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1040v 26. 1040v   Car Expenses and Other Employee Business Expenses Table of Contents What's New Introduction Useful Items - You may want to see: Travel ExpensesTraveling Away From Home Tax Home Temporary Assignment or Job What Travel Expenses Are Deductible? Travel in the United States Travel Outside the United States Conventions Entertainment Expenses50% Limit What Entertainment Expenses Are Deductible? What Entertainment Expenses Are Not Deductible? Gift Expenses Transportation ExpensesArmed Forces reservists. 1040v Parking fees. 1040v Advertising display on car. 1040v Car pools. 1040v Hauling tools or instruments. 1040v Union members' trips from a union hall. 1040v Car Expenses RecordkeepingHow To Prove Expenses How Long To Keep Records and Receipts How To ReportGifts. 1040v Statutory employees. 1040v Reimbursements Completing Forms 2106 and 2106-EZ Special Rules What's New Standard mileage rate. 1040v  For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. 1040v Car expenses and use of the standard mileage rate are explained under Transportation Expenses , later. 1040v Depreciation limits on cars, trucks, and vans. 1040v  For 2013, the first-year limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars remains at $11,160 ($3,160 if you elect not to claim the special depreciation allowance). 1040v For trucks and vans the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). 1040v For more information, see Depreciation limits in Publication 463. 1040v Introduction You may be able to deduct the ordinary and necessary business-related expenses you have for: Travel, Entertainment, Gifts, or Transportation. 1040v An ordinary expense is one that is common and accepted in your trade or business. 1040v A necessary expense is one that is helpful and appropriate for your business. 1040v An expense does not have to be required to be considered necessary. 1040v This chapter explains the following. 1040v What expenses are deductible. 1040v How to report your expenses on your return. 1040v What records you need to prove your expenses. 1040v How to treat any expense reimbursements you may receive. 1040v Who does not need to use this chapter. 1040v   If you are an employee, you will not need to read this chapter if all of the following are true. 1040v You fully accounted to your employer for your work-related expenses. 1040v You received full reimbursement for your expenses. 1040v Your employer required you to return any excess reimbursement and you did so. 1040v There is no amount shown with a code “L” in box 12 of your Form W-2, Wage and Tax Statement. 1040v If you meet all of these conditions, there is no need to show the expenses or the reimbursements on your return. 1040v See Reimbursements , later, if you would like more information on reimbursements and accounting to your employer. 1040v    If you meet these conditions and your employer included reimbursements on your Form W-2 in error, ask your employer for a corrected Form W-2. 1040v Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule C (Form 1040) Profit or Loss From Business Schedule C-EZ (Form 1040) Net Profit From Business Schedule F (Form 1040) Profit or Loss From Farming Form 2106 Employee Business Expenses Form 2106-EZ Unreimbursed Employee Business Expenses Travel Expenses If you temporarily travel away from your tax home, you can use this section to determine if you have deductible travel expenses. 1040v This section discusses: Traveling away from home, Tax home, Temporary assignment or job, and What travel expenses are deductible. 1040v It also discusses the standard meal allowance, rules for travel inside and outside the United States, and deductible convention expenses. 1040v Travel expenses defined. 1040v   For tax purposes, travel expenses are the ordinary and necessary expenses (defined earlier) of traveling away from home for your business, profession, or job. 1040v   You will find examples of deductible travel expenses in Table 26-1 . 1040v 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. 1040v This rest requirement is not satisfied by merely napping in your car. 1040v You do not have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest. 1040v Example 1. 1040v You are a railroad conductor. 1040v You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. 1040v 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. 1040v You are considered to be away from home. 1040v Example 2. 1040v You are a truck driver. 1040v You leave your terminal and return to it later the same day. 1040v You get an hour off at your turnaround point to eat. 1040v Because you are not off to get necessary sleep and the brief time off is not an adequate rest period, you are not traveling away from home. 1040v Members of the Armed Forces. 1040v   If you are a member of the U. 1040v S. 1040v Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. 1040v You cannot deduct your expenses for meals and lodging. 1040v You cannot deduct these expenses even if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas. 1040v If you are transferred from one permanent duty station to another, you may have deductible moving expenses, which are explained in Publication 521, Moving Expenses. 1040v    A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a tax home aboard ship for travel expense purposes. 1040v Tax Home To determine whether you are traveling away from home, you must first determine the location of your tax home. 1040v Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. 1040v It includes the entire city or general area in which your business or work is located. 1040v If you have more than one regular place of business, your tax home is your main place of business. 1040v See Main place of business or work , later. 1040v If you do not 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. 1040v See No main place of business or work , later. 1040v If you do not have a regular or a 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. 1040v As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home. 1040v Main place of business or work. 1040v   If you have more than one place of business or work, consider the following when determining which one is your main place of business or work. 1040v The total time you ordinarily spend in each place. 1040v The level of your business activity in each place. 1040v Whether your income from each place is significant or insignificant. 1040v Example. 1040v You live in Cincinnati where you have a seasonal job for 8 months each year and earn $40,000. 1040v You work the other 4 months in Miami, also at a seasonal job, and earn $15,000. 1040v Cincinnati is your main place of work because you spend most of your time there and earn most of your income there. 1040v No main place of business or work. 1040v   You may have a tax home even if you do not have a regular or main place of business or work. 1040v Your tax home may be the home where you regularly live. 1040v Factors used to determine tax home. 1040v   If you do not have a regular or main place of business or work, use the following three factors to determine where your tax home is. 1040v 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. 1040v You have living expenses at your main home that you duplicate because your business requires you to be away from that home. 1040v You have not 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. 1040v   If you satisfy all three factors, your tax home is the home where you regularly live. 1040v If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. 1040v If you satisfy only one factor, you are an itinerant; your tax home is wherever you work and you cannot deduct travel expenses. 1040v Example. 1040v You are single and live in Boston in an apartment you rent. 1040v You have worked for your employer in Boston for a number of years. 1040v Your employer enrolls you in a 12-month executive training program. 1040v You do not expect to return to work in Boston after you complete your training. 1040v During your training, you do not do any work in Boston. 1040v Instead, you receive classroom and on-the-job training throughout the United States. 1040v You keep your apartment in Boston and return to it frequently. 1040v You use your apartment to conduct your personal business. 1040v You also keep up your community contacts in Boston. 1040v When you complete your training, you are transferred to Los Angeles. 1040v You do not satisfy factor (1) because you did not work in Boston. 1040v You satisfy factor (2) because you had duplicate living expenses. 1040v You also satisfy factor (3) because you did not abandon your apartment in Boston as your main home, you kept your community contacts, and you frequently returned to live in your apartment. 1040v Therefore, you have a tax home in Boston. 1040v Tax home different from family home. 1040v   If you (and your family) do not live at your tax home (defined earlier), you cannot deduct the cost of traveling between your tax home and your family home. 1040v You also cannot deduct the cost of meals and lodging while at your tax home. 1040v See Example 1 . 1040v   If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. 1040v See Example 2 . 1040v Example 1. 1040v You are a truck driver and you and your family live in Tucson. 1040v You are employed by a trucking firm that has its terminal in Phoenix. 1040v At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. 1040v You cannot deduct any expenses you have for meals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. 1040v This is because Phoenix is your tax home. 1040v Example 2. 1040v Your family home is in Pittsburgh, where you work 12 weeks a year. 1040v The rest of the year you work for the same employer in Baltimore. 1040v In Baltimore, you eat in restaurants and sleep in a rooming house. 1040v Your salary is the same whether you are in Pittsburgh or Baltimore. 1040v Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. 1040v You cannot deduct any expenses you have for meals and lodging there. 1040v However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. 1040v You can deduct the cost of your round trip between Baltimore and Pittsburgh. 1040v You can also deduct your part of your family's living expenses for meals and lodging while you are living and working in Pittsburgh. 1040v Temporary Assignment or Job You may regularly work at your tax home and also work at another location. 1040v It may not be practical to return to your tax home from this other location at the end of each work day. 1040v Temporary assignment vs. 1040v indefinite assignment. 1040v   If your assignment or job away from your main place of work is temporary, your tax home does not change. 1040v You are considered to be away from home for the whole period you are away from your main place of work. 1040v You can deduct your travel expenses if they otherwise qualify for deduction. 1040v 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. 1040v   However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you cannot deduct your travel expenses while there. 1040v 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. 1040v   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. 1040v You may be able to deduct the cost of relocating to your new tax home as a moving expense. 1040v See Publication 521 for more information. 1040v Exception for federal crime investigations or prosecutions. 1040v   If you are a federal employee participating in a federal crime investigation or prosecution, you are not subject to the 1-year rule. 1040v 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. 1040v   For you to qualify, the Attorney General (or his or her designee) must certify that you are traveling: For the federal government, In a temporary duty status, and To investigate or prosecute, or provide support services for the investigation or prosecution of a federal crime. 1040v Determining temporary or indefinite. 1040v   You must determine whether your assignment is temporary or indefinite when you start work. 1040v 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. 1040v An assignment or job that is initially temporary may become indefinite due to changed circumstances. 1040v 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. 1040v Going home on days off. 1040v   If you go back to your tax home from a temporary assignment on your days off, you are not considered away from home while you are in your hometown. 1040v You cannot deduct the cost of your meals and lodging there. 1040v However, you can deduct your travel expenses, including meals and lodging, while traveling between your temporary place of work and your tax home. 1040v You can claim these expenses up to the amount it would have cost you to stay at your temporary place of work. 1040v   If you keep your hotel room during your visit home, you can deduct the cost of your hotel room. 1040v 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. 1040v Probationary work period. 1040v   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. 1040v You cannot deduct any of your expenses for meals and lodging during the probationary period. 1040v 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. 1040v You can deduct ordinary and necessary expenses you have when you travel away from home on business. 1040v The type of expense you can deduct depends on the facts and your circumstances. 1040v Table 26-1 summarizes travel expenses you may be able to deduct. 1040v You may have other deductible travel expenses that are not covered there, depending on the facts and your circumstances. 1040v When you travel away from home on business, you should keep records of all the expenses you have and any advances you receive from your employer. 1040v You can use a log, diary, notebook, or any other written record to keep track of your expenses. 1040v The types of expenses you need to record, along with supporting documentation, are described in Table 26-2 , later. 1040v Separating costs. 1040v   If you have one expense that includes the costs of meals, entertainment, and other services (such as lodging or transportation), you must allocate that expense between the cost of meals and entertainment and the cost of other services. 1040v You must have a reasonable basis for making this allocation. 1040v For example, you must allocate your expenses if a hotel includes one or more meals in its room charge. 1040v Travel expenses for another individual. 1040v   If a spouse, dependent, or other individual goes with you (or your employee) on a business trip or to a business convention, you generally cannot deduct his or her travel expenses. 1040v Employee. 1040v   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. 1040v Business associate. 1040v   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. 1040v A business associate is someone with whom you could reasonably expect to engage or deal in the active conduct of your business. 1040v A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner, or professional advisor. 1040v Bona fide business purpose. 1040v   A bona fide business purpose exists if you can prove a real business purpose for the individual's presence. 1040v Incidental services, such as typing notes or assisting in entertaining customers, are not enough to make the expenses deductible. 1040v Example. 1040v Jerry drives to Chicago on business and takes his wife, Linda, with him. 1040v Linda is not Jerry's employee. 1040v Linda occasionally types notes, performs similar services, and accompanies Jerry to luncheons and dinners. 1040v The performance of these services does not establish that her presence on the trip is necessary to the conduct of Jerry's business. 1040v Her expenses are not deductible. 1040v Jerry pays $199 a day for a double room. 1040v A single room costs $149 a day. 1040v He can deduct the total cost of driving his car to and from Chicago, but only $149 a day for his hotel room. 1040v If he uses public transportation, he can deduct only his fare. 1040v Table 26-1. 1040v Travel Expenses You Can Deduct This chart summarizes expenses you can deduct when you travel away from home for business purposes. 1040v IF you have expenses for. 1040v . 1040v . 1040v THEN you can deduct the cost of. 1040v . 1040v . 1040v transportation travel by airplane, train, bus, or car between your home and your business destination. 1040v If you were provided with a ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. 1040v If you travel by ship, see Luxury Water Travel and Cruise ships (under Conventions) in Publication 463 for additional rules and limits. 1040v taxi, commuter bus, and airport limousine fares for these and other types of transportation that take you between: The airport or station and your hotel, and The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location. 1040v baggage and shipping sending baggage and sample or display material between your regular and temporary work locations. 1040v car operating and maintaining your car when traveling away from home on business. 1040v You can deduct actual expenses or the standard mileage rate as well as business-related tolls and parking. 1040v If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. 1040v lodging and meals your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. 1040v Meals include amounts spent for food, beverages, taxes, and related tips. 1040v See Meals and Incidental Expenses for additional rules and limits. 1040v cleaning dry cleaning and laundry. 1040v telephone business calls while on your business trip. 1040v This includes business communication by fax machine or other communication devices. 1040v tips tips you pay for any expenses in this chart. 1040v other other similar ordinary and necessary expenses related to your business travel. 1040v These expenses might include transportation to or from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer. 1040v Meals and Incidental Expenses You can deduct the cost of meals in either of the following situations. 1040v It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. 1040v The meal is business-related entertainment. 1040v Business-related entertainment is discussed under Entertainment Expenses , later. 1040v The following discussion deals only with meals (and incidental expenses) that are not business-related entertainment. 1040v Lavish or extravagant. 1040v   You cannot deduct expenses for meals that are lavish or extravagant. 1040v An expense is not considered lavish or extravagant if it is reasonable based on the facts and circumstances. 1040v Expenses will not be disallowed merely because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. 1040v 50% limit on meals. 1040v   You can figure your meal expenses using either of the following methods. 1040v Actual cost. 1040v The standard meal allowance. 1040v Both of these methods are explained below. 1040v But, regardless of the method you use, you generally can deduct only 50% of the unreimbursed cost of your meals. 1040v   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. 1040v If you are not reimbursed, the 50% limit applies whether the unreimbursed meal expense is for business travel or business entertainment. 1040v The 50% limit is explained later under Entertainment Expenses . 1040v Accountable and nonaccountable plans are discussed later under Reimbursements . 1040v Actual cost. 1040v   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. 1040v If you use this method, you must keep records of your actual cost. 1040v Standard meal allowance. 1040v   Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. 1040v 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. 1040v The set amount varies depending on where and when you travel. 1040v In this chapter, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance . 1040v If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel. 1040v See Recordkeeping , later. 1040v Incidental expenses. 1040v   The term “incidental expenses” means fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. 1040v Incidental expenses do not 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. 1040v Incidental expenses only method. 1040v   You can use an optional method (instead of actual cost) for deducting incidental expenses only. 1040v The amount of the deduction is $5 a day. 1040v You can use this method only if you did not pay or incur any meal expenses. 1040v You cannot use this method on any day that you use the standard meal allowance. 1040v    Federal employees should refer to the Federal Travel Regulations at  www. 1040v gsa. 1040v gov. 1040v Find “What GSA Offers” and click on “Regulations: FMR, FTR, & FAR” for Federal Travel Regulation (FTR) for changes affecting claims for reimbursement. 1040v 50% limit may apply. 1040v   If you use the standard meal allowance method for meal expenses and you are not reimbursed or you are reimbursed under a nonaccountable plan, you can generally deduct only 50% of the standard meal allowance. 1040v 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. 1040v The 50% limit is explained later under Entertainment Expenses . 1040v Accountable and nonaccountable plans are discussed later under Reimbursements . 1040v There is no optional standard lodging amount similar to the standard meal allowance. 1040v Your allowable lodging expense deduction is your actual cost. 1040v Who can use the standard meal allowance. 1040v   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. 1040v   Use of the standard meal allowance for other travel. 1040v    You can use the standard meal allowance to figure your meal expenses when you travel in connection with investment and other income-producing property. 1040v You can also use it to figure your meal expenses when you travel for qualifying educational purposes. 1040v You cannot use the standard meal allowance to figure the cost of your meals when you travel for medical or charitable purposes. 1040v Amount of standard meal allowance. 1040v   The standard meal allowance is the federal M&IE rate. 1040v For travel in 2013, the daily rate for most small localities in the United States is $46. 1040v   Most major cities and many other localities in the United States are designated as high-cost areas, qualifying for higher standard meal allowances. 1040v You can find this information (organized by state) on the Internet at www. 1040v gsa. 1040v gov. 1040v Click on “Per Diem Rates,” then select “2013” for the period January 1, 2013 – September 30, 2013, and select “2014” for the period October 1, 2013 – December 31, 2013. 1040v However, you can apply the rates in effect before October 1, 2013, for expenses of all travel within the United States for 2013 instead of the updated rates. 1040v You must consistently use either the rates for the first 9 months for all of 2013 or the updated rates for the period of October 1, 2013, through December 31, 2013. 1040v   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. 1040v If you work in the transportation industry, however, see Special rate for transportation workers , later. 1040v Standard meal allowance for areas outside the continental United States. 1040v    The standard meal allowance rates above do not apply to travel in Alaska, Hawaii, or any other location outside the continental United States. 1040v The Department of Defense establishes per diem rates for Alaska, Hawaii, Puerto Rico, American Samoa, Guam, Midway, the Northern Mariana Islands, the U. 1040v S. 1040v Virgin Islands, Wake Island, and other non-foreign areas outside the continental United States. 1040v The Department of State establishes per diem rates for all other foreign areas. 1040v    You can access per diem rates for non-foreign areas outside the continental United States at: www. 1040v defensetravel. 1040v dod. 1040v mil/site/perdiemCalc. 1040v cfm. 1040v You can access all other foreign per diem rates at www. 1040v state. 1040v gov/travel/. 1040v Click on “Travel Per Diem Allowances for Foreign Areas” under “Foreign Per Diem Rates,” to obtain the latest foreign per diem rates. 1040v Special rate for transportation workers. 1040v   You can use a special standard meal allowance if you work in the transportation industry. 1040v 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. 1040v If this applies to you, you can claim a standard daily meal allowance of $59 ($65 for travel outside the continental United States). 1040v   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. 1040v 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. 1040v Travel for days you depart and return. 1040v   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). 1040v You can do so by one of two methods. 1040v Method 1: You can claim 3/4 of the standard meal allowance. 1040v Method 2: You can prorate using any method that you consistently apply and that is in accordance with reasonable business practice. 1040v Example. 1040v Jen is employed in New Orleans as a convention planner. 1040v In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. 1040v She left her home in New Orleans at 10 a. 1040v m. 1040v on Wednesday and arrived in Washington, DC, at 5:30 p. 1040v m. 1040v After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p. 1040v m. 1040v Jen's employer gave her a flat amount to cover her expenses and included it with her wages. 1040v Under Method 1, Jen can claim 2½ days of the standard meal allowance for Washington, DC: 3/4 of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday. 1040v Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. 1040v For example, she 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. 1040v Travel in the United States The following discussion applies to travel in the United States. 1040v For this purpose, the United States includes only the 50 states and the District of Columbia. 1040v 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. 1040v See Part of Trip Outside the United States , later. 1040v Trip Primarily for Business You can deduct all your travel expenses if your trip was entirely business related. 1040v 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 your business-related travel expenses. 1040v These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination. 1040v Example. 1040v You work in Atlanta and take a business trip to New Orleans in May. 1040v On your way home, you stop in Mobile to visit your parents. 1040v You spend $1,996 for the 9 days you are away from home for travel, meals, lodging, and other travel expenses. 1040v If you had not stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,696. 1040v You can deduct $1,696 for your trip, including the cost of round-trip transportation to and from New Orleans. 1040v The deduction for your meals is subject to the 50% limit on meals mentioned earlier. 1040v Trip Primarily for Personal Reasons If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. 1040v However, you can deduct any expenses you have while at your destination that are directly related to your business. 1040v 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. 1040v The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip. 1040v Part of Trip Outside the United States If part of your trip is outside the United States, use the rules described later under Travel Outside the United States for that part of the trip. 1040v For the part of your trip that is inside the United States, use the rules for travel in the United States. 1040v Travel outside the United States does not include travel from one point in the United States to another point in the United States. 1040v The following discussion can help you determine whether your trip was entirely within the United States. 1040v Public transportation. 1040v   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. 1040v 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 . 1040v Example. 1040v You fly from New York to Puerto Rico with a scheduled stop in Miami. 1040v You return to New York nonstop. 1040v 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. 1040v Because there are no scheduled stops between Puerto Rico and New York, all of the return trip is outside the United States. 1040v Private car. 1040v   Travel by private car in the United States is travel between points in the United States, even when you are on your way to a destination outside the United States. 1040v Example. 1040v You travel by car from Denver to Mexico City and return. 1040v 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. 1040v The rules under Travel Outside the United States apply to your trip from the border to Mexico City and back to the border. 1040v 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. 1040v For this purpose, the United States includes only the 50 states and the District of Columbia. 1040v 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. 1040v See chapter 1 of Publication 463 for information on luxury water travel. 1040v 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. 1040v Travel entirely for business. 1040v   If you travel outside the United States and you spend the entire time on business activities, you can deduct all of your travel expenses. 1040v Travel considered entirely for business. 1040v   Even if you did not 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. 1040v Exception 1 - No substantial control. 1040v   Your trip is considered entirely for business if you did not have substantial control over arranging the trip. 1040v The fact that you control the timing of your trip does not, by itself, mean that you have substantial control over arranging your trip. 1040v   You do not have substantial control over your trip if you: Are an employee who was reimbursed or paid a travel expense allowance, Are not related to your employer, and Are not a managing executive. 1040v    “Related to your employer” is defined later in this chapter under Per Diem and Car Allowances . 1040v   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. 1040v    A self-employed person generally has substantial control over arranging business trips. 1040v Exception 2 - Outside United States no more than a week. 1040v   Your trip is considered entirely for business if you were outside the United States for a week or less, combining business and nonbusiness activities. 1040v One week means 7 consecutive days. 1040v In counting the days, do not count the day you leave the United States, but do count the day you return to the United States. 1040v Exception 3 - Less than 25% of time on personal activities. 1040v   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. 1040v For this purpose, count both the day your trip began and the day it ended. 1040v Exception 4 - Vacation not a major consideration. 1040v   Your trip is considered entirely for business if you can establish that a personal vacation was not a major consideration, even if you have substantial control over arranging the trip. 1040v Travel Primarily for Business If you travel outside the United States primarily for business but spend some of your time on nonbusiness activities, you generally cannot deduct all of your travel expenses. 1040v You can only deduct the business portion of your cost of getting to and from your destination. 1040v You must allocate the costs between your business and nonbusiness activities to determine your deductible amount. 1040v These travel allocation rules are discussed in chapter 1 of Publication 463. 1040v You do not have to allocate your travel expense deduction if you meet one of the four exceptions listed earlier under Travel considered entirely for business. 1040v In those cases, you can deduct the total cost of getting to and from your destination. 1040v Travel Primarily for Personal Reasons 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. 1040v 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. 1040v Conventions You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. 1040v You cannot deduct the travel expenses for your family. 1040v If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses. 1040v Your appointment or election as a delegate does not, in itself, determine whether you can deduct travel expenses. 1040v You can deduct your travel expenses only if your attendance is connected to your own trade or business. 1040v Convention agenda. 1040v   The convention agenda or program generally shows the purpose of the convention. 1040v 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. 1040v The agenda does not 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. 1040v Conventions held outside the North American area. 1040v    See chapter 1 of Publication 463 for information on conventions held outside the North American area. 1040v Entertainment Expenses You may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. 1040v You can deduct entertainment expenses only if they are both ordinary and necessary (defined earlier in the Introduction ) and meet one of the following tests. 1040v Directly-related test. 1040v Associated test. 1040v Both of these tests are explained in chapter 2 of Publication 463. 1040v The amount you can deduct for entertainment expenses may be limited. 1040v Generally, you can deduct only 50% of your unreimbursed entertainment expenses. 1040v This limit is discussed next. 1040v 50% Limit In general, you can deduct only 50% of your business-related meal and entertainment expenses. 1040v (If you are subject to the Department of Transportation's “hours of service” limits, you can deduct 80% of your business-related meal and entertainment expenses. 1040v See Individuals subject to “hours of service” limits , later. 1040v ) 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. 1040v Figure 26-A summarizes the general rules explained in this section. 1040v The 50% limit applies to business meals or entertainment expenses you have while: Traveling away from home (whether eating alone or with others) on business, Entertaining customers at your place of business, a restaurant, or other location, or Attending a business convention or reception, business meeting, or business luncheon at a club. 1040v Included expenses. 1040v   Expenses subject to the 50% limit include: Taxes and tips relating to a business meal or entertainment activity, Cover charges for admission to a nightclub, Rent paid for a room in which you hold a dinner or cocktail party, and Amounts paid for parking at a sports arena. 1040v However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit. 1040v Application of 50% limit. 1040v   The 50% limit on meal and entertainment expenses applies if the expense is otherwise deductible and is not covered by one of the exceptions discussed later in this section. 1040v   The 50% limit also applies to certain meal and entertainment expenses that are not business related. 1040v It applies to meal and entertainment expenses incurred for the production of income, including rental or royalty income. 1040v It also applies to the cost of meals included in deductible educational expenses. 1040v When to apply the 50% limit. 1040v   You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. 1040v You first have to determine the amount of meal and entertainment expenses that would be deductible under the other rules discussed in this chapter. 1040v Example 1. 1040v You spend $200 for a business-related meal. 1040v If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. 1040v Your deduction cannot be more than $45 (. 1040v 50 × $90). 1040v Example 2. 1040v You purchase two tickets to a concert and give them to a client. 1040v You purchased the tickets through a ticket agent. 1040v You paid $200 for the two tickets, which had a face value of $80 each ($160 total). 1040v Your deduction cannot be more than $80 (. 1040v 50 × $160). 1040v Exceptions to the 50% Limit Generally, business-related meal and entertainment expenses are subject to the 50% limit. 1040v Figure 26-A can help you determine if the 50% limit applies to you. 1040v Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions. 1040v Employee's reimbursed expenses. 1040v   If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan. 1040v Accountable plans are discussed later under Reimbursements . 1040v Individuals subject to “hours of service” limits. 1040v   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. 1040v The percentage is 80%. 1040v   Individuals subject to the Department of Transportation's “hours of service” limits include the following persons. 1040v Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations. 1040v Interstate truck operators and bus drivers who are under Department of Transportation regulations. 1040v Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations. 1040v Certain merchant mariners who are under Coast Guard regulations. 1040v Other exceptions. 1040v   There are also exceptions for the self-employed, advertising expenses, selling meals or entertainment, and charitable sports events. 1040v These are discussed in Publication 463. 1040v Figure 26-A. 1040v Does the 50% Limit Apply to Your Expenses? There are exceptions to these rules. 1040v See Exceptions to the 50% Limit . 1040v Please click here for the text description of the image. 1040v Entertainment expenses: 50% limit What Entertainment Expenses Are Deductible? This section explains different types of entertainment expenses you may be able to deduct. 1040v Entertainment. 1040v    Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. 1040v Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; or on hunting, fishing, vacation, and similar trips. 1040v A meal as a form of entertainment. 1040v   Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. 1040v A meal expense includes the cost of food, beverages, taxes, and tips for the meal. 1040v To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided. 1040v You cannot claim the cost of your meal both as an entertainment expense and as a travel expense. 1040v Separating costs. 1040v   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. 1040v You must have a reasonable basis for making this allocation. 1040v For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge. 1040v Taking turns paying for meals or entertainment. 1040v   If a group of business acquaintances take turns picking up each others' meal or entertainment checks without regard to whether any business purposes are served, no member of the group can deduct any part of the expense. 1040v Lavish or extravagant expenses. 1040v   You cannot deduct expenses for entertainment that are lavish or extravagant. 1040v An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. 1040v Expenses will not be disallowed just because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. 1040v Trade association meetings. 1040v    You can deduct entertainment expenses that are directly related to, and necessary for, attending business meetings or conventions of certain exempt organizations if the expenses of your attendance are related to your active trade or business. 1040v These organizations include business leagues, chambers of commerce, real estate boards, trade associations, and professional associations. 1040v Entertainment tickets. 1040v   Generally, you cannot deduct more than the face value of an entertainment ticket, even if you paid a higher price. 1040v For example, you cannot deduct service fees you pay to ticket agencies or brokers or any amount over the face value of the tickets you pay to scalpers. 1040v What Entertainment Expenses Are Not Deductible? This section explains different types of entertainment expenses you generally may not be able to deduct. 1040v Club dues and membership fees. 1040v   You cannot deduct dues (including initiation fees) for membership in any club organized for: Business, Pleasure, Recreation, or Other social purpose. 1040v 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. 1040v   The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. 1040v You cannot 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. 1040v Entertainment facilities. 1040v   Generally, you cannot deduct any expense for the use of an entertainment facility. 1040v This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection. 1040v   An entertainment facility is any property you own, rent, or use for entertainment. 1040v 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. 1040v Out-of-pocket expenses. 1040v   You can deduct out-of-pocket expenses, such as for food and beverages, catering, gas, and fishing bait, that you provided during entertainment at a facility. 1040v These are not expenses for the use of an entertainment facility. 1040v However, these expenses are subject to the directly-related and associated tests and to the 50% Limit discussed earlier. 1040v Additional information. 1040v   For more information on entertainment expenses, including discussions of the directly-related and associated tests, see chapter 2 of Publication 463. 1040v Gift Expenses If you give gifts in the course of your trade or business, you can deduct all or part of the cost. 1040v This section explains the limits and rules for deducting the costs of gifts. 1040v $25 limit. 1040v   You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. 1040v 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. 1040v   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. 1040v This rule does not apply if you have a bona fide, independent business connection with that family member and the gift is not intended for the customer's eventual use or benefit. 1040v   If you and your spouse both give gifts, both of you are treated as one taxpayer. 1040v It does not matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. 1040v If a partnership gives gifts, the partnership and the partners are treated as one taxpayer. 1040v Incidental costs. 1040v   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. 1040v   A cost is incidental only if it does not add substantial value to the gift. 1040v For example, the cost of customary gift wrapping is an incidental cost. 1040v However, the purchase of an ornamental basket for packaging fruit is not an incidental cost if the value of the basket is substantial compared to the value of the fruit. 1040v Exceptions. 1040v   The following items are not considered gifts for purposes of the $25 limit. 1040v 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. 1040v Examples include pens, desk sets, and plastic bags and cases. 1040v Signs, display racks, or other promotional material to be used on the business premises of the recipient. 1040v Gift or entertainment. 1040v   Any item that might be considered either a gift or entertainment generally will be considered entertainment. 1040v 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. 1040v    If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. 1040v You can treat the cost of the tickets as either a gift expense or an entertainment expense, whichever is to your advantage. 1040v    If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. 1040v You cannot choose, in this case, to treat the cost of the tickets as a gift expense. 1040v Transportation Expenses This section discusses expenses you can deduct for business transportation when you are not traveling away from home as defined earlier under Travel Expenses . 1040v These expenses include the cost of transportation by air, rail, bus, taxi, etc. 1040v , and the cost of driving and maintaining your car. 1040v Transportation expenses include the ordinary and necessary costs of all of the following. 1040v Getting from one workplace to another in the course of your business or profession when you are traveling within the area of your tax home. 1040v (Tax home is defined earlier under Travel Expenses . 1040v ) Visiting clients or customers. 1040v Going to a business meeting away from your regular workplace. 1040v Getting from your home to a temporary workplace when you have one or more regular places of work. 1040v These temporary workplaces can be either within the area of your tax home or outside that area. 1040v Transportation expenses do not include expenses you have while traveling away from home overnight. 1040v Those expenses are travel expenses, discussed earlier. 1040v However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. 1040v See Car Expenses , later. 1040v Illustration of transportation expenses. 1040v    Figure 26-B illustrates the rules for when you can deduct transportation expenses when you have a regular or main job away from your home. 1040v You may want to refer to it when deciding whether you can deduct your transportation expenses. 1040v Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. 1040v However, there are many exceptions for deducting transportation expenses, like whether your work location is temporary (inside or outside the metropolitan area), traveling for same trade or business, or if you have a home office. 1040v Temporary work location. 1040v   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. 1040v   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. 1040v   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 is not temporary, regardless of whether it actually lasts for more than 1 year. 1040v   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. 1040v It will not be treated as temporary after the date you determine it will last more than 1 year. 1040v   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. 1040v You may have deductible travel expenses as discussed earlier in this chapter. 1040v No regular place of work. 1040v   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. 1040v   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. 1040v   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. 1040v These are nondeductible commuting expenses. 1040v Two places of work. 1040v   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. 1040v However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. 1040v   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. 1040v You cannot deduct them. 1040v Armed Forces reservists. 1040v   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. 1040v You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work , earlier. 1040v   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. 1040v In this case, your transportation generally is a nondeductible commuting expense. 1040v 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. 1040v   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. 1040v   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. 1040v These expenses are discussed earlier under Travel Expenses . 1040v   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 income rather than as an itemized deduction. 1040v See Armed Forces reservists traveling more than 100 miles from home under Special Rules, later. 1040v Commuting expenses. 1040v   You cannot 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. 1040v These costs are personal commuting expenses. 1040v You cannot deduct commuting expenses no matter how far your home is from your regular place of work. 1040v You cannot deduct commuting expenses even if you work during the commuting trip. 1040v Example. 1040v You sometimes use your cell phone to make business calls while commuting to and from work. 1040v Sometimes business associates ride with you to and from work, and you have a business discussion in the car. 1040v These activities do not change the trip from personal to business. 1040v You cannot deduct your commuting expenses. 1040v Parking fees. 1040v   Fees you pay to park your car at your place of business are nondeductible commuting expenses. 1040v You can, however, deduct business-related parking fees when visiting a customer or client. 1040v Advertising display on car. 1040v   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. 1040v If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. 1040v Car pools. 1040v   You cannot deduct the cost of using your car in a nonprofit car pool. 1040v Do not include payments you receive from the passengers in your income. 1040v These payments are considered reimbursements of your expenses. 1040v However, if you operate a car pool for a profit, you must include payments from passengers in your income. 1040v You can then deduct your car expenses (using the rules in this chapter). 1040v Hauling tools or instruments. 1040v   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. 1040v 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). 1040v Union members' trips from a union hall. 1040v   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. 1040v Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. 1040v Office in the home. 1040v   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. 1040v (See chapter 28 for information on determining if your home office qualifies as a principal place of business. 1040v ) Figure 26-B. 1040v When Are Transportation Expenses Deductible? Most employees and self-employed persons can use this chart. 1040v (Do not use this chart if your home is your principal place of business. 1040v See Office in the home . 1040v ) Please click here for the text description of the image. 1040v Figure 26-B. 1040v Local Transportation Examples of deductible transportation. 1040v   The following examples show when you can deduct transportation expenses based on the location of your work and your home. 1040v Example 1. 1040v You regularly work in an office in the city where you live. 1040v Your employer sends you to a 1-week training session at a different office in the same city. 1040v You travel directly from your home to the training location and return each day. 1040v You can deduct the cost of your daily round-trip transportation between your home and the training location. 1040v Example 2. 1040v Your principal place of business is in your home. 1040v You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. 1040v Example 3. 1040v You have no regular office, and you do not have an office in your home. 1040v In this case, the location of your first business contact inside the metropolitan area is considered your office. 1040v Transportation expenses between your home and this first contact are nondeductible commuting expenses. 1040v Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. 1040v While you cannot deduct the costs of these first and last trips, you can deduct the costs of going from one client or customer to another. 1040v With no regular or home office, the costs of travel between two or more business contacts in a metropolitan area are deductible while the costs of travel between the home to (and from) business contacts are not deductible. 1040v Car Expenses If you use your car for business purposes, you may be able to deduct car expenses. 1040v You generally can use one of the two following methods to figure your deductible expenses. 1040v Standard mileage rate. 1040v Actual car expenses. 1040v If you use actual car expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. 1040v See Leasing a car under Actual Car Expenses, later. 1040v In this chapter, “car” includes a van, pickup, or panel truck. 1040v Rural mail carriers. 1040v   If you are a rural mail carrier, you may be able to treat the amount of qualified reimbursement you received as the amount of your allowable expense. 1040v Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the amount of reimbursement in your income. 1040v   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). 1040v You must complete Form 2106 and attach it to your Form 1040. 1040v   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. 1040v It is given as an equipment maintenance allowance (EMA) to employees of the U. 1040v S. 1040v Postal Service. 1040v It is at the rate contained in the 1991 collective bargaining agreement. 1040v Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. 1040v See your employer for information on your reimbursement. 1040v If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. 1040v Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. 1040v For 2013, the standard mileage rate for business use is 56½ cents per mile. 1040v If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year, but see Parking fees and tolls, later. 1040v You generally can 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. 1040v See Reimbursements under How To Report, later. 1040v Choosing the standard mileage rate. 1040v   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. 1040v Then in later years, you can choose to use either the standard mileage rate or actual expenses. 1040v   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. 1040v   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. 1040v You cannot revoke the choice. 1040v However, in a later year, you can switch from the standard mileage rate to the actual expenses method. 1040v 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. 1040v Example. 1040v Larry is an employee who occasionally uses his own car for business purposes. 1040v He purchased the car in 2011, but he did not claim any unreimburse
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1040v 5. 1040v   Ministers and Church Employees Table of Contents Alternative Limit for Church Employees Changes to Includible Compensation for Most Recent Year of ServiceChanges to Includible Compensation Changes to Years of Service Self-employed ministers and church employees who participate in 403(b) plans generally follow the same rules as other 403(b) plan participants. 1040v This means that if you are a self-employed minister or a church employee, your MAC generally is the lesser of: Your limit on annual additions, or Your limit on elective deferrals. 1040v For most ministers and church employees, the limit on annual additions is figured without any changes. 1040v This means that if you are a minister or church employee, your limit on annual additions generally is the lesser of: $51,000 for 2013 and $52,000 for 2014, or Your includible compensation for your most recent year of service. 1040v Although, in general, the same limit applies, church employees can choose an alternative limit and there are changes in how church employees, foreign missionaries, and self-employed ministers figure includible compensation for the most recent year of service. 1040v This chapter will explain the alternative limit and the changes. 1040v Who is a church employee?   A church employee is anyone who is an employee of a church or a convention or association of churches, including an employee of a tax-exempt organization controlled by or associated with a church or a convention or association of churches. 1040v Alternative Limit for Church Employees If you are a church employee, you can choose to use $10,000 a year as your limit on annual additions, even if your annual additions computed under the general rule is less. 1040v Total contributions over your lifetime under this choice cannot be more than $40,000. 1040v Changes to Includible Compensation for Most Recent Year of Service There are two types of changes in determining includible compensation for the most recent year of service. 1040v They are: Changes in how the includible compensation of foreign missionaries and self-employed ministers is figured, and A change to the years that are counted when figuring the most recent year of service for church employees and self-employed ministers. 1040v Changes to Includible Compensation Includible compensation is figured differently for foreign missionaries and self-employed ministers. 1040v Foreign missionary. 1040v   If you are a foreign missionary, your includible compensation includes foreign earned income that may otherwise be excludable from your gross income under section 911. 1040v   If you are a foreign missionary, and your adjusted gross income is $17,000 or less, contributions to your 403(b) account will not be treated as exceeding the limit on annual additions if the contributions are not in excess of $3,000. 1040v   You are a foreign missionary if you are either a layperson or a duly ordained, commissioned, or licensed minister of a church and you meet both of the following requirements. 1040v You are an employee of a church or convention or association of churches. 1040v You are performing services for the church outside the United States. 1040v Self-employed minister. 1040v   If you are a self-employed minister, you are treated as an employee of a tax-exempt organization that is a qualified employer. 1040v Your includible compensation is your net earnings from your ministry minus the contributions made to the retirement plan on your behalf and the deductible portion of your self-employment tax. 1040v Changes to Years of Service Generally, only service with the employer who maintains your 403(b) account can be counted when figuring your limit on annual additions. 1040v Church employees. 1040v   If you are a church employee, treat all of your years of service as an employee of a church or a convention or association of churches as years of service with one employer. 1040v Self-employed minister. 1040v   If you are a self-employed minister, your years of service include full and part years during which you were self-employed. 1040v Prev  Up  Next   Home   More Online Publications