If your work takes you places, your boss may be paying by the mile. Delivery drivers, couriers, sales people and service techs all do some traveling, and mileage reimbursement by their employers can compensate them for vehicle expenses and fuel. Although the IRS allows you to deduct job expenses, including the cost of transportation, there's an important word to consider: "unreimbursed."
Business Expense Deductions
As general rule, the IRS allows you to deduct any expense directly associated with earning a living, either as an employee, a self-employed freelancer or as the owner of a business. This can include costs associated with transportation, although commuting to work is specifically excluded. If you drive a vehicle as part of your job, you can deduct actual expenses, such as gas, tires, repairs, maintenance, license fees, tolls and so on, or you can use a standard mileage rate: 55.5 cents a mile in 2012.
Reimbursed and Unreimbursed Expenses
If your employer reimburses you for your mileage or for your other vehicle expenses, you can't take a tax deduction for transportation expenses. The IRS only allows you to claim unreimbursed expenses: those which you have to bear on your own. You must claim the deduction for the year in which you paid the expenses. In addition, the expenses must be considered "ordinary and necessary" by the IRS. Installation of a high-end stereo in your car in order to enjoy the long hours on the road would not be considered a necessary expense.
In order to claim a transportation expense, you must use Form 1040, Schedule A, which allows you to itemize employee expenses and other deductions. You enter unreimbursed employee expenses on Line 21 of Schedule A. It's important to remember that you can't take the standard deduction and also claim expenses. If you are self-employed, you enter transportation as one of your business expenses on Schedule C, Business Profit and Loss. The expense goes directly to the form's bottom line, net income; you don't use it as a deduction on Schedule A.
Form 2106 and AGI Threshold
If you are deducting the actual expenses of operating your car for business purposes, you need to complete Form 2106, on which you itemize those expenses. Keep all receipts: If the IRS decides to audit your return, you will need to prove the expenses (keep a mileage log if you take the standard mileage rate). Also, keep in mind that unreimbursed employee expenses are only counted when they exceed 2 percent of your adjusted gross income or AGI. If your AGI is $60,000, for example, only unreimbursed employee expenses over a threshold of $1,200 are deductible.
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.