Home Office And Miles: What's Claimable?

Whether you can claim home office expenses and mileage depends on your employment status, the nature of your work, and the location of your workplace. For instance, in the US, self-employed individuals and independent contractors can generally claim deductions for business mileage and home office expenses. However, employees are typically unable to claim mileage deductions for their regular commute, even if they make business calls or carry business supplies during their travel. There are exceptions to this rule, such as when travelling to a temporary work location or when an individual's home office is their main place of business. In the UK, HMRC guidelines state that an employee can only be designated as a homeworker if there is no office for them to attend, and their travel from home to meetings will be considered a non-taxable reimbursable expense. In Canada, eligible employees working from home can claim a portion of certain home office expenses, such as utilities, internet access fees, and maintenance costs.

Home office as a primary workplace

A home office is a designated space in a person's residence used for official business purposes. It is often the primary workplace for those who are self-employed or work remotely for an employer. The Internal Revenue Service (IRS) in the United States allows qualified taxpayers to claim a home office on their tax returns and deduct certain home expenses.

To claim the home office deduction, taxpayers must meet specific criteria set by the IRS. Firstly, they must use part of their home exclusively and regularly as their principal place of business for their trade or business. This means that the home office should be the main location where the business is performed and where most administrative and management tasks are conducted.

Secondly, taxpayers must not have any other fixed location where they conduct substantial administrative or management activities for their trade or business. It is important to note that conducting some administrative or management activities outside the home, such as in a car or by a bookkeeper, does not disqualify the home office as the primary workplace.

For employees, there are additional requirements to claim the home office deduction. The home office must be used for the convenience of the employer, not just the employee, and the employee must not rent any part of their home to their employer for performing services.

By meeting these criteria and establishing the home office as the primary workplace, taxpayers may be eligible for various tax benefits and deductions, such as a portion of rent or mortgage payments, utility costs, and other related expenses. It is important to review the specific guidelines provided by tax authorities, such as the IRS in the United States, to ensure compliance with the requirements for claiming the home office as the primary workplace.

Commuting miles

Exceptions

If an individual has a home office that qualifies as their primary workplace, they can claim travel to other work locations as business mileage. In this case, the home office must be the main place of business where most administrative tasks, client meetings, or income-generating activities take place.

If an individual travels between multiple work locations or jobs during the day, they can include the travel from one location to another as business mileage. However, the commute to and from home is still considered a personal expense and is non-deductible.

If an individual travels temporarily to a worksite outside their typical metropolitan area of work and residence, they can claim the mileage as business mileage. This applies if they have no regular place of work but regularly work within their metropolitan area of residence.

Temporary work locations

Understanding what constitutes a temporary work location is crucial if you plan to claim a mileage deduction for driving from your home to that location. Here is some information on temporary work locations and how they relate to mileage deductions.

IRS Definition of Temporary Work Location

The Internal Revenue Service (IRS) in the United States defines a temporary work location as a place where an individual realistically expects to perform work-related tasks for less than a year. This definition is essential for determining whether travel expenses between an individual's home and the work location can be deducted from taxable income.

Scenarios for Deduction

If you have a regular work location outside your home, you can deduct the cost of commuting to a temporary work location, regardless of whether it is inside or outside your metropolitan area. This scenario applies even if you have a qualifying home office as your primary place of business.

However, if you do not have a regular work location outside your home, you can only deduct the cost of commuting to a temporary work location if it is outside your metropolitan area. Your metropolitan area typically includes the city and the densely populated surrounding areas that are socially and economically integrated with it, usually extending up to 35-40 miles from your home.

Duration of Temporary Work

It is important to note that the duration of your work at a location plays a significant role in determining its temporary status. If your work at a location lasts or is expected to last for more than 24 months, it is no longer considered a temporary work location, and travel expenses will not be deductible.

Claiming Deductions

When claiming deductions for mileage, you can choose between two methods: the actual expenses method and the standard mileage rate method. The former allows you to claim deductions for all expenses directly related to operating the vehicle, such as gas, depreciation, insurance, and repairs. On the other hand, the standard mileage rate method allows you to claim a deduction for each mile driven for business purposes, with the rate set by the IRS and updated annually.

Other Considerations

It is worth noting that simply incorporating work-related tasks into your commute, such as making business calls or carrying business supplies, does not transform your ordinary commute into a deductible business trip. Additionally, if you have multiple workplaces and regularly commute between them, the mileage between them is considered ordinary commuting, and business mileage claims do not apply.

Mileage deduction methods

There are two methods for calculating your mileage deduction, each with its own set of rules and limitations: the standard mileage rate method and the actual expenses method.

Standard Mileage Rate Method

The standard mileage rate method uses a set IRS rate you can apply to calculate tax deductions per business mile driven. This method is more straightforward than working out actual expenses, as the rate covers all expenses of owning and running your vehicle for business purposes.

With the 2024 IRS mileage rate, you can claim $0.67 per mile for business-related driving. The IRS mileage rate for 2023 is $0.655 per mile, applicable from January 1, 2023, until December 31, 2023.

To qualify for the IRS standard mileage rate method, you must own or lease the car(s) you drive for business. There are different criteria for eligibility depending on whether you own or lease your vehicle(s).

If you want to use the standard mileage rate, you must choose it in the first year of the car’s operation in your business. In later years, you can switch to actual expenses (for specifics, check switching below). However, this method is NOT available if you:

• Claimed depreciation deductions on the car (other than the straight-line method)
• Claimed a section 179 deduction or the car's Special Depreciation Allowance
• Simultaneously use five or more vehicles for your business (fleet operations) - however, you may switch between the vehicles
• Are a rural mail carrier, who receives a qualified reimbursement
• Claimed actual car expenses after 1997 for a leased car

When leasing, you must commit to the standard mileage rate method for the entire lease period. This method is NOT applicable if you:

• Simultaneously use five or more vehicles for your business (fleet operations) - however, you may switch between the vehicles
• Claimed actual car expenses after 1997 for a leased car

Actual Expenses Method

As a self-employed person, you can claim deductions for expenses related to owning and operating a vehicle for business purposes. The IRS identifies deductible expenses as:

• Depreciation or rental and lease payments
• Parking fees and tolls
• Trailer rental costs (when hauling tools or instruments)
• Interest payments on your personal car loan
• If you use the standard mileage rate, you can still deduct parking fees and tolls.

There are three types of depreciation that, if taken, might disqualify you from switching to the standard mileage rate method: The Section 179 Deduction, the Depreciation Deduction, and the Special Depreciation Allowance.

If you choose to use the actual expenses method in the first year your vehicle is available for use in your business, you won’t be able to apply the standard mileage rate method in any following year while you drive that vehicle. However, if you use the standard mileage rate method in the first year, you can choose between the two methods in the following tax years. Be aware of how you calculate your depreciation, as it might affect eligibility for the standard mileage rate method.

As mentioned earlier, if you want to use the standard mileage rate for a car you lease, you must do so throughout the entire lease period and any lease extensions.

Self-employed mileage deductions

If you're self-employed and use your vehicle for work, you can deduct many mileage expenses from your taxes. These deductions can include oil changes, maintenance, repairs, tire replacements, and rotations. If you use a car solely for business, you have the right to deduct all related expenses. If you use your personal car for business and personal activities, you can only deduct the expenses associated with conducting business.

There are two methods for calculating self-employed mileage deductions: the standard mileage rate method and the actual expenses method. The standard mileage rate method uses a set IRS rate applied to each business mile driven. This rate covers all expenses of owning and running your vehicle for business purposes. The actual expenses method allows you to claim deductions for expenses related to owning and operating a vehicle for business purposes, such as depreciation, rental and lease payments, parking fees, tolls, trailer rental costs, and interest payments on your personal car loan.

For the 2024 tax year, the standard mileage rate is 67 cents per mile. This rate includes driving costs, gas, repairs and maintenance, and depreciation. The standard mileage rate is often the go-to option as it is the easiest to calculate. However, you must choose between the standard mileage rate method and the actual expenses method in the first year of using your car for business, and this may affect your options in subsequent years.

It's important to keep detailed records of your mileage and expenses. The IRS requires self-employed individuals to log the mileage for each business use, total mileage for the year, time, place, and purpose of trips. You can use methods like trip diaries, logs, Excel sheets, or mileage-tracking apps to record your mileage.

Frequently asked questions