Question: I have a two-part question: First, I am home-based, self-employed, and travel to various retail businesses as a subcontractor. I have no fixed schedule; it’s different every day. On most days, I travel to several different locations, but on other days, I might go directly from home to do a job, then directly back home again.
Do I need to establish a home office in order to claim mileage to and from these locations?
Secondly, how does one correctly calculate mileage when a personal stop is made along the way?
Example: Leave client location, drive 3 miles, make a 1/2 mile detour, pick up a family member or household groceries, drive another 17 miles to get back to home/home office. I wouldn’t want to unethically/illegally claim the extra distance in my detour, but I also wouldn’t want to “lose” the majority of the return-to-base miles just for picking up a child along the route.
I suppose I could drive directly from the client location back to my home base, record the business miles, then turn around, retrace most of my steps to run my errand, but that would be very time consuming and expensive.
-Christopher in Malden, MA
Stephen Fishman: Let’s answer your questions in order:
In general, the answer is yes, you do need to have a tax deductible home office to deduct the cost of driving from home to a work location and then back home again. The only exception is that, if you have no regular office, you can deduct the cost of driving drive from home to a temporary work location outside your metropolitan area (an area more than 35-40 miles from your home). A “temporary work location” is a place where you reasonably expect to work for less than one year.
In contrast, if you have a tax deductible home office, you can deduct the cost of driving from home to a client or customer’s office. This is one of the great (and largely unappreciated) benefits of having a home office—it can greatly increase your deduction for business driving.
If you have your own business and don’t have an outside office, it should be easy for you to establish a tax deductible home office. You just need have a space in your home that you use exclusively and regularly for your business—it need not be an entire room. Your home office need not be the place where you do most of your work or earn most of your money. It’s sufficient that you use it to perform administrative or management activities for your business and there is no other place where you regular do these activities. These activities can be things like billing and record keeping.
As for your second question, you can always deduct the expense of getting from one workplace to the other. However, the IRS says that, if for some personal reason you do not go directly from one work 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. You don’t have to retrace your steps. It’s sufficient that you make a reasonable estimate of what the distance would have been had you driven directly from one work location to the other.
Editors note: When using MileIQ, you can always adjust the distance of a trip using our web dashboard. So, if you go three miles out of the way to pick up a child on the way back to your home office, simply edit the distance of that trip by three miles.
Each week, our resident small business tax expert, Stephen Fishman, answers your small business tax questions.