The mileage deduction is one of the largest tax savings you can get if you use a personal car for business purposes. But, there are various vehicle-related deductions for the self-employed. Let's go over the parking deduction and see how it can impact your tax bill.
According to the IRS, you can deduct "business-related parking fees when visiting a customer or client." Some examples of this include paying to park visiting a client, paying for parking at the airport during business trips and other work-related trips.
The IRS also allows you to deduct the cost of tolls incurred during business trips. This could start to add up depending on where you are and what you do. For example, a ride-sharing driver for Uber or Lyft in the Bay Area could wind up with multiple write-offs for tolls at the end of the year.
Remember, you cannot deduct the parking fees you pay to park your car at your place of work. This is considered a nondeductible commuting expense. One potential way around this is to have a qualifying home office. With this, your trips to the office go from nondeductible commutes to business mileage‚ the parking costs may also qualify for tax relief.
You're also not allowed to write off the costs of parking tickets. This is true even if you got the ticket parking for business purposes.
The above applies to self-employed workers, freelancers, small business owners and those who receive a 1099 form. In fact, W-2 salaried employees may also deduct parking expenses for business purposes, but there are more rules to follow.
Because of those rules, the parking deduction for W-2 employees may not be substantial. You may want to investigate if your employer provides some pre-tax commuter benefits for parking.
Self-Employed workers will include the costs of business parking and tolls on your Schedule C. Like with the mileage deduction, you'll need diligent records of these expenses.
The IRS doesn't require proof of parking and toll expenses at the time of filing but it requires you to keep documentation. If you ever face an audit, the IRS could disallow your parking deduction and impose additional fines on top.