aren’t using the property, it is in service when it is ready and available for its specifically assigned use.

A car first used for personal purposes can’t qualify for the deduction in a later year when its use changes to business.

In 2022, you bought a new car and used it for personal purposes. In 2023, you began to use it for business. Changing its use to business use doesn’t qualify the cost of your car for a section 179 deduction in 2023. However, you can claim a depreciation deduction for the business use of the car starting in 2023. See Depreciation Deduction , later.

You must use the property more than 50% for business to claim any section 179 deduction. If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. The result is the cost of the property that can qualify for the section 179 deduction.

You purchased a new car in April 2023 for $24,500 and used it 60% for business. Based on your business usage, the total cost of your car that qualifies for the section 179 deduction is $14,700 ($24,500 cost × 60% (0.60) business use). But see Limit on total section 179, special depreciation allowance, and depreciation deduction , discussed later.

There are limits on:

The amount of the section 179 deduction;

The section 179 deduction for sport utility and certain other vehicles; and

The total amount of the section 179 deduction, special depreciation allowance, and depreciation deduction (discussed later ) you can claim for a qualified property.

For tax years beginning in 2023, the total amount you can elect to deduct under section 179 can’t be more than $1,160,000.

If the cost of your section 179 property placed in service in tax years beginning in 2023 is over $2,890,000, you must reduce the $1,160,000 dollar limit (but not below zero) by the amount of cost over $2,890,000. If the cost of your section 179 property placed in service during tax years beginning in 2023 is $4,050,000 or more, you can’t take a section 179 deduction.

The total amount you can deduct under section 179 each year after you apply the limits listed above cannot be more than the taxable income from the active conduct of any trade or business during the year.

If you are married and file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service.

If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit. You must allocate the dollar limit (after any reduction) between you.

For more information on the above section 179 deduction limits, see Pub. 946, How To Depreciate Property.

You cannot elect to deduct more than $28,900 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service during the tax years beginning in 2023. This rule applies to any four-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways that isn’t subject to any of the passenger automobile limits explained under Depreciation Limits , later, and that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. However, the $28,900 limit doesn’t apply to any vehicle:

Designed to have a seating capacity of more than nine persons behind the driver's seat;

Equipped with a cargo area of at least 6 feet in interior length that is an open area or is designed for use as an open area but is enclosed by a cap and isn’t readily accessible directly from the passenger compartment; or

That has an integral enclosure, fully enclosing the driver compartment and load carrying device, doesn’t have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.

The first-year limit on the depreciation deduction, special depreciation allowance, and section 179 deduction for vehicles acquired before September 28, 2017, and placed in service during 2023, is $12,200. The first-year limit on depreciation, special depreciation allowance, and section 179 deduction for vehicles acquired after September 27, 2017, and placed in service during 2023 increases to $20,200. If you elect not to claim a special depreciation allowance for a vehicle placed in service in 2023, the amount increases to $12,200. The limit is reduced if your business use of the vehicle is less than 100%. See Depreciation Limits , later, for more information.

In the earlier example under More than 50% business use requirement , you had a car with a cost (for purposes of the section 179 deduction) of $14,700. However, based on your business usage of the car, the total of your section 179 deduction, special depreciation allowance, and depreciation deductions is limited to $12,120 ($20,200 limit x 60% (0.60) business use) because the car was acquired after September 27, 2017, and placed in service during 2023.

For purposes of the section 179 deduction, the cost of the car doesn’t include any amount figured by reference to any other property held by you at any time. For example, if you buy a car as a replacement for a car that was stolen or that was destroyed in a casualty loss, and you use section 1033 to determine the basis in your replacement vehicle, your cost for purposes of the section 179 deduction doesn’t include your adjusted basis in the relinquished car. In that case, your cost includes only the cash you paid.

The amount of the section 179 deduction reduces your basis in your car. If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. The resulting amount is the basis in your car you use to figure your depreciation deduction.

If you want to take the section 179 deduction, you must make the election in the tax year you place the car in service for business or work.

Employees use Form 2106, Employee Business Expenses, to make the election and report the section 179 deduction. All others use Form 4562, Depreciation and Amortization, to make an election.

File the appropriate form with either of the following.

Your original tax return filed for the year the property was placed in service (whether or not you file it timely).

An amended return filed within the time prescribed by law. An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. The amended return must also include any resulting adjustments to taxable income.

An election (or any specification made in the election) to take a section 179 deduction for 2023 can only be revoked with the Commissioner's approval.

To be eligible to claim the section 179 deduction, you must use your car more than 50% for business or work in the year you acquired it. If your business use of the car is 50% or less in a later tax year during the recovery period, you have to recapture (include in income) in that later year any excess depreciation. Any section 179 deduction claimed on the car is included in figuring the excess depreciation. For information on this calculation, see Excess depreciation , later in this chapter under Car Used 50% or Less for Business. For more information on recapture of a section 179 deduction, see Pub. 946.

If you dispose of a car on which you had claimed the section 179 deduction, the amount of that deduction is treated as a depreciation deduction for recapture purposes. You treat any gain on the disposition of the property as ordinary income up to the amount of the section 179 deduction and any allowable depreciation (unless you establish the amount actually allowed). For information on the disposition of a car, see Disposition of a Car , later. For more information on recapture of a section 179 deduction, see Pub. 946.

Special Depreciation Allowance

You may be able to claim the special depreciation allowance for your car, truck, or van if it is qualified property and was placed in service in 2023. The allowance for 2023 is an additional depreciation deduction for 100% of the car's depreciable basis (after any section 179 deduction, but before figuring your regular depreciation deduction under MACRS) if the vehicle was acquired after September 27, 2017, and placed in service during 2023. Further, while it applies to a new vehicle, it also applies to a used vehicle only if the vehicle meets the used property requirements. For more information on the used property requirements, see section 168(k)(2)(E)(ii). To qualify for the allowance, more than 50% of the use of the car must be in a qualified business use (as defined under Depreciation Deduction , later).

The first-year limit on the depreciation deduction, special depreciation allowance, and section 179 deduction for vehicles acquired before September 28, 2017, and placed in service during 2023, is $12,200. Your combined section 179 depreciation, special depreciation allowance, and regular MACRS depreciation deduction is limited to the maximum allowable depreciation deduction for vehicles acquired after September 27, 2017, and placed in service during 2023 is $20,200. If you elect not to claim a special depreciation allowance for a vehicle placed in service in 2023, the amount is $12,200. See Depreciation Limits , later in this chapter.

To be qualified property, the car (including the truck or van) must meet all of the following tests.

You acquired the car after September 27, 2017, but only if no written binding contract to acquire the car existed before September 28, 2017.

You acquired the car new or used.

You placed the car in service in your trade or business before January 1, 2027.

You used the car more than 50% in a qualified business use during the tax year.

You can elect not to claim the special depreciation allowance for your car, truck, or van that is qualified property. If you make this election, it applies to all 5-year property placed in service during the year.

To make this election, attach a statement to your timely filed return (including extensions) indicating the class of property (5-year for cars) for which you are making the election and that you are electing not to claim the special depreciation allowance for qualified property in that class of property.

Depreciation Deduction

If you use actual car expenses to figure your deduction for a car you own and use in your business, you can claim a depreciation deduction. This means you can deduct a certain amount each year as a recovery of your cost or other basis in your car.

You generally need to know the following things about the car you intend to depreciate.

Your basis in the car.

The date you place the car in service.

The method of depreciation and recovery period you will use.

Your basis in a car for figuring depreciation is generally its cost. This includes any amount you borrow or pay in cash, other property, or services.

Generally, you figure depreciation on your car, truck, or van using your unadjusted basis (see Unadjusted basis , later). However, in some situations, you will use your adjusted basis (your basis reduced by depreciation allowed or allowable in earlier years). For one of these situations, see Exception under Methods of depreciation , later.

If you change the use of a car from personal to business, your basis for depreciation is the lesser of the fair market value or your adjusted basis in the car on the date of conversion. Additional rules concerning basis are discussed later in this chapter under Unadjusted basis .

You generally place a car in service when it is available for use in your work or business, in an income-producing activity, or in a personal activity. Depreciation begins when the car is placed in service for use in your work or business or for the production of income.

For purposes of figuring depreciation, if you first start using the car only for personal use and later convert it to business use, you place the car in service on the date of conversion.

If you place a car in service and dispose of it in the same tax year, you can’t claim any depreciation deduction for that car.

Generally, you figure depreciation on cars using the Modified Accelerated Cost Recovery (MACRS) discussed later in this chapter.

If you used the standard mileage rate in the first year of business use and change to the actual expenses method in a later year, you can’t depreciate your car under the MACRS rules. You must use straight line depreciation over the estimated remaining useful life of the car. The amount you depreciate can’t be more than the depreciation limit that applies for that year. See Depreciation Limits , later.

To figure depreciation under the straight line method, you must reduce your basis in the car (but not below zero) by a set rate per mile for all miles for which you used the standard mileage rate. The rate per mile varies depending on the year(s) you used the standard mileage rate. For the rate(s) to use, see Depreciation adjustment when you used the standard mileage rate under Disposition of a Car , later.

This reduction of basis is in addition to those basis adjustments described later under Unadjusted basis . You must use your adjusted basis in your car to figure your depreciation deduction. For additional information on the straight line method of depreciation, see Pub. 946.

Generally, you must use your car more than 50% for qualified business use (defined next) during the year to use MACRS. You must meet this more-than-50%-use test each year of the recovery period (6 years under MACRS) for your car.

If your business use is 50% or less, you must use the straight line method to depreciate your car. This is explained later under Car Used 50% or Less for Business .

A qualified business use is any use in your trade or business. It doesn’t include use for the production of income (investment use), or use provided under lease to, or as compensation to, a 5% owner or related person. However, you do combine your business and investment use to figure your depreciation deduction for the tax year.

Don’t treat any use of your car by another person as use in your trade or business unless that use meets one of the following conditions.

It is directly connected with your business.

It is properly reported by you as income to the other person (and, if you have to, you withhold tax on the income).

It results in a payment of fair market rent. This includes any payment to you for the use of your car.

If you used your car more than 50% in qualified business use in the year you placed it in service, but 50% or less in a later year (including the year of disposition), you have to change to the straight line method of depreciation. See Qualified business use 50% or less in a later year under Car Used 50% or Less for Business , later.

If you use your car for more than one purpose during the tax year, you must allocate the use to the various purposes. You do this on the basis of mileage. Figure the percentage of qualified business use by dividing the number of miles you drive your car for business purposes during the year by the total number of miles you drive the car during the year for any purpose.

If you change the use of a car from 100% personal use to business use during the tax year, you may not have mileage records for the time before the change to business use. In this case, you figure the percentage of business use for the year as follows.

Determine the percentage of business use for the period following the change. Do this by dividing business miles by total miles driven during that period.

Multiply the percentage in (1) by a fraction. The numerator (top number) is the number of months the car is used for business, and the denominator (bottom number) is 12.

You use a car only for personal purposes during the first 6 months of the year. During the last 6 months of the year, you drive the car a total of 15,000 miles of which 12,000 miles are for business. This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. Your business use for the year is 40% (80% (0.80) × 6 / 12 ).

The amount you can claim for section 179, special depreciation allowance, and depreciation deductions may be limited. The maximum amount you can claim depends on the year in which you placed your car in service. You have to reduce the maximum amount if you did not use the car exclusively for business. See Depreciation Limits , later.

You use your unadjusted basis (often referred to as your basis or your basis for depreciation) to figure your depreciation using the MACRS depreciation chart, explained later under Modified Accelerated Cost Recovery System (MACRS) . Your unadjusted basis for figuring depreciation is your original basis increased or decreased by certain amounts.

To figure your unadjusted basis, begin with your car's original basis, which is generally its cost. Cost includes sales taxes (see Sales taxes , earlier), destination charges, and dealer preparation. Increase your basis by any substantial improvements you make to your car, such as adding air conditioning or a new engine. Decrease your basis by any section 179 deduction, special depreciation allowance, gas guzzler tax, and vehicle credits claimed. See Pub. 551, Basis of Assets, for further details.

If you acquired the car by gift or inheritance, see Pub. 551, Basis of Assets, for information on your basis in the car.

A major improvement to a car is treated as a new item of 5-year recovery property. It is treated as placed in service in the year the improvement is made. It doesn’t matter how old the car is when the improvement is added. Follow the same steps for depreciating the improvement as you would for depreciating the original cost of the car. However, you must treat the improvement and the car as a whole when applying the limits on the depreciation deductions. Your car's depreciation deduction for the year (plus any section 179 deduction, special depreciation allowance, and depreciation on any improvements) can’t be more than the depreciation limit that applies for that year. See Depreciation Limits , later.

If you traded one car (the “old car”) for another car (the “new car”) in 2023, you must treat the transaction as a disposition of the old car and the purchase of the new car. You must treat the old car as disposed of at the time of the trade-in. The depreciable basis of the new car is the adjusted basis of the old car (figured as if 100% of the car’s use had been for business purposes) plus any additional amount you paid for the new car. You then figure your depreciation deduction for the new car beginning with the date you placed it in service. You must also complete Form 2106, Part II, Section D. This method is explained later, beginning at Effect of trade-in on basis .

The discussion that follows applies to trade-ins of cars in 2023, where the election was made to treat the transaction as a disposition of the old car and the purchase of the new car. For information on how to figure depreciation for cars involved in a like-kind exchange (trade-in) in 2023, for which the election wasn’t made, see Pub. 946 and Regulations section 1.168(i)-6(d)(3).

Like‐kind exchanges completed after December 31, 2017, are generally limited to exchanges of real property not held primarily for sale. Regulations section 1.168(i)-6 doesn't reflect this change in law.

If you trade in a car you used only in your business for another car that will be used only in your business, your original basis in the new car is your adjusted basis in the old car, plus any additional amount you pay for the new car.

You trade in a car that has an adjusted basis of $5,000 for a new car. In addition, you pay cash of $20,000 for the new car. Your original basis of the new car is $25,000 (your $5,000 adjusted basis in the old car plus the $20,000 cash paid). Your unadjusted basis is $25,000 unless you claim the section 179 deduction, special depreciation allowance, or have other increases or decreases to your original basis, discussed under Unadjusted basis , earlier.

If you trade in a car you used partly in your business for a new car you will use in your business, you must make a “trade-in” adjustment for the personal use of the old car. This adjustment has the effect of reducing your basis in your old car, but not below zero, for purposes of figuring your depreciation deduction for the new car. (This adjustment isn’t used, however, when you determine the gain or loss on the later disposition of the new car. See Pub. 544, Sales and Other Dispositions of Assets, for information on how to report the disposition of your car.)

To figure the unadjusted basis of your new car for depreciation, first add to your adjusted basis in the old car any additional amount you pay for the new car. Then subtract from that total the excess, if any, of:

The total of the amounts that would have been allowable as depreciation during the tax years before the trade if 100% of the use of the car had been business and investment use, over

The total of the amounts actually allowed as depreciation during those years.

MACRS is the name given to the tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income.

The maximum amount you can deduct is limited, depending on the year you placed your car in service. See Depreciation Limits , later.

Under MACRS, cars are classified as 5-year property. You actually depreciate the cost of a car, truck, or van over a period of 6 calendar years. This is because your car is generally treated as placed in service in the middle of the year, and you claim depreciation for one-half of both the first year and the sixth year.

For more information on the qualifications for this shorter recovery period and the percentages to use in figuring the depreciation deduction, see chapter 4 of Pub. 946.

You can use one of the following methods to depreciate your car.

The 200% declining balance method (200% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction.

The 150% declining balance method (150% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction.

The straight line method (SL) over a 5-year recovery period.

Before choosing a method, you may wish to consider the following facts.

Using the straight line method provides equal yearly deductions throughout the recovery period.

Using the declining balance methods provides greater deductions during the earlier recovery years with the deductions generally getting smaller each year.

A 2023 MACRS Depreciation Chart and instructions are included in this chapter as Table 4-1 . Using this table will make it easy for you to figure the 2023 depreciation deduction for your car. A similar chart appears in the Instructions for Form 2106.

You must use the Depreciation Tables in Pub. 946 rather than the 2023 MACRS Depreciation Chart in this publication if any one of the following three conditions applies to you.

You file your return on a fiscal year basis.

You file your return for a short tax year (less than 12 months).

During the year, all of the following conditions apply.

You placed some property in service from January through September.

You placed some property in service from October through December.

Your basis in the property you placed in service from October through December (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) was more than 40% of your total bases in all property you placed in service during the year.

If you use the percentages from the chart, you generally must continue to use them for the entire recovery period of your car. However, you can’t continue to use the chart if your basis in your car is adjusted because of a casualty. In that case, for the year of the adjustment and the remaining recovery period, figure the depreciation without the chart using your adjusted basis in the car at the end of the year of the adjustment and over the remaining recovery period. See Figuring the Deduction Without Using the Tables in chapter 4 of Pub. 946.

If you dispose of the car before the last year of the recovery period, you are generally allowed a half-year of depreciation in the year of disposition. This rule applies unless the mid-quarter convention applies to the vehicle being disposed of. See Depreciation deduction for the year of disposition under Disposition of a Car , later, for information on how to figure the depreciation allowed in the year of disposition.

To figure your depreciation deduction for 2023, find the percentage in the column of Table 4-1 based on the date that you first placed the car in service and the depreciation method that you are using. Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine the amount of your depreciation deduction. If you prefer to figure your depreciation deduction without the help of the chart, see Pub. 946.

You bought a used truck in February 2022 to use exclusively in your landscape business. You paid $9,200 for the truck with no trade-in. You didn’t claim any section 179 deduction, the truck didn’t qualify for the special depreciation allowance, and you chose to use the 200% DB method to get the largest depreciation deduction in the early years.

You used the MACRS Depreciation Chart in 2022 to find your percentage. The unadjusted basis of the truck equals its cost because you used it exclusively for business. You multiplied the unadjusted basis of the truck, $9,200, by the percentage that applied, 20%, to figure your 2022 depreciation deduction of $1,840.

In 2023, you used the truck for personal purposes when you repaired your parent’s cabin. Your records show that the business use of the truck was 90% in 2023. You used Table 4-1 to find your percentage. Reading down the first column for the date placed in service and across to the 200% DB column, you locate your percentage, 32%. You multiply the unadjusted basis of the truck, $8,280 ($9,200 cost × 90% (0.90) business use), by 32% (0.32) to figure your 2023 depreciation deduction of $2,650.

Depreciation Limits

There are limits on the amount you can deduct for depreciation of your car, truck, or van. The section 179 deduction and special depreciation allowance are treated as depreciation for purposes of the limits. The maximum amount you can deduct each year depends on the date you acquired the passenger automobile and the year you place the passenger automobile in service. These limits are shown in the following tables for 2023.

Maximum Depreciation Deduction for Passenger Automobiles (Including Trucks and Vans) Acquired Before September 28, 2017, and Placed in Service During 2018–2023

Maximum depreciation deduction for passenger automobiles (including trucks and vans) acquired after september 27, 2017, and placed in service during 2018 or later.

The maximum amount you can deduct each year depends on the year you place the car in service. These limits are shown in the following tables for prior years.

Maximum Depreciation Deduction for Cars Placed in Service Prior to 2018

For tax years prior to 2018, the maximum depreciation deductions for trucks and vans are generally higher than those for cars. A truck or van is a passenger automobile that is classified by the manufacturer as a truck or van and rated at 6,000 pounds gross vehicle weight or less.

Maximum Depreciation Deduction for Trucks and Vans Placed in Service Prior to 2018

The depreciation limits aren’t reduced if you use a car for less than a full year. This means that you don’t reduce the limit when you either place a car in service or dispose of a car during the year. However, the depreciation limits are reduced if you don’t use the car exclusively for business and investment purposes. See Reduction for personal use next.

The depreciation limits are reduced based on your percentage of personal use. If you use a car less than 100% in your business or work, you must determine the depreciation deduction limit by multiplying the limit amount by the percentage of business and investment use during the tax year.

The section 179 deduction is treated as a depreciation deduction. If you acquired a passenger automobile (including trucks and vans) after September 27, 2017, and placed it in service in 2023, use it only for business, and choose the section 179 deduction, the special depreciation allowance and depreciation deduction for that vehicle for 2023 is limited to $20,200.

On September 4, 2023, you bought and placed in service a used car for $15,000. You used it 80% for your business, and you choose to take a section 179 deduction for the car. The car isn’t qualified property for purposes of the special depreciation allowance.

Before applying the limit, you figure your maximum section 179 deduction to be $12,000. This is the cost of your qualifying property (up to the maximum $1,160,000 amount) multiplied by your business use ($15,000 × 80% (0.80)).

You then figure that your section 179 deduction for 2023 is limited to $9,760 (80% of $12,200). You then figure your unadjusted basis of $2,440 (($15,000 × 80% (0.80)) − $9,760) for determining your depreciation deduction. You have reached your maximum depreciation deduction for 2023. For 2024, you will use your unadjusted basis of $2,440 to figure your depreciation deduction.

If the depreciation deductions for your car are reduced under the passenger automobile limits (discussed earlier), you will have unrecovered basis in your car at the end of the recovery period. If you continue to use your car for business, you can deduct that unrecovered basis (subject to depreciation limits) after the recovery period ends.

This is your cost or other basis in the car reduced by any clean-fuel vehicle deduction (for vehicles placed in service before January 1, 2006), alternative motor vehicle credit, electric vehicle credit, gas guzzler tax, and depreciation (including any special depreciation allowance , discussed earlier, unless you elect not to claim it) and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use.

For 5-year property, your recovery period is 6 calendar years. A part year's depreciation is allowed in the first calendar year, a full year's depreciation is allowed in each of the next 4 calendar years, and a part year's depreciation is allowed in the 6th calendar year.

Under MACRS, your recovery period is the same whether you use declining balance or straight line depreciation. You determine your unrecovered basis in the 7th year after you placed the car in service.

If you continue to use your car for business after the recovery period, you can claim a depreciation deduction in each succeeding tax year until you recover your basis in the car. The maximum amount you can deduct each year is determined by the date you placed the car in service and your business-use percentage. For example, no deduction is allowed for a year you use your car 100% for personal purposes.

In April 2017, you bought and placed in service a car you used exclusively in your business. The car cost $31,500. You didn’t claim a section 179 deduction or the special depreciation allowance for the car. You continued to use the car 100% in your business throughout the recovery period (2017 through 2022). For those years, you used the MACRS Depreciation Chart (200% DB method), the Maximum Depreciation Deduction for Cars Placed in Service Prior to 2018 table and Maximum Depreciation Deduction for Passenger Automobiles (Including Trucks and Vans) Acquired Before September 28, 2017, and Placed in Service During 2018–2023 table, earlier, for the applicable tax year to figure your depreciation deductions during the recovery period. Your depreciation deductions were subject to the depreciation limits, so you will have unrecovered basis at the end of the recovery period as shown in the following table.

At the end of 2022, you had an unrecovered basis in the car of $14,626 ($31,500 – $16,874). If you continued to use the car 100% for business in 2023 and later years, you can claim a depreciation deduction equal to the lesser of $1,875 or your remaining unrecovered basis.

If your business use of the car was less than 100% during any year, your depreciation deduction would be less than the maximum amount allowable for that year. However, in determining your unrecovered basis in the car, you would still reduce your original basis by the maximum amount allowable as if the business use had been 100%. For example, if you had used your car 60% for business instead of 100%, your allowable depreciation deductions would have been $10,124 ($16,874 × 60% (0.60)), but you still would have to reduce your basis by $16,874 to determine your unrecovered basis.

Table 4-1. 2023 MACRS Depreciation Chart (Use To Figure Depreciation for 2023)

Car used 50% or less for business.

If you use your car 50% or less for qualified business use (defined earlier under Depreciation Deduction ) either in the year the car is placed in service or in a later year, special rules apply. The rules that apply in these two situations are explained in the following paragraphs. (For this purpose, “car” was defined earlier under Actual Car Expenses and includes certain trucks and vans.)

If you use your car 50% or less for qualified business use, the following rules apply.

You can’t take the section 179 deduction.

You can’t take the special depreciation allowance.

You must figure depreciation using the straight line method over a 5-year recovery period. You must continue to use the straight line method even if your percentage of business use increases to more than 50% in a later year.

Instead of making the computation yourself, you can use column (c) of Table 4-1 to find the percentage to use.

In May 2023, you bought and placed in service a car for $17,500. You used it 40% for your consulting business. Because you didn’t use the car more than 50% for business, you can’t take any section 179 deduction or special depreciation allowance, and you must use the straight line method over a 5-year recovery period to recover the cost of your car.

You deduct $700 in 2023. This is the lesser of:

$700 (($17,500 cost × 40% (0.40) business use) × 10% (0.10) recovery percentage (from column (c) of Table 4-1 )), or

$4,880 ($12,200 maximum limit × 40% (0.40) business use).

If you use your car more than 50% in qualified business use in the tax year it is placed in service but the business use drops to 50% or less in a later year, you can no longer use an accelerated depreciation method for that car.

For the year the business use drops to 50% or less and all later years in the recovery period, you must use the straight line depreciation method over a 5-year recovery period. In addition, for the year your business use drops to 50% or less, you must recapture (include in your gross income) any excess depreciation (discussed later). You also increase the adjusted basis of your car by the same amount.

In June 2020, you purchased a car for exclusive use in your business. You met the more-than-50%-use test for the first 3 years of the recovery period (2020 through 2022) but failed to meet it in the fourth year (2023). You determine your depreciation for 2023 using 20% (from column (c) of Table 4-1 ). You will also have to determine and include in your gross income any excess depreciation, discussed next.

You must include any excess depreciation in your gross income and add it to your car's adjusted basis for the first tax year in which you don’t use the car more than 50% in qualified business use. Use Form 4797, Sales of Business Property, to figure and report the excess depreciation in your gross income.

Excess depreciation is:

The amount of the depreciation deductions allowable for the car (including any section 179 deduction claimed and any special depreciation allowance claimed) for tax years in which you used the car more than 50% in qualified business use, minus

The amount of the depreciation deductions that would have been allowable for those years if you hadn’t used the car more than 50% in qualified business use for the year you placed it in service. This means the amount of depreciation figured using the straight line method.

In September 2019, you bought a car for $20,500 and placed it in service. You didn’t claim the section 179 deduction or the special depreciation allowance. You used the car exclusively in qualified business use for 2019, 2020, 2021, and 2022. For those years, you used the appropriate MACRS Depreciation Chart to figure depreciation deductions totaling $13,185 ($3,160 for 2019, $5,100 for 2020, $3,050 for 2021, and $1,875 for 2022) under the 200% DB method.

During 2023, you used the car 30% for business and 70% for personal purposes. Since you didn’t meet the more-than-50%-use test, you must switch from the 200% DB depreciation method to the straight line depreciation method for 2023, and include in gross income for 2023 your excess depreciation determined as follows.

In 2023, using Form 4797, you figure and report the $2,110 excess depreciation you must include in your gross income. Your adjusted basis in the car is also increased by $2,110. Your 2023 depreciation is $1,230 ($20,500 (unadjusted basis) × 30% (0.30) (business-use percentage) × 20% (0.20) (from column (c) of Table 4-1 on the line for Jan. 1–Sept. 30, 2019)). However, your depreciation deduction is limited to $563 ($1,875 x 30% (0.30) business use).

Leasing a Car

If you lease a car, truck, or van that you use in your business, you can use the standard mileage rate or actual expenses to figure your deductible expense. This section explains how to figure actual expenses for a leased car, truck, or van.

If you choose to use actual expenses, you can deduct the part of each lease payment that is for the use of the vehicle in your business. You can’t deduct any part of a lease payment that is for personal use of the vehicle, such as commuting.

You must spread any advance payments over the entire lease period. You can’t deduct any payments you make to buy a car, truck, or van even if the payments are called “lease payments.”

If you lease a car, truck, or van for 30 days or more, you may have to reduce your lease payment deduction by an “inclusion amount,” explained next.

Inclusion Amounts

If you lease a car, truck, or van that you use in your business for a lease term of 30 days or more, you may have to include an inclusion amount in your income for each tax year you lease the vehicle. To do this, you don’t add an amount to income. Instead, you reduce your deduction for your lease payment. (This reduction has an effect similar to the limit on the depreciation deduction you would have on the vehicle if you owned it.)

The inclusion amount is a percentage of part of the fair market value of the leased vehicle multiplied by the percentage of business and investment use of the vehicle for the tax year. It is prorated for the number of days of the lease term in the tax year.

The inclusion amount applies to each tax year that you lease the vehicle if the fair market value (defined next) when the lease began was more than the amounts shown in the following tables.

All vehicles are subject to a single inclusion amount threshold for passenger automobiles leased and put into service in 2023. You may have an inclusion amount for a passenger automobile if:

Passenger Automobiles (Including Trucks and Vans)

For years prior to 2018, see the inclusion tables below. You may have an inclusion amount for a passenger automobile if:

Cars (Except for Trucks and Vans)

Trucks and Vans

Fair market value is the price at which the property would change hands between a willing buyer and seller, neither having to buy or sell, and both having reasonable knowledge of all the necessary facts. Sales of similar property around the same date may be helpful in figuring the fair market value of the property.

Figure the fair market value on the first day of the lease term. If the capitalized cost of a car is specified in the lease agreement, use that amount as the fair market value.

Inclusion amounts for tax years 2018–2023 are listed in Appendices A-1 through A-6 for passenger vehicles (including trucks and vans). If the fair market value of the vehicle is $100,000 or less, use the appropriate appendix (depending on the year you first placed the vehicle in service) to determine the inclusion amount. If the fair market value is more than $100,000, see the revenue procedure(s) identified in the footnote of that year’s appendix for the inclusion amount.

For each tax year during which you lease the car for business, determine your inclusion amount by following these three steps.

Locate the appendix that applies to you. To find the inclusion amount, do the following.

Find the line that includes the fair market value of the car on the first day of the lease term.

Go across the line to the column for the tax year in which the car is used under the lease to find the dollar amount. For the last tax year of the lease, use the dollar amount for the preceding year.

Prorate the dollar amount from (1b) for the number of days of the lease term included in the tax year.

Multiply the prorated amount from (2) by the percentage of business and investment use for the tax year. This is your inclusion amount.

On January 17, 2023, you leased a car for 3 years and placed it in service for use in your business. The car had a fair market value of $62,500 on the first day of the lease term. You use the car 75% for business and 25% for personal purposes during each year of the lease. Assuming you continue to use the car 75% for business, you use Appendix A-6 to arrive at the following inclusion amounts for each year of the lease. For the last tax year of the lease, 2026, you use the amount for the preceding year.

2024 is a leap year and includes an extra calendar day, February 29, 2024.

For each year of the lease that you deduct lease payments, you must reduce your deduction by the inclusion amount figured for that year.

If you lease a car for business use and, in a later year, change it to personal use, follow the rules explained earlier under Figuring the inclusion amount . For the tax year in which you stop using the car for business, use the dollar amount for the previous tax year. Prorate the dollar amount for the number of days in the lease term that fall within the tax year.

On August 16, 2022, you leased a car with a fair market value of $64,500 for 3 years. You used the car exclusively in your data processing business. On November 6, 2023, you closed your business and went to work for a company where you aren’t required to use a car for business. Using Appendix A-5 , you figured your inclusion amount for 2022 and 2023 as shown in the following table and reduced your deductions for lease payments by those amounts.

If you lease a car for personal use and, in a later year, change it to business use, you must determine the car's fair market value on the date of conversion. Then figure the inclusion amount using the rules explained earlier under Figuring the inclusion amount . Use the fair market value on the date of conversion.

In March 2021, you leased a truck for 4 years for personal use. On June 1, 2023, you started working as a self-employed advertising consultant and started using the leased truck for business purposes. Your records show that your business use for June 1 through December 31 was 60%. To figure your inclusion amount for 2023, you obtained an appraisal from an independent car leasing company that showed the fair market value of your 2021 truck on June 1, 2023, was $62,650. Using Appendix A-6 , you figured your inclusion amount for 2023 as shown in the following table.

For information on reporting inclusion amounts, employees should see Car rentals under Completing Forms 2106 in chapter 6. Sole proprietors should see the Instructions for Schedule C (Form 1040), and farmers should see the Instructions for Schedule F (Form 1040).

Disposition of a Car

If you dispose of your car, you may have a taxable gain or a deductible loss. The portion of any gain that is due to depreciation (including any section 179 deduction, clean-fuel vehicle deduction (for vehicles placed in service before January 1, 2006), and special depreciation allowance) that you claimed on the car will be treated as ordinary income. However, you may not have to recognize a gain or loss if you dispose of the car because of a casualty or theft.

This section gives some general information about dispositions of cars. For information on how to report the disposition of your car, see Pub. 544.

Like‐kind exchanges completed after December 31, 2017, are generally limited to exchanges of real property not held primarily for sale.

For a casualty or theft, a gain results when you receive insurance or other reimbursement that is more than your adjusted basis in your car. If you then spend all of the proceeds to acquire replacement property (a new car or repairs to the old car) within a specified period of time, you don’t recognize any gain. Your basis in the replacement property is its cost minus any gain that isn’t recognized. See Pub. 547 for more information.

When you trade in an old car for a new one, the transaction is considered a like-kind exchange. Generally, no gain or loss is recognized. (For exceptions, see chapter 1 of Pub. 544.) In a trade-in situation, your basis in the new property is generally your adjusted basis in the old property plus any additional amount you pay. (See Unadjusted basis , earlier.)

If you used the standard mileage rate for the business use of your car, depreciation was included in that rate. The rate of depreciation that was allowed in the standard mileage rate is shown in the Rate of Depreciation Allowed in Standard Mileage Rate table, later. You must reduce your basis in your car (but not below zero) by the amount of this depreciation.

If your basis is reduced to zero (but not below zero) through the use of the standard mileage rate, and you continue to use your car for business, no adjustment (reduction) to the standard mileage rate is necessary. Use the full standard mileage rate (65.5 cents ($0.655) per mile from January 1–December 31 for 2023) for business miles driven.

Rate of Depreciation Allowed in Standard Mileage Rate

In 2018, you bought and placed in service a car for exclusive use in your business. The car cost $25,500. From 2018 through 2023, you used the standard mileage rate to figure your car expense deduction. You drove your car 14,100 miles in 2018, 16,300 miles in 2019, 15,600 miles in 2020, 16,700 miles in 2021, 15,100 miles in 2022, and 14,900 miles in 2023. The depreciation portion of your car expense deduction is figured as follows.

If you deduct actual car expenses and you dispose of your car before the end of the recovery period (years 2 through 5), you are allowed a reduced depreciation deduction in the year of disposition.

Use the depreciation tables in Pub. 946 to figure the reduced depreciation deduction for a car disposed of in 2023.

The depreciation amounts computed using the depreciation tables in Pub. 946 for years 2 through 5 that you own your car are for a full year’s depreciation. Years 1 and 6 apply the half-year or mid-quarter convention to the computation for you. If you dispose of the vehicle in years 2 through 5 and the half-year convention applies, then the full year’s depreciation amount must be divided by 2. If the mid-quarter convention applies, multiply the full year’s depreciation by the percentage from the following table for the quarter that you disposed of the car.

If the car is subject to the Depreciation Limits , discussed earlier, reduce (but do not increase) the computed depreciation to this amount. See Sale or Other Disposition Before the Recovery Period Ends in chapter 4 of Pub. 946 for more information.

5. Recordkeeping

If you deduct travel, gift, or transportation expenses, you must be able to prove (substantiate) certain elements of expense. This chapter discusses the records you need to keep to prove these expenses.

How To Prove Expenses

Table 5-1 is a summary of records you need to prove each expense discussed in this publication. You must be able to prove the elements listed across the top portion of the chart. You prove them by having the information and receipts (where needed) for the expenses listed in the first column.

You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement. You must generally prepare a written record for it to be considered adequate. This is because written evidence is more reliable than oral evidence alone. However, if you prepare a record on a computer, it is considered an adequate record.

What Are Adequate Records?

You should keep the proof you need in an account book, diary, log, statement of expense, trip sheets, or similar record. You should also keep documentary evidence that, together with your record, will support each element of an expense.

You must generally have documentary evidence such as receipts, canceled checks, or bills, to support your expenses.

Documentary evidence isn’t needed if any of the following conditions apply.

You have meals or lodging expenses while traveling away from home for which you account to your employer under an accountable plan, and you use a per diem allowance method that includes meals and/or lodging. ( Accountable plans and per diem allowances are discussed in chapter 6.)

Your expense, other than lodging, is less than $75.

You have a transportation expense for which a receipt isn’t readily available.

Documentary evidence will ordinarily be considered adequate if it shows the amount, date, place, and essential character of the expense.

For example, a hotel receipt is enough to support expenses for business travel if it has all of the following information.

The name and location of the hotel.

The dates you stayed there.

Separate amounts for charges such as lodging, meals, and telephone calls.

A restaurant receipt is enough to prove an expense for a business meal if it has all of the following information.

The name and location of the restaurant.

The number of people served.

The date and amount of the expense.

A canceled check, together with a bill from the payee, ordinarily establishes the cost. However, a canceled check by itself doesn’t prove a business expense without other evidence to show that it was for a business purpose.

You don‘t have to record information in your account book or other record that duplicates information shown on a receipt as long as your records and receipts complement each other in an orderly manner.

You don’t have to record amounts your employer pays directly for any ticket or other travel item. However, if you charge these items to your employer, through a credit card or otherwise, you must keep a record of the amounts you spend.

You should record the elements of an expense or of a business use at or near the time of the expense or use and support it with sufficient documentary evidence. A timely kept record has more value than a statement prepared later when there is generally a lack of accurate recall.

You don’t need to write down the elements of every expense on the day of the expense. If you maintain a log on a weekly basis that accounts for use during the week, the log is considered a timely kept record.

If you give your employer, client, or customer an expense account statement, it can also be considered a timely kept record. This is true if you copy it from your account book, diary, log, statement of expense, trip sheets, or similar record.

You must generally provide a written statement of the business purpose of an expense. However, the degree of proof varies according to the circumstances in each case. If the business purpose of an expense is clear from the surrounding circumstances, then you don’t need to give a written explanation.

If you are a sales representative who calls on customers on an established sales route, you don’t have to give a written explanation of the business purpose for traveling that route. You can satisfy the requirements by recording the length of the delivery route once, the date of each trip at or near the time of the trips, and the total miles you drove the car during the tax year. You could also establish the date of each trip with a receipt, record of delivery, or other documentary evidence.

You don’t need to put confidential information relating to an element of a deductible expense (such as the place, business purpose, or business relationship) in your account book, diary, or other record. However, you do have to record the information elsewhere at or near the time of the expense and have it available to fully prove that element of the expense.

What if I Have Incomplete Records?

If you don’t have complete records to prove an element of an expense, then you must prove the element with:

Your own written or oral statement containing specific information about the element, and

Other supporting evidence that is sufficient to establish the element.

If the element is the description of a gift, or the cost, time, place, or date of an expense, the supporting evidence must be either direct evidence or documentary evidence. Direct evidence can be written statements or the oral testimony of your guests or other witnesses setting forth detailed information about the element. Documentary evidence can be receipts, paid bills, or similar evidence.

If the element is either the business relationship of your guests or the business purpose of the amount spent, the supporting evidence can be circumstantial rather than direct. For example, the nature of your work, such as making deliveries, provides circumstantial evidence of the use of your car for business purposes. Invoices of deliveries establish when you used the car for business.

Table 5-1. How To Prove Certain Business Expenses

You can keep an adequate record for parts of a tax year and use that record to prove the amount of business or investment use for the entire year. You must demonstrate by other evidence that the periods for which an adequate record is kept are representative of the use throughout the tax year.

You use your car to visit the offices of clients, meet with suppliers and other subcontractors, and pick up and deliver items to clients. There is no other business use of the car, but you and your family use the car for personal purposes. You keep adequate records during the first week of each month that show that 75% of the use of the car is for business. Invoices and bills show that your business use continues at the same rate during the later weeks of each month. Your weekly records are representative of the use of the car each month and are sufficient evidence to support the percentage of business use for the year.

You can satisfy the substantiation requirements with other evidence if, because of the nature of the situation in which an expense is made, you can’t get a receipt. This applies if all the following are true.

You were unable to obtain evidence for an element of the expense or use that completely satisfies the requirements explained earlier under What Are Adequate Records .

You are unable to obtain evidence for an element that completely satisfies the two rules listed earlier under What if I Have Incomplete Records .

You have presented other evidence for the element that is the best proof possible under the circumstances.

If you can’t produce a receipt because of reasons beyond your control, you can prove a deduction by reconstructing your records or expenses. Reasons beyond your control include fire, flood, and other casualties.

Separating and Combining Expenses

This section explains when expenses must be kept separate and when expenses can be combined.

Each separate payment is generally considered a separate expense. For example, if you entertain a customer or client at dinner and then go to the theater, the dinner expense and the cost of the theater tickets are two separate expenses. You must record them separately in your records.

You can make one daily entry in your record for reasonable categories of expenses. Examples are taxi fares, telephone calls, or other incidental travel costs. Nonentertainment meals should be in a separate category. You can include tips for meal-related services with the costs of the meals.

Expenses of a similar nature occurring during the course of a single event are considered a single expense.

You can account for several uses of your car that can be considered part of a single use, such as a round trip or uninterrupted business use, with a single record. Minimal personal use, such as a stop for lunch on the way between two business stops, isn’t an interruption of business use.

You make deliveries at several different locations on a route that begins and ends at your employer's business premises and that includes a stop at the business premises between two deliveries. You can account for these using a single record of miles driven.

You don’t always have to record the name of each recipient of a gift. A general listing will be enough if it is evident that you aren’t trying to avoid the $25 annual limit on the amount you can deduct for gifts to any one person. For example, if you buy a large number of tickets to local high school basketball games and give one or two tickets to each of many customers, it is usually enough to record a general description of the recipients.

If you can prove the total cost of travel or entertainment but you can’t prove how much it costs for each person who participated in the event, you may have to allocate the total cost among you and your guests on a pro rata basis. To do so, you must establish the number of persons who participated in the event.

If your return is examined, you may have to provide additional information to the IRS. This information could be needed to clarify or to establish the accuracy or reliability of information contained in your records, statements, testimony, or documentary evidence before a deduction is allowed.

How Long To Keep Records and Receipts

You must keep records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this means you must keep records that support your deduction (or an item of income) for 3 years from the date you file the income tax return on which the deduction is claimed. A return filed early is considered filed on the due date. For a more complete explanation of how long to keep records, see Pub. 583, Starting a Business and Keeping Records.

You must keep records of the business use of your car for each year of the recovery period. See More-than-50%-use test in chapter 4 under Depreciation Deduction.

Employees who give their records and documentation to their employers and are reimbursed for their expenses generally don’t have to keep copies of this information. However, you may have to prove your expenses if any of the following conditions apply.

You claim deductions for expenses that are more than reimbursements.

Your expenses are reimbursed under a nonaccountable plan.

Your employer doesn’t use adequate accounting procedures to verify expense accounts.

You are related to your employer as defined under Per Diem and Car Allowances in chapter 6.

Table 5-2 and Table 5-3 are examples of worksheets that can be used for tracking business expenses.

Table 5-2. Daily Business Mileage and Expense Log

Table 5-3. Weekly Traveling Expense Record

6. How To Report

This chapter explains where and how to report the expenses discussed in this publication. It discusses reimbursements and how to treat them under accountable and nonaccountable plans. It also explains rules for independent contractors and clients, fee-basis officials, certain performing artists, Armed Forces reservists, and certain disabled employees. The chapter ends with illustrations of how to report travel, gift, and car expenses on Forms 2106.

Where To Report

This section provides general information on where to report the expenses discussed in this publication.

You must report your income and expenses on Schedule C (Form 1040) if you are a sole proprietor, or on Schedule F (Form 1040) if you are a farmer. You don’t use Form 2106.

If you claim car or truck expenses, you must provide certain information on the use of your vehicle. You provide this information on Schedule C (Form 1040) or Form 4562.

If you file Schedule C (Form 1040):

Report your travel expenses, except meals, on line 24a;

Report your deductible non-entertainment-related meals (actual cost or standard meal allowance) on line 24b;

Report your gift expenses and transportation expenses, other than car expenses, on line 27a; and

Report your car expenses on line 9. Complete Part IV of the form unless you have to file Form 4562 for depreciation or amortization.

If you file Schedule F (Form 1040), do the following.

Report your car expenses on line 10. Attach Form 4562 and provide information on the use of your car in Part V of Form 4562.

Report all other business expenses discussed in this publication on line 32. You can only include 50% of your non-entertainment-related meals on that line.

If you are both self-employed and an employee, you must keep separate records for each business activity. Report your business expenses for self-employment on Schedule C (Form 1040), or Schedule F (Form 1040), as discussed earlier. Report your business expenses for your work as an employee on Form 2106, as discussed next.

If you are an employee, you must generally complete Form 2106 to deduct your travel and transportation expenses.

You are an employee deducting expenses attributable to your job.

You weren’t reimbursed by your employer for your expenses (amounts included in box 1 of your Form W-2 aren’t considered reimbursements).

If you claim car expenses, you use the standard mileage rate.

For more information on how to report your expenses on Form 2106, see Completing Form 2106 , later.

If you didn’t receive any reimbursements (or the reimbursements were all included in box 1 of your Form W-2), the only business expense you are claiming is for gifts, and the special rules discussed later don’t apply to you, don’t complete Form 2106.

If you received a Form W-2 and the “Statutory employee” box in box 13 was checked, report your income and expenses related to that income on Schedule C (Form 1040). Don’t complete Form 2106.

Statutory employees include full-time life insurance salespersons, certain agent or commission drivers, traveling salespersons, and certain homeworkers.

If your employer reimburses you for nondeductible personal expenses, such as for vacation trips, your employer must report the reimbursement as wage income in box 1 of your Form W-2. You can’t deduct personal expenses.

If you have travel or transportation expenses related to income-producing property, report your deductible expenses on the form appropriate for that activity.

For example, if you have rental real estate income and expenses, report your expenses on Schedule E (Form 1040), Supplemental Income and Loss. See Pub. 527, Residential Rental Property, for more information on the rental of real estate.

Vehicle Provided by Your Employer

If your employer provides you with a car, you may be able to deduct the actual expenses of operating that car for business purposes. The amount you can deduct depends on the amount that your employer included in your income and the business and personal miles you drove during the year. You can’t use the standard mileage rate.

Your employer can figure and report either the actual value of your personal use of the car or the value of the car as if you used it only for personal purposes (100% income inclusion). Your employer must separately state the amount if 100% of the annual lease value was included in your income. If you are unsure of the amount included on your Form W-2, ask your employer.

You may be able to deduct the value of the business use of an employer-provided car if your employer reported 100% of the value of the car in your income. On your 2023 Form W-2, the amount of the value will be included in box 1, Wages, tips, other compensation; and box 14, Other.

To claim your expenses, complete Form 2106, Part II, Sections A and C. Enter your actual expenses on line 23 of Section C and include the entire value of the employer-provided car on line 25. Complete the rest of the form.

If less than the full annual lease value of the car was included on your Form W-2, this means that your Form W-2 only includes the value of your personal use of the car. Don’t enter this value on your Form 2106 because it isn’t deductible.

If you paid any actual costs (that your employer didn’t provide or reimburse you for) to operate the car, you can deduct the business portion of those costs. Examples of costs that you may have are gas, oil, and repairs. Complete Form 2106, Part II, Sections A and C. Enter your actual costs on line 23 of Section C and leave line 25 blank. Complete the rest of the form.

Reimbursements

This section explains what to do when you receive an advance or are reimbursed for any of the employee business expenses discussed in this publication.

If you received an advance, allowance, or reimbursement for your expenses, how you report this amount and your expenses depends on whether your employer reimbursed you under an accountable plan or a nonaccountable plan.

This section explains the two types of plans, how per diem and car allowances simplify proving the amount of your expenses, and the tax treatment of your reimbursements and expenses. It also covers rules for independent contractors.

You aren’t reimbursed or given an allowance for your expenses if you are paid a salary or commission with the understanding that you will pay your own expenses. In this situation, you have no reimbursement or allowance arrangement, and you don’t have to read this section on reimbursements. Instead, see Completing Form 2106 , later, for information on completing your tax return.

A reimbursement or other expense allowance arrangement is a system or plan that an employer uses to pay, substantiate, and recover the expenses, advances, reimbursements, and amounts charged to the employer for employee business expenses. Arrangements include per diem and car allowances.

A per diem allowance is a fixed amount of daily reimbursement your employer gives you for your lodging and M&IE when you are away from home on business. (The term “incidental expenses” is defined in chapter 1 under Standard Meal Allowance. ) A car allowance is an amount your employer gives you for the business use of your car.

Your employer should tell you what method of reimbursement is used and what records you must provide.

If you are an employer and you reimburse employee business expenses, how you treat this reimbursement on your employee's Form W-2 depends in part on whether you have an accountable plan. Reimbursements treated as paid under an accountable plan, as explained next, aren’t reported as pay. Reimbursements treated as paid under nonaccountable plans , as explained later, are reported as pay. See Pub. 15 (Circular E), Employer's Tax Guide, for information on employee pay.

Accountable Plans

To be an accountable plan, your employer's reimbursement or allowance arrangement must include all of the following rules.

Your expenses must have a business connection—that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer.

You must adequately account to your employer for these expenses within a reasonable period of time.

You must return any excess reimbursement or allowance within a reasonable period of time.

Adequate accounting and returning excess reimbursements are discussed later.

An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer.

The definition of reasonable period of time depends on the facts and circumstances of your situation. However, regardless of the facts and circumstances of your situation, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time.

You receive an advance within 30 days of the time you have an expense.

You adequately account for your expenses within 60 days after they were paid or incurred.

You return any excess reimbursement within 120 days after the expense was paid or incurred.

You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement.

If you meet the three rules for accountable plans, your employer shouldn’t include any reimbursements in your income in box 1 of your Form W-2. If your expenses equal your reimbursements, you don’t complete Form 2106. You have no deduction since your expenses and reimbursements are equal.

Even though you are reimbursed under an accountable plan, some of your expenses may not meet all three rules. All reimbursements that fail to meet all three rules for accountable plans are generally treated as having been reimbursed under a nonaccountable plan (discussed later).

If you are reimbursed under an accountable plan, but you fail to return, within a reasonable time, any amounts in excess of the substantiated amounts, the amounts paid in excess of the substantiated expenses are treated as paid under a nonaccountable plan. See Reasonable period of time , earlier, and Returning Excess Reimbursements , later.

You may be reimbursed under your employer's accountable plan for expenses related to that employer's business, some of which would be allowable as employee business expense deductions and some of which would not. The reimbursements you receive for the nondeductible expenses don’t meet rule (1) for accountable plans, and they are treated as paid under a nonaccountable plan.

Your employer's plan reimburses you for travel expenses while away from home on business and also for meals when you work late at the office, even though you aren’t away from home. The part of the arrangement that reimburses you for the nondeductible meals when you work late at the office is treated as paid under a nonaccountable plan.

One of the rules for an accountable plan is that you must adequately account to your employer for your expenses. You adequately account by giving your employer a statement of expense, an account book, a diary, or a similar record in which you entered each expense at or near the time you had it, along with documentary evidence (such as receipts) of your travel, mileage, and other employee business expenses. (See Table 5-1 in chapter 5 for details you need to enter in your record and documents you need to prove certain expenses.) A per diem or car allowance satisfies the adequate accounting requirement under certain conditions. See Per Diem and Car Allowances , later.

You must account for all amounts you received from your employer during the year as advances, reimbursements, or allowances. This includes amounts you charged to your employer by credit card or other method. You must give your employer the same type of records and supporting information that you would have to give to the IRS if the IRS questioned a deduction on your return. You must pay back the amount of any reimbursement or other expense allowance for which you don’t adequately account or that is more than the amount for which you accounted.

Per Diem and Car Allowances

If your employer reimburses you for your expenses using a per diem or a car allowance, you can generally use the allowance as proof for the amount of your expenses. A per diem or car allowance satisfies the adequate accounting requirements for the amount of your expenses only if all the following conditions apply.

Your employer reasonably limits payments of your expenses to those that are ordinary and necessary in the conduct of the trade or business.

The allowance is similar in form to and not more than the federal rate (defined later).

You prove the time (dates), place, and business purpose of your expenses to your employer (as explained in Table 5-1 ) within a reasonable period of time.

You aren’t related to your employer (as defined next). If you are related to your employer, you must be able to prove your expenses to the IRS even if you have already adequately accounted to your employer and returned any excess reimbursement.

You are related to your employer if:

Your employer is your brother or sister, half brother or half sister, spouse, ancestor, or lineal descendant;

Your employer is a corporation in which you own, directly or indirectly, more than 10% in value of the outstanding stock; or

Certain relationships (such as grantor, fiduciary, or beneficiary) exist between you, a trust, and your employer.

The federal rate can be figured using any one of the following methods.

For per diem amounts:

The regular federal per diem rate.

The high-low rate.

For car expenses:

A fixed and variable rate (FAVR).

The regular federal per diem rate is the highest amount that the federal government will pay to its employees for lodging and M&IE (or M&IE only) while they are traveling away from home in a particular area. The rates are different for different localities. Your employer should have these rates available. You can also find federal per diem rates at GSA.gov/travel/plan-book/per-diem-rates .

The standard meal allowance is the federal M&IE rate. For travel in 2023, the rate for most small localities in the United States is $59 per day. Most major cities and many other localities qualify for higher rates. You can find this information at GSA.gov/travel/plan-book/per-diem-rates .

You receive an allowance only for M&IE when your employer does one of the following.

Provides you with lodging (furnishes it in kind).

Reimburses you, based on your receipts, for the actual cost of your lodging.

Pays the hotel, motel, etc., directly for your lodging.

Doesn’t have a reasonable belief that you had (or will have) lodging expenses, such as when you stay with friends or relatives or sleep in the cab of your truck.

Figures the allowance on a basis similar to that used in figuring your compensation, such as number of hours worked or miles traveled.

This is a simplified method of figuring the federal per diem rate for travel within the continental United States. It eliminates the need to keep a current list of the per diem rates for each city.

Under the high-low method, the per diem amount for travel during January through September of 2023 is $297 (which includes $74 for M&IE) for certain high-cost locations. All other areas have a per diem amount of $204 (which includes $64 for M&IE). For more information, see Notice 2022-44, which can be found at IRS.gov/irb/2022-41_IRB#NOT-2022-44 .

Effective October 1, 2023, the per diem rate for certain high-cost locations increased to $309 (which includes $74 for M&IE). The rate for all other locations increased to $214 (which includes $64 for M&IE). For more information, see Notice 2023-68, which can be found at IRS.gov/irb/2023-41_IRB#NOT-2023-68 , and Revenue Procedure 2019-48 at IRS.gov/irb/2019-51_IRB#REV-PROC-2019-48 .

The standard meal allowance is for a full 24-hour day of travel. If you travel for part of a day, such as on the days you depart and return, you must prorate the full-day M&IE rate. This rule also applies if your employer uses the regular federal per diem rate or the high-low rate.

You can use either of the following methods to figure the federal M&IE for that day.

For the day you depart, add 3 / 4 of the standard meal allowance amount for that day.

For the day you return, add 3 / 4 of the standard meal allowance amount for the preceding day.

Method 2: Prorate the standard meal allowance using any method you consistently apply in accordance with reasonable business practice. For example, an employer can treat 2 full days of per diem (that includes M&IE) paid for travel away from home from 9 a.m. of one day to 5 p.m. of the next day as being no more than the federal rate. This is true even though a federal employee would be limited to a reimbursement of M&IE for only 1½ days of the federal M&IE rate.

This is a set rate per mile that you can use to figure your deductible car expenses. For 2023, the standard mileage rate for the cost of operating your car for business use is 65.5 cents ($0.655) per mile.

This is an allowance your employer may use to reimburse your car expenses. Under this method, your employer pays an allowance that includes a combination of payments covering fixed and variable costs, such as a cents-per-mile rate to cover your variable operating costs (such as gas, oil, etc.) plus a flat amount to cover your fixed costs (such as depreciation (or lease payments), insurance, etc.). If your employer chooses to use this method, your employer will request the necessary records from you.

If your reimbursement is in the form of an allowance received under an accountable plan, the following facts affect your reporting.

Whether the allowance or your actual expenses were more than the federal rate.

If your allowance is less than or equal to the federal rate, the allowance won’t be included in box 1 of your Form W-2. You don’t need to report the related expenses or the allowance on your return if your expenses are equal to or less than the allowance.

However, if your actual expenses are more than your allowance, you can complete Form 2106. If you are using actual expenses, you must be able to prove to the IRS the total amount of your expenses and reimbursements for the entire year. If you are using the standard meal allowance or the standard mileage rate, you don’t have to prove that amount.

In April, a member of a reserve component of the Armed Forces takes a 2-day business trip to Denver. The federal rate for Denver is $278 ($199 lodging + $79 M&IE) per day. As required by their employer's accountable plan, they account for the time (dates), place, and business purpose of the trip. Their employer reimburses them $278 a day ($556 total) for living expenses. Their living expenses in Denver aren’t more than $278 a day.

Their employer doesn’t include any of the reimbursement on their Form W-2 and they don’t deduct the expenses on their return.

In June, a fee-basis local government official takes a 2-day business trip to Boston. Their employer uses the high-low method to reimburse employees. Because Boston is a high-cost area, they are given an advance of $297 (which includes $74 for M&IE) a day ($594 total) for their lodging and M&IE. Their actual expenses totaled $700.

Since their $700 of expenses are more than their $594 advance, they include the excess expenses when they itemize their deductions. They complete Form 2106 (showing all of their expenses and reimbursements). They must also allocate their reimbursement between their meals and other expenses as discussed later under Completing Form 2106 .

A fee-basis state government official drives 10,000 miles during 2023 for business. Under their employer's accountable plan, they account for the time (dates), place, and business purpose of each trip. Their employer pays them a mileage allowance of 40 cents ($0.40) a mile.

Because their $6,550 expense figured under the standard mileage rate (10,000 miles x 65.5 cents ($0.655) per mile) is more than their $4,000 reimbursement (10,000 miles × 40 cents ($0.40)), they itemize their deductions to claim the excess expense. They complete Form 2106 (showing all their expenses and reimbursements) and enter $2,550 ($6,550 − $4,000) as an itemized deduction.

If your allowance is more than the federal rate, your employer must include the allowance amount up to the federal rate under code L in box 12 of your Form W-2. This amount isn’t taxable. However, the excess allowance will be included in box 1 of your Form W-2. You must report this part of your allowance as if it were wage income.

If your actual expenses are less than or equal to the federal rate, you don’t complete Form 2106 or claim any of your expenses on your return.

However, if your actual expenses are more than the federal rate, you can complete Form 2106 and deduct those excess expenses. You must report on Form 2106 your reimbursements up to the federal rate (as shown under code L in box 12 of your Form W-2) and all your expenses. You should be able to prove these amounts to the IRS.

Sasha, a performing artist, lives and works in Austin. In July, the employer sent Sasha to Albuquerque for 4 days on business. The employer paid the hotel directly for Sasha’s lodging and reimbursed $80 a day ($320 total) for M&IE. Sasha’s actual meal expenses weren’t more than the federal rate for Albuquerque, which is $69 per day.

The employer included the $44 that was more than the federal rate (($80 − $69) × 4) in box 1 of Sasha’s Form W-2. The employer shows $276 ($69 a day × 4) under code L in box 12 of Form W-2. This amount isn’t included in income. Sasha doesn’t have to complete Form 2106; however, Sasha must include the $44 in gross income as wages (by reporting the total amount shown in box 1 of their Form W-2).

Another performing artist, Ari, also lives in Austin and works for the same employer as in Example 1 . In May, the employer sent Ari to San Diego for 4 days and paid the hotel directly for the hotel bill. The employer reimbursed Ari $75 a day for M&IE. The federal rate for San Diego is $74 a day.

Ari can prove that actual non-entertainment-related meal expenses totaled $380. The employer's accountable plan won’t pay more than $75 a day for travel to San Diego, so Ari doesn’t give the employer the records that prove that the amount actually spent was $380. However, Ari does account for the time (dates), place, and business purpose of the trip. This is Ari’s only business trip this year.

Ari was reimbursed $300 ($75 × 4 days), which is $4 more than the federal rate of $296 ($74 × 4 days). The employer includes the $4 as income on the employee’s Form W-2 in box 1. The employer also enters $296 under code L in box 12 of the employee’s Form W-2.

Ari completes Form 2106 to figure deductible expenses and enters the total of actual expenses for the year ($380) on Form 2106. Ari also enters the reimbursements that weren’t included in income ($296). Ari’s total deductible meals and beverages expense, before the 50% limit, is $96. Ari will include $48 as an itemized deduction.

Palmer, a fee-basis state government official, drives 10,000 miles during 2023 for business. Under the employer's accountable plan, Palmer gets reimbursed 70 cents ($0.70) a mile, which is more than the standard mileage rate. The total reimbursement is $7,000.

The employer must include the reimbursement amount up to the standard mileage rate, $6,550 (10,000 miles x 65.5 cents ($0.655) per mile), under code L in box 12 of the employee’s Form W-2. That amount isn’t taxable. The employer must also include $450 ($7,000 − $6,550) in box 1 of the employee's Form W-2. This is the reimbursement that is more than the standard mileage rate.

If the expenses are equal to or less than the standard mileage rate, Palmer wouldn’t complete Form 2106. If the expenses are more than the standard mileage rate, Palmer would complete Form 2106 and report total expenses and reimbursement (shown under code L in box 12 of their Form W-2). Palmer would then claim the excess expenses as an itemized deduction.

Returning Excess Reimbursements

Under an accountable plan, you are required to return any excess reimbursement or other expense allowances for your business expenses to the person paying the reimbursement or allowance. Excess reimbursement means any amount for which you didn’t adequately account within a reasonable period of time. For example, if you received a travel advance and you didn’t spend all the money on business-related expenses or you don’t have proof of all your expenses, you have an excess reimbursement.

Adequate accounting and reasonable period of time were discussed earlier in this chapter.

You receive a travel advance if your employer provides you with an expense allowance before you actually have the expense, and the allowance is reasonably expected to be no more than your expense. Under an accountable plan, you are required to adequately account to your employer for this advance and to return any excess within a reasonable period of time.

If you don’t adequately account for or don't return any excess advance within a reasonable period of time, the amount you don’t account for or return will be treated as having been paid under a nonaccountable plan (discussed later).

If you don’t prove that you actually traveled on each day for which you received a per diem or car allowance (proving the elements described in Table 5-1 ), you must return this unproven amount of the travel advance within a reasonable period of time. If you don’t do this, the unproven amount will be considered paid under a nonaccountable plan (discussed later).

If your employer's accountable plan pays you an allowance that is higher than the federal rate, you don’t have to return the difference between the two rates for the period you can prove business-related travel expenses. However, the difference will be reported as wages on your Form W-2. This excess amount is considered paid under a nonaccountable plan (discussed later).

Your employer sends you on a 5-day business trip to Phoenix in March 2023 and gives you a $400 ($80 × 5 days) advance to cover your M&IE. The federal per diem for M&IE for Phoenix is $69. Your trip lasts only 3 days. Under your employer's accountable plan, you must return the $160 ($80 × 2 days) advance for the 2 days you didn’t travel. For the 3 days you did travel, you don’t have to return the $33 difference between the allowance you received and the federal rate for Phoenix (($80 − $69) × 3 days). However, the $33 will be reported on your Form W-2 as wages.

Nonaccountable Plans

A nonaccountable plan is a reimbursement or expense allowance arrangement that doesn’t meet one or more of the three rules listed earlier under Accountable Plans .

In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan.

Excess reimbursements you fail to return to your employer.

Reimbursement of nondeductible expenses related to your employer's business. See Reimbursement of nondeductible expenses , earlier, under Accountable Plans.

If you aren’t sure if the reimbursement or expense allowance arrangement is an accountable or nonaccountable plan, ask your employer.

Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay. Your employer will report the total in box 1 of your Form W-2.

You must complete Form 2106 and itemize your deductions to deduct your expenses for travel, transportation, or non-entertainment-related meals. Your meal and entertainment expenses will be subject to the 50% Limit discussed in chapter 2.

Your employer gives you $1,000 a month ($12,000 total for the year) for your business expenses. You don’t have to provide any proof of your expenses to your employer, and you can keep any funds that you don’t spend.

You are a performing artist and are being reimbursed under a nonaccountable plan. Your employer will include the $12,000 on your Form W-2 as if it were wages. If you want to deduct your business expenses, you must complete Form 2106 and itemize your deductions.

You are paid $2,000 a month by your employer. On days that you travel away from home on business, your employer designates $50 a day of your salary as paid to reimburse your travel expenses. Because your employer would pay your monthly salary whether or not you were traveling away from home, the arrangement is a nonaccountable plan. No part of the $50 a day designated by your employer is treated as paid under an accountable plan.

Rules for Independent Contractors and Clients

This section provides rules for independent contractors who incur expenses on behalf of a client or customer. The rules cover the reporting and substantiation of certain expenses discussed in this publication, and they affect both independent contractors and their clients or customers.

You are considered an independent contractor if you are self-employed and you perform services for a customer or client.

Accounting to Your Client

If you received a reimbursement or an allowance for travel, or gift expenses that you incurred on behalf of a client, you should provide an adequate accounting of these expenses to your client. If you don’t account to your client for these expenses, you must include any reimbursements or allowances in income. You must keep adequate records of these expenses whether or not you account to your client for these expenses.

If you don’t separately account for and seek reimbursement for meal and entertainment expenses in connection with providing services for a client, you are subject to the 50% limit on those expenses. See 50% Limit in chapter 2.

As a self-employed person, you adequately account by reporting your actual expenses. You should follow the recordkeeping rules in chapter 5 .

For information on how to report expenses on your tax return, see Self-employed at the beginning of this chapter.

Required Records for Clients or Customers

If you are a client or customer, you generally don’t have to keep records to prove the reimbursements or allowances you give, in the course of your business, to an independent contractor for travel or gift expenses incurred on your behalf. However, you must keep records if:

You reimburse the contractor for entertainment expenses incurred on your behalf, and

The contractor adequately accounts to you for these expenses.

If the contractor adequately accounts to you for non-entertainment-related meal expenses, you (the client or customer) must keep records documenting each element of the expense, as explained in chapter 5 . Use your records as proof for a deduction on your tax return. If non-entertainment-related meal expenses are accounted for separately, you are subject to the 50% limit on meals. If the contractor adequately accounts to you for reimbursed amounts, you don’t have to report the amounts on an information return.

If the contractor doesn’t adequately account to you for allowances or reimbursements of non-entertainment-related meal expenses, you don’t have to keep records of these items. You aren’t subject to the 50% limit on meals in this case. You can deduct the reimbursements or allowances as payment for services if they are ordinary and necessary business expenses. However, you must file Form 1099-MISC to report amounts paid to the independent contractor if the total of the reimbursements and any other fees is $600 or more during the calendar year.

How To Use Per Diem Rate Tables

This section contains information about the per diem rate substantiation methods available and the choice of rates you must make for the last 3 months of the year.

The Two Substantiation Methods

IRS Notices list the localities that are treated under the high-low substantiation method as high-cost localities for all or part of the year. Notice 2022-44, available at IRS.gov/irb/2022-41_IRB#NOT-2022-44 , lists the high-cost localities that are eligible for $297 (which includes $74 for meals and incidental expenses (M&IE)) per diem, effective October 1, 2022. For travel on or after October 1, 2022, all other localities within the continental United States (CONUS) are eligible for $204 (which includes $64 for M&IE) per diem under the high-low method.

Notice 2023-68, available at IRS.gov/irb/2023-41_IRB#NOT-2023-68 , lists the high-cost localities that are eligible for $309 (which includes $74 for M&IE) per diem, effective October 1, 2023. For travel on or after October 1, 2023, the per diem for all other localities increased to $214 (which includes $64 for M&IE).

Regular federal per diem rates are published by the General Services Administration (GSA). Both tables include the separate rate for M&IE for each locality. The rates listed for FY2023 at GSA.gov/travel/plan-book/per-diem-rates are effective October 1, 2022, and those listed for FY2024 are effective October 1, 2023. The standard rate for all locations within CONUS not specifically listed for FY2023 is $157 ($98 for lodging and $59 for M&IE). For FY2024, this rate increases to $166 ($107 for lodging and $59 for M&IE).

Transition Rules

The transition period covers the last 3 months of the calendar year, from the time that new rates are effective (generally, October 1) through December 31. During this period, you may generally change to the new rates or finish out the year with the rates you had been using.

If you use the high-low substantiation method, when new rates become effective (generally, October 1), you can either continue with the rates you used for the first part of the year or change to the new rates. However, you must continue using the high-low method for the rest of the calendar year (through December 31). If you are an employer, you must use the same rates for all employees reimbursed under the high-low method during that calendar year.

The new rates and localities for the high-low method are included each year in a notice that is generally published in mid to late September. You can find the notice in the weekly Internal Revenue Bulletin (IRB) at IRS.gov/IRB , or visit IRS.gov and enter “Special Per Diem Rates” in the search box.

New CONUS per diem rates become effective on October 1 of each year and remain in effect through September 30 of the following year. Employees being reimbursed under the per diem rate method during the first 9 months of a year (January 1–September 30) must continue under the same method through the end of that calendar year (December 31). However, for travel by these employees from October 1 through December 31, you can choose to continue using the same per diem rates or use the new rates.

The new federal CONUS per diem rates are published each year, generally early in September. Go to GSA.gov/travel/plan-book/per-diem-rates .

Completing Form 2106

For tax years beginning after 2017, the Form 2106 will be used by Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses. Due to the suspension of miscellaneous itemized deductions subject to the 2% floor under section 67(a), employees who do not fit into one of the listed categories may not use Form 2106.

This section briefly describes how employees complete Forms 2106. Table 6-1 explains what the employer reports on Form W-2 and what the employee reports on Form 2106. The instructions for the forms have more information on completing them.

Table 6-1. Reporting Travel, Nonentertainment Meal, Gift, and Car Expenses and Reimbursements

If you used a car to perform your job as an employee, you may be able to deduct certain car expenses. These are generally figured on Form 2106, Part II, and then claimed on Form 2106, Part I, line 1, column A.

If you claim any deduction for the business use of a car, you must answer certain questions and provide information about the use of the car. The information relates to the following items.

Date placed in service.

Mileage (total, business, commuting, and other personal mileage).

Percentage of business use.

After-work use.

Use of other vehicles.

Whether you have evidence to support the deduction.

Whether or not the evidence is written.

If you claim a deduction based on the standard mileage rate instead of your actual expenses, you must complete Form 2106, Part II, Section B. The amount on line 22 (Section B) is carried to Form 2106, Part I, line 1. In addition, on Part I, line 2, you can deduct parking fees and tolls that apply to the business use of the car. See Standard Mileage Rate in chapter 4 for information on using this rate.

If you claim a deduction based on actual car expenses, you must complete Form 2106, Part II, Section C. In addition, unless you lease your car, you must complete Section D to show your depreciation deduction and any section 179 deduction you claim.

If you are still using a car that is fully depreciated, continue to complete Section C. Since you have no depreciation deduction, enter zero on line 28. In this case, don’t complete Section D.

If you claim car rental expenses on Form 2106, line 24a, you may have to reduce that expense by an inclusion amount , as described in chapter 4. If so, you can show your car expenses and any inclusion amount as follows.

Figure the inclusion amount without taking into account your business-use percentage for the tax year.

Report the inclusion amount from (1) on Form 2106, Part II, line 24b.

Report on line 24c the net amount of car rental expenses (total car rental expenses minus the inclusion amount figured in (1)).

Show your transportation expenses that didn’t involve overnight travel on Form 2106, line 2, column A. Also include on this line business expenses you have for parking fees and tolls. Don’t include expenses of operating your car or expenses of commuting between your home and work.

Show your other employee business expenses on Form 2106, lines 3 and 4, column A. Don’t include expenses for nonentertainment meals on those lines. Line 4 is for expenses such as gifts, educational expenses (tuition and books), office-in-the-home expenses, and trade and professional publications.

Show the full amount of your expenses for nonentertainment business-related meals on Form 2106, line 5, column B. Include meals while away from your tax home overnight and other business meals. Enter 50% of the line 8, column B, meal expenses on line 9, column B.

If you are subject to the Department of Transportation's “hours of service” limits (as explained earlier under Individuals subject to hours of service limits in chapter 2), use 80% instead of 50% for meals while away from your tax home.

Enter on Form 2106, line 7, the amounts your employer (or third party) reimbursed you that weren’t reported to you in box 1 of your Form W-2. This includes any amount reported under code L in box 12 of Form W-2.

If you were reimbursed under an accountable plan and want to deduct excess expenses that weren’t reimbursed, you may have to allocate your reimbursement. This is necessary when your employer pays your reimbursement in the following manner.

Pays you a single amount that covers non-entertainment-related meals and/or entertainment, as well as other business expenses.

Doesn’t clearly identify how much is for deductible non-entertainment-related meals.

Your employer paid you an expense allowance of $12,000 this year under an accountable plan. The $12,000 payment consisted of $5,000 for airfare and $7,000 for non-entertainment-related meals, and car expenses. Your employer didn’t clearly show how much of the $7,000 was for the cost of deductible non-entertainment-related meals. You actually spent $14,000 during the year ($5,500 for airfare, $4,500 for non-entertainment-related meals, and $4,000 for car expenses).

Since the airfare allowance was clearly identified, you know that $5,000 of the payment goes in column A, line 7, of Form 2106. To allocate the remaining $7,000, you use the worksheet from the Instructions for Form 2106. Your completed worksheet follows.

Reimbursement Allocation Worksheet (Keep for your records.)

If you are a government official paid on a fee basis, a performing artist, an Armed Forces reservist, or a disabled employee with impairment-related work expenses, see Special Rules , later.

Your employee business expenses may be subject to either of the limits described next. They are figured in the following order on the specified form.

Certain non-entertainment-related meal expenses are subject to a 50% limit. Generally, entertainment expenses are nondeductible if paid or incurred after December 2017. If you are an employee, you figure this limit on line 9 of Form 2106. (See 50% Limit in chapter 2.)

Limitations on itemized deductions are suspended for tax years beginning after 2017 and before tax year January 2026, per section 68(g).

Special Rules

This section discusses special rules that apply only to Armed Forces reservists, government officials who are paid on a fee basis, performing artists, and disabled employees with impairment-related work expenses. For tax years beginning after 2017, they are the only taxpayers who can use Form 2106.

Armed Forces Reservists Traveling More Than 100 Miles From Home

If you are a member of a reserve component of the Armed Forces of the United States and you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you can deduct your travel expenses as an adjustment to gross income rather than as a miscellaneous itemized deduction. The amount of expenses you can deduct as an adjustment to gross income is limited to the regular federal per diem rate (for lodging and M&IE) and the standard mileage rate (for car expenses) plus any parking fees, ferry fees, and tolls. See Per Diem and Car Allowances , earlier, for more information.

You are a member of a reserve component of the Armed Forces of the United States if you are in the Army, Navy, Marine Corps, Air Force, or Coast Guard Reserve; the Army National Guard of the United States; the Air National Guard of the United States; or the Reserve Corps of the Public Health Service.

If you have reserve-related travel that takes you more than 100 miles from home, you should first complete Form 2106. Then include your expenses for reserve travel over 100 miles from home, up to the federal rate, from Form 2106, line 10, in the total on Schedule 1 (Form 1040), line 12.

You can’t deduct expenses of travel that doesn’t take you more than 100 miles from home as an adjustment to gross income.

Certain fee-basis officials can claim their employee business expenses on Form 2106.

Fee-basis officials are persons who are employed by a state or local government and who are paid in whole or in part on a fee basis. They can deduct their business expenses in performing services in that job as an adjustment to gross income rather than as a miscellaneous itemized deduction.

If you are a fee-basis official, include your employee business expenses from Form 2106, line 10, in the total on Schedule 1 (Form 1040), line 12.

Expenses of Certain Performing Artists

If you are a performing artist, you may qualify to deduct your employee business expenses as an adjustment to gross income. To qualify, you must meet all of the following requirements.

During the tax year, you perform services in the performing arts as an employee for at least two employers.

You receive at least $200 each from any two of these employers.

Your related performing-arts business expenses are more than 10% of your gross income from the performance of those services.

Your adjusted gross income isn’t more than $16,000 before deducting these business expenses.

If you are married, you must file a joint return unless you lived apart from your spouse at all times during the tax year. If you file a joint return, you must figure requirements (1), (2), and (3) separately for both you and your spouse. However, requirement (4) applies to your and your spouse's combined adjusted gross income.

If you meet all of the above requirements, you should first complete Form 2106. Then you include your performing-arts-related expenses from Form 2106, line 10, in the total on Schedule 1 (Form 1040), line 12.

If you don’t meet all of the above requirements, you don’t qualify to deduct your expenses as an adjustment to gross income.

If you are an employee with a physical or mental disability, your impairment-related work expenses aren’t subject to the 2%-of-adjusted-gross-income limit that applies to most other employee business expenses. After you complete Form 2106, enter your impairment-related work expenses from Form 2106, line 10, on Schedule A (Form 1040), line 16, and identify the type and amount of this expense on the line next to line 16.

Impairment-related work expenses are your allowable expenses for attendant care at your workplace and other expenses in connection with your workplace that are necessary for you to be able to work.

You are disabled if you have:

A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed; or

A physical or mental impairment (for example, a sight or hearing impairment) that substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, or working.

You can deduct impairment-related expenses as business expenses if they are:

Necessary for you to do your work satisfactorily;

For goods and services not required or used, other than incidentally, in your personal activities; and

Not specifically covered under other income tax laws.

You are blind. You must use a reader to do your work. You use the reader both during your regular working hours at your place of work and outside your regular working hours away from your place of work. The reader's services are only for your work. You can deduct your expenses for the reader as business expenses.

You are deaf. You must use a sign language interpreter during meetings while you are at work. The interpreter's services are used only for your work. You can deduct your expenses for the interpreter as business expenses.

How To Get Tax Help

If you have questions about a tax issue; need help preparing your tax return; or want to download free publications, forms, or instructions, go to IRS.gov to find resources that can help you right away.

After receiving all your wage and earnings statements (Forms W-2, W-2G, 1099-R, 1099-MISC, 1099-NEC, etc.); unemployment compensation statements (by mail or in a digital format) or other government payment statements (Form 1099-G); and interest, dividend, and retirement statements from banks and investment firms (Forms 1099), you have several options to choose from to prepare and file your tax return. You can prepare the tax return yourself, see if you qualify for free tax preparation, or hire a tax professional to prepare your return.

Your options for preparing and filing your return online or in your local community, if you qualify, include the following.

Free File. This program lets you prepare and file your federal individual income tax return for free using software or Free File Fillable Forms. However, state tax preparation may not be available through Free File. Go to IRS.gov/FreeFile to see if you qualify for free online federal tax preparation, e-filing, and direct deposit or payment options.

VITA. The Volunteer Income Tax Assistance (VITA) program offers free tax help to people with low-to-moderate incomes, persons with disabilities, and limited-English-speaking taxpayers who need help preparing their own tax returns. Go to IRS.gov/VITA , download the free IRS2Go app, or call 800-906-9887 for information on free tax return preparation.

TCE. The Tax Counseling for the Elderly (TCE) program offers free tax help for all taxpayers, particularly those who are 60 years of age and older. TCE volunteers specialize in answering questions about pensions and retirement-related issues unique to seniors. Go to IRS.gov/TCE or download the free IRS2Go app for information on free tax return preparation.

MilTax. Members of the U.S. Armed Forces and qualified veterans may use MilTax, a free tax service offered by the Department of Defense through Military OneSource. For more information, go to MilitaryOneSource ( MilitaryOneSource.mil/MilTax ).

Also, the IRS offers Free Fillable Forms, which can be completed online and then e-filed regardless of income.

Go to IRS.gov/Tools for the following.

The Earned Income Tax Credit Assistant ( IRS.gov/EITCAssistant ) determines if you’re eligible for the earned income credit (EIC).

The Online EIN Application ( IRS.gov/EIN ) helps you get an employer identification number (EIN) at no cost.

The Tax Withholding Estimator ( IRS.gov/W4App ) makes it easier for you to estimate the federal income tax you want your employer to withhold from your paycheck. This is tax withholding. See how your withholding affects your refund, take-home pay, or tax due.

The First Time Homebuyer Credit Account Look-up ( IRS.gov/HomeBuyer ) tool provides information on your repayments and account balance.

The Sales Tax Deduction Calculator ( IRS.gov/SalesTax ) figures the amount you can claim if you itemize deductions on Schedule A (Form 1040).

Go to IRS.gov/Help : A variety of tools to help you get answers to some of the most common tax questions.

Go to IRS.gov/ITA : The Interactive Tax Assistant, a tool that will ask you questions and, based on your input, provide answers on a number of tax topics.

Go to IRS.gov/Forms : Find forms, instructions, and publications. You will find details on the most recent tax changes and interactive links to help you find answers to your questions.

You may also be able to access tax information in your e-filing software.

There are various types of tax return preparers, including enrolled agents, certified public accountants (CPAs), accountants, and many others who don’t have professional credentials. If you choose to have someone prepare your tax return, choose that preparer wisely. A paid tax preparer is:

Primarily responsible for the overall substantive accuracy of your return,

Required to sign the return, and

Required to include their preparer tax identification number (PTIN).

The Social Security Administration (SSA) offers online service at SSA.gov/employer for fast, free, and secure W-2 filing options to CPAs, accountants, enrolled agents, and individuals who process Form W-2, Wage and Tax Statement, and Form W-2c, Corrected Wage and Tax Statement.

Go to IRS.gov/SocialMedia to see the various social media tools the IRS uses to share the latest information on tax changes, scam alerts, initiatives, products, and services. At the IRS, privacy and security are our highest priority. We use these tools to share public information with you. Don’t post your social security number (SSN) or other confidential information on social media sites. Always protect your identity when using any social networking site.

The following IRS YouTube channels provide short, informative videos on various tax-related topics in English, Spanish, and ASL.

Youtube.com/irsvideos .

Youtube.com/irsvideosmultilingua .

Youtube.com/irsvideosASL .

The IRS Video portal ( IRSVideos.gov ) contains video and audio presentations for individuals, small businesses, and tax professionals.

You can find information on IRS.gov/MyLanguage if English isn’t your native language.

The IRS is committed to serving taxpayers with limited-English proficiency (LEP) by offering OPI services. The OPI Service is a federally funded program and is available at Taxpayer Assistance Centers (TACs), most IRS offices, and every VITA/TCE tax return site. The OPI Service is accessible in more than 350 languages.

Taxpayers who need information about accessibility services can call 833-690-0598. The Accessibility Helpline can answer questions related to current and future accessibility products and services available in alternative media formats (for example, braille, large print, audio, etc.). The Accessibility Helpline does not have access to your IRS account. For help with tax law, refunds, or account-related issues, go to IRS.gov/LetUsHelp .

Form 9000, Alternative Media Preference, or Form 9000(SP) allows you to elect to receive certain types of written correspondence in the following formats.

Standard Print.

Large Print.

Audio (MP3).

Plain Text File (TXT).

Braille Ready File (BRF).

Go to IRS.gov/DisasterRelief to review the available disaster tax relief.

Go to IRS.gov/Forms to view, download, or print all the forms, instructions, and publications you may need. Or, you can go to IRS.gov/OrderForms to place an order.

Download and view most tax publications and instructions (including the Instructions for Form 1040) on mobile devices as eBooks at IRS.gov/eBooks .

IRS eBooks have been tested using Apple's iBooks for iPad. Our eBooks haven’t been tested on other dedicated eBook readers, and eBook functionality may not operate as intended.

Go to IRS.gov/Account to securely access information about your federal tax account.

View the amount you owe and a breakdown by tax year.

See payment plan details or apply for a new payment plan.

Make a payment or view 5 years of payment history and any pending or scheduled payments.

Access your tax records, including key data from your most recent tax return, and transcripts.

View digital copies of select notices from the IRS.

Approve or reject authorization requests from tax professionals.

View your address on file or manage your communication preferences.

With an online account, you can access a variety of information to help you during the filing season. You can get a transcript, review your most recently filed tax return, and get your adjusted gross income. Create or access your online account at IRS.gov/Account .

This tool lets your tax professional submit an authorization request to access your individual taxpayer IRS online account. For more information, go to IRS.gov/TaxProAccount .

The safest and easiest way to receive a tax refund is to e-file and choose direct deposit, which securely and electronically transfers your refund directly into your financial account. Direct deposit also avoids the possibility that your check could be lost, stolen, destroyed, or returned undeliverable to the IRS. Eight in 10 taxpayers use direct deposit to receive their refunds. If you don’t have a bank account, go to IRS.gov/DirectDeposit for more information on where to find a bank or credit union that can open an account online.

Tax-related identity theft happens when someone steals your personal information to commit tax fraud. Your taxes can be affected if your SSN is used to file a fraudulent return or to claim a refund or credit.

The IRS doesn’t initiate contact with taxpayers by email, text messages (including shortened links), telephone calls, or social media channels to request or verify personal or financial information. This includes requests for personal identification numbers (PINs), passwords, or similar information for credit cards, banks, or other financial accounts.

Go to IRS.gov/IdentityTheft , the IRS Identity Theft Central webpage, for information on identity theft and data security protection for taxpayers, tax professionals, and businesses. If your SSN has been lost or stolen or you suspect you’re a victim of tax-related identity theft, you can learn what steps you should take.

Get an Identity Protection PIN (IP PIN). IP PINs are six-digit numbers assigned to taxpayers to help prevent the misuse of their SSNs on fraudulent federal income tax returns. When you have an IP PIN, it prevents someone else from filing a tax return with your SSN. To learn more, go to IRS.gov/IPPIN .

Go to IRS.gov/Refunds .

Download the official IRS2Go app to your mobile device to check your refund status.

Call the automated refund hotline at 800-829-1954.

Payments of U.S. tax must be remitted to the IRS in U.S. dollars. Digital assets are not accepted. Go to IRS.gov/Payments for information on how to make a payment using any of the following options.

IRS Direct Pay : Pay your individual tax bill or estimated tax payment directly from your checking or savings account at no cost to you.

Debit Card, Credit Card, or Digital Wallet : Choose an approved payment processor to pay online or by phone.

Electronic Funds Withdrawal : Schedule a payment when filing your federal taxes using tax return preparation software or through a tax professional.

Electronic Federal Tax Payment System : Best option for businesses. Enrollment is required.

Check or Money Order : Mail your payment to the address listed on the notice or instructions.

Cash : You may be able to pay your taxes with cash at a participating retail store.

Same-Day Wire : You may be able to do same-day wire from your financial institution. Contact your financial institution for availability, cost, and time frames.

Note. The IRS uses the latest encryption technology to ensure that the electronic payments you make online, by phone, or from a mobile device using the IRS2Go app are safe and secure. Paying electronically is quick, easy, and faster than mailing in a check or money order.

Go to IRS.gov/Payments for more information about your options.

Apply for an online payment agreement ( IRS.gov/OPA ) to meet your tax obligation in monthly installments if you can’t pay your taxes in full today. Once you complete the online process, you will receive immediate notification of whether your agreement has been approved.

Use the Offer in Compromise Pre-Qualifier to see if you can settle your tax debt for less than the full amount you owe. For more information on the Offer in Compromise program, go to IRS.gov/OIC .

Go to IRS.gov/Form1040X for information and updates.

Go to IRS.gov/WMAR to track the status of Form 1040-X amended returns.

Go to IRS.gov/Notices to find additional information about responding to an IRS notice or letter.

You can now upload responses to all notices and letters using the Document Upload Tool. For notices that require additional action, taxpayers will be redirected appropriately on IRS.gov to take further action. To learn more about the tool, go to IRS.gov/Upload .

You can use Schedule LEP (Form 1040), Request for Change in Language Preference, to state a preference to receive notices, letters, or other written communications from the IRS in an alternative language. You may not immediately receive written communications in the requested language. The IRS’s commitment to LEP taxpayers is part of a multi-year timeline that began providing translations in 2023. You will continue to receive communications, including notices and letters, in English until they are translated to your preferred language.

Keep in mind, many questions can be answered on IRS.gov without visiting a TAC. Go to IRS.gov/LetUsHelp for the topics people ask about most. If you still need help, TACs provide tax help when a tax issue can’t be handled online or by phone. All TACs now provide service by appointment, so you’ll know in advance that you can get the service you need without long wait times. Before you visit, go to IRS.gov/TACLocator to find the nearest TAC and to check hours, available services, and appointment options. Or, on the IRS2Go app, under the Stay Connected tab, choose the Contact Us option and click on “Local Offices.”

The Taxpayer Advocate Service (TAS) Is Here To Help You

TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. TAS strives to ensure that every taxpayer is treated fairly and that you know and understand your rights under the Taxpayer Bill of Rights .

The Taxpayer Bill of Rights describes 10 basic rights that all taxpayers have when dealing with the IRS. Go to TaxpayerAdvocate.IRS.gov to help you understand what these rights mean to you and how they apply. These are your rights. Know them. Use them.

TAS can help you resolve problems that you can’t resolve with the IRS. And their service is free. If you qualify for their assistance, you will be assigned to one advocate who will work with you throughout the process and will do everything possible to resolve your issue. TAS can help you if:

Your problem is causing financial difficulty for you, your family, or your business;

You face (or your business is facing) an immediate threat of adverse action; or

You’ve tried repeatedly to contact the IRS but no one has responded, or the IRS hasn’t responded by the date promised.

TAS has offices in every state, the District of Columbia, and Puerto Rico . To find your advocate’s number:

Go to TaxpayerAdvocate.IRS.gov/Contact-Us ;

Download Pub. 1546, The Taxpayer Advocate Service Is Your Voice at the IRS, available at IRS.gov/pub/irs-pdf/p1546.pdf ;

Call the IRS toll free at 800-TAX-FORM (800-829-3676) to order a copy of Pub. 1546;

Check your local directory; or

Call TAS toll free at 877-777-4778.

TAS works to resolve large-scale problems that affect many taxpayers. If you know of one of these broad issues, report it to TAS at IRS.gov/SAMS . Be sure to not include any personal taxpayer information.

LITCs are independent from the IRS and TAS. LITCs represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS. LITCs can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or a small fee. For more information or to find an LITC near you, go to the LITC page at TaxpayerAdvocate.IRS.gov/LITC or see IRS Pub. 4134, Low Income Taxpayer Clinic List , at IRS.gov/pub/irs-pdf/p4134.pdf .

Appendices A-1 through A-6 show the lease inclusion amounts that you may need to report if you first leased a passenger automobile (including a truck and van) in 2018 through 2023 for 30 days or more.

If any of these apply to you, use the appendix for the year you first leased the car. (See Leasing a Car in chapter 4.)

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The most overlooked tax deductions revealed

Most people get less tax back in their refund than they should because they don’t claim all they’re entitled to. This is what you need to know.

‘I’m shaking’: Brutal 2024 tax return warning

Aussies warned over major tax mistake

Big tax-time warning for Aussies

At tax time, every dollar counts. The reality is that most people get less tax back in their refund than they should, simply because they don’t claim everything they’re entitled to.

If your income is above $45,000 p.a., you receive at least a third of every dollar of tax deductions back in your tax refund, so you want to make sure you’re claiming everything you can.

With tax time just around the corner, I wanted to cover some of the most commonly overlooked tax deductions so you don’t leave money on the table.

Motor vehicle expenses

You can claim tax deductions for your car of up to $4250 without keeping a log book, and even more following the log book method. This can mean thousands of dollars back in your pocket at tax time, and given motor vehicle and petrol costs are on the rise, this can be a quick and easy win.

If you travel in a private vehicle for work purposes, there are two methods you can use to claim deductions for your car. The log book method, where you track all of your trips and kilometres travelled, which you use to compute the percentage of your travel that’s work related. Once you have your work related travel percentage, you can deduct that percentage of your motor vehicle costs, including everything from petrol to servicing, insurance, and everything in between.

The other method is the “fixed-rate” method, where you claim a set deduction of $0.85 for every kilometre you travel for work purposes, up to a maximum of 5000 kilometres each year ($4250 total deduction). Under this method you don’t need to keep a strict log book, but you do need to keep records of your work trips in case the Australian Taxation Office (ATO) asks you to substantiate your claim.

It’s worth noting with both methods, that for travel to be work related it needs to be part of your actual work, and not just you travelling to and from your office or worksite. Travelling between office locations, visiting clients or travelling to your suppliers would all fit under this umbrella.

Home office expenses

With the work-from-home trend here to stay, more Aussies are spending time working from home office locations – but not everyone is claiming the tax deductions they’re entitled to for their home office.

If you work from home, you can generally claim expenses for your office supplies, stationary, printing, etc. But you can also claim part of your power and utilities, internet, and even potentially part of your rent or mortgage as a tax deduction. For most people, this means some pretty significant tax savings are on offer.

The ATO again has a couple of methods you can use to claim your home office expenses, a fixed-rate method based on the hours you work at home, or the percentage method if you have a dedicated work-only space.

For either method, there are some complexities to the rules that you should be across before you lodge your tax return, and this is an area the ATO are looking closely at. You should claim everything you’re entitled to, but you don’t want to end up in hot water with the ATO so it’s worth building your knowledge and getting some good advice.

Self education expenses

Expenses for self education and professional development can run into the thousands of dollars each year. If the goal of any education or training is increasing your employment income, these expenses are generally tax deductible under the ATO’s rules.

You can also generally deduct the cost of content subscriptions that help with your work, like newspaper or online news site subscriptions. This means that along with formal study, any short courses, online training, or other content-based education can help to cut your tax bill.

Data shows that 30 per cent of Aussies spend an average of $1936 on professional education each year, which means there are some significant tax deductions up for grabs.

Tax and investing advice

The cost of getting professional help and advice around your tax and investing can also be tax deductible under the ATO’s rules. It gets a little blurry but typically tax advice is a straightforward deduction, and if you’re getting ongoing advice around building investment wealth and investment income, this can also be tax deductible.

This means you can get some help to grow your money, create another income stream, and cut your tax bill at the same time.

At tax time you’ve got two choices. You can take the time to understand all the rules and take full advantage, get a bigger tax refund, keep more of your hard earned income, and get a head start on the year ahead.

Or you can cruise along, be reactive, and hope for the best – but know you’re probably leaving money on the table.

The rules around tax can be a little complicated and confusing, but taking the time to level up your knowledge will make you more money from what you already have, and get you a better result both this year and into the years ahead.

Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth , and Author of the Amazon Best Selling Book ‘ Get Unstuck: Your guide to creating a life not limited by money ’.

More Coverage

Ben has just launched a series of free online money education events to help you get on the front financial foot. You can check out all the details and book your place here .

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs.

Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where

If you’re one of the many Aussies who were hit with a surprise bill after lodging your tax return last year, we have some bad news for you.

Experts are warning ATO impersonation scams are on the rise ahead of the end of financial year.

Aussie taxpayers have been warned about one common mistake that could cost them ahead of July 1.