The Internal Revenue Service is willing to give you a tax break for several mundane but necessary daily expenses, but its generosity usually comes with limitations and restrictions. Your fuel costs fall into this category. You can claim them as deductions, but only under certain circumstances, and you can't claim all of them.
Commuting costs get no special consideration from the IRS. Commuting is a personal expense. These are miles you cover from your home to your place of employment and back again. If you’re self-employed, they include your drive from home to your business location, assuming you don't work out of a home office. A few exceptions exist to this general rule, however. If you have two jobs – or even if you work at two separate locations for the same employer – your travel between one location and the other is not considered commuting. You can take a tax break for these miles. Likewise, if your employer wants you to work at a temporary location that's in a different metropolitan area from your usual workplace and your home, you can claim costs associated with getting there.
If you're self-employed, IRS restrictions loosen up somewhat for transportation deductions. If you maintain a home office and this is your principal place of doing business, all the miles you drive for business purposes are deductible, beginning when you leave your driveway. If you maintain a separate office or business site, you can still deduct your work-related driving costs – you just can't deduct the commute from home to your place of business. If you want to claim your fuel costs, you must first add up all the miles you put on your car during the year, then figure out how many of them pertained to your business. You can deduct your driving expenses equal to this percentage, including gas, maintenance for your vehicle, repairs and insurance. If you drove 25,000 miles, and if 12,500 were devoted to running your business, you can deduct half your costs for the year, including what you spent on fuel.
You can deduct your auto expenses for some miles using the same method if you work for an employer. Applicable mileage includes going between two work locations or working at a temporary location, as well as miles resulting from simply doing your job, such as visiting clients to service accounts or attending off-site meetings. The chief difference between this and self-employment mileage is how you claim the deduction. If you're self-employed, you can take the deduction on Schedule C. If you're not, you must itemize to claim work-related transportation deductions.
If you itemize to claim your fuel costs because you're not self-employed, they fall into the category of miscellaneous deductions. They must exceed 2 percent of your adjusted gross income, and you can only deduct the balance. For example, if your AGI is $85,000, you're limited to claiming your transportation expenses over $1,700. If your work-related driving expenses are $2,000 for the year, you get a $300 tax deduction – but only if your employer doesn't reimburse you. If he does but he includes the amount on your W-2 as income to you, you can take the deduction, but otherwise, you're not eligible to claim your fuel costs. Itemizing involves completing and submitting Schedule A with your tax return.
- IRS: Business Use of Car
- TurboTax: Federal Tax Laws on Mileage Reimbursement
- IRS: Publication 529
- TurboTax: Reporting Self-Employment Business Income and Deductions
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Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.