Currently the mileage deduction is one of the largest tax savings you can earn if you use a personal vehicle for business purposes. And although MileIQ makes tracking mileage an easy task, there are other vehicle-related deductions for the self-employed to explore. Let’s go over the parking deduction and see how eligible taxpayers can further maximize their savings.
Yes! Actually, it’s one of the most common tax deductions taken by eligible taxpayers, particularly those who travel frequently for work. As stated by the IRS, self employed are allowed to deduct the ordinary and necessary business-related expenses for:
Luckily, parking fees and tolls fall within these categories. You can deduct qualified parking expenses on Schedule C, Profit and Loss from Business on your tax return. Similar to the mileage deduction, you’ll need contemporaneous records of your parking expenses to avoid IRS suspension.
It’s also important to note that not all parking fees are considered a tax write-off. For instance, you cannot deduct the cost of parking fines or tickets. On the bright side, there are no geographical restrictions on parking expenses, granted the expenses are necessary for business.
As previously noted, the parking deduction is advantageous for various professionals who are considered self-employed by IRS guidelines. Here are a few situations where parking expenses can turn into big savings by the end of the tax year:
Scenario #1: An Uber or Lyft driver in New York City who goes through multiple tolls per day to get customers to their destination.
Scenario #2: A salesperson paying for parking at an airport for a weekend business trip.
Scenario #3: A real estate agent pays for parking to meet and discuss selling a home with a potential client.
Each of these scenarios details an opportunity to write-off an eligible business expense. What’s more, it does not matter the frequency of these business trips, parking fees, or tolls. As long as you maintain contemporaneous records of the parking expenses through receipts or invoices, you’ll be able to write-off the incurred costs.
Taxpayers often get confused when we talk about commuting expenses, but it’s more straightforward than you think. Just remember the time you drive from your home to work and back again as personal drive time. You cannot deduct any commuting costs on your tax return, no matter the scenario. Even if you take a business call on your way to work, your time on the phone is not tax deductible.
The same rule applies for parking expenses. Even though self-employed, business owners, and freelancers can take the parking deduction during work hours and business-related travel, they are not eligible to write-off parking expenses during their commute to and from work.
Example: If you drive your personal vehicle to work and have to pay for garage parking, this is what is considered a commuting expense. You cannot deduct the per-hour parking fee for commuting to work.
In short, the only way to get around the restrictions of commuting expenses is if you have a qualifying home office. In this instance, you may be able to turn typically nondeductible commutes into business miles. Of course, you must meet the IRS requirements to qualify for this exception.
The IRS permits some W-2 employees to deduct parking expenses for business purposes, however, restrictions do apply. Prior to 2018 and the Tax Cuts and Jobs Act, parking expenses were fully deductible as a miscellaneous itemized deduction subject to 2% of your Adjusted Gross Income. This was the case as long as your employer did not fully reimburse you for recorded travel expenses.
Now the IRS only allows designated government workers and qualified members of the Armed Forces to take the parking deduction on their federal tax return. Bear in mind that every state conforms differently to the federal tax law though. So it’s a good idea to check your state requirements to see if itemizing these business expenses is applicable.