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Department of the Treasury
Internal Revenue Service
Publication 463
Cat. No. 11081L
Travel,
Gift, and Car
Expenses
For use in preparing
2023 Returns
Get forms and other information faster and easier at:
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Contents
Future Developments ....................... 2
What's New ............................... 2
Reminder ................................ 2
Introduction .............................. 2
Chapter 1. Travel .......................... 3
Traveling Away From Home ................. 4
Tax Home .......................... 4
Tax Home Different From Family Home ...... 5
Temporary Assignment or Job ............... 5
What Travel Expenses Are Deductible? ........ 6
Meals ............................. 7
Travel in the United States ............... 9
Travel Outside the United States ......... 10
Luxury Water Travel .................. 12
Conventions ........................ 13
Chapter 2. Meals and Entertainment ......... 14
50% Limit ............................. 16
Exception to the 50% Limit for Meals ...... 17
Chapter 3. Gifts .......................... 17
Chapter 4. Transportation .................. 18
Car Expenses ......................... 21
Standard Mileage Rate ................ 21
Actual Car Expenses ................. 22
Leasing a Car ....................... 33
Disposition of a Car ...................... 34
Chapter 5. Recordkeeping ................. 35
How To Prove Expenses .................. 36
What Are Adequate Records? ........... 36
What if I Have Incomplete Records? ....... 37
Separating and Combining Expenses ...... 38
How Long To Keep Records and
Receipts ........................ 38
Examples of Records ................. 38
Chapter 6. How To Report .................. 41
Where To Report ....................... 41
Vehicle Provided by Your Employer ....... 42
Reimbursements ....................... 42
Accountable Plans ................... 42
Nonaccountable Plans ................ 46
Rules for Independent Contractors and
Clients .......................... 47
How To Use Per Diem Rate Tables ........... 48
The Two Substantiation Methods ......... 48
Transition Rules ..................... 48
Completing Form 2106 ................... 48
Special Rules ....................... 50
How To Get Tax Help ....................... 52
Appendices ............................. 55
Jan 29, 2024
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Index .................................. 59
Future Developments
For the latest information about developments related to
Pub. 463, such as legislation enacted after it was
published, go to IRS.gov/Pub463.
What's New
Standard mileage rate. For 2023, the standard mileage
rate for the cost of operating your car for business use is
65.5 cents ($0.655) per mile. Car expenses and use of the
standard mileage rate are explained in chapter 4.
Depreciation limits on cars, trucks, and vans. The
first-year limit on the depreciation deduction, special de-
preciation allowance, and section 179 deduction for vehi-
cles acquired before September 28, 2017, and placed in
service during 2023, is $12,200. The first-year limit on de-
preciation, special depreciation allowance, and section
179 deduction for vehicles acquired after September 27,
2017, and placed in service during 2023 increases to
$20,200. If you elect not to claim a special depreciation al-
lowance for a vehicle placed in service in 2023, the
amount increases to $12,200. Depreciation limits are ex-
plained in chapter 4.
Section 179 deduction. The maximum amount you can
elect to deduct for section 179 property (including cars,
trucks, and vans) you placed in service in tax years begin-
ning in 2023 is $1,160,000. This limit is reduced by the
amount by which the cost of section 179 property placed
in service during the tax year exceeds $2,890,000. Sec-
tion 179 deduction is explained in chapter 4.
Also, the maximum section 179 expense deduction for
sport utility vehicles placed in service in tax years begin-
ning in 2023 is $28,900.
Temporary deduction of 100% business meals. The
100% deduction on certain business meals expenses as
amended under the Taxpayer Certainty and Disaster Tax
Relief Act of 2020, and enacted by the Consolidated Ap-
propriations Act, 2021, has expired. Generally, the cost of
business meals remains deductible, subject to the 50%
limitation. See 50% Limit in chapter 2 for more informa-
tion.
Reminder
Photographs of missing children. The IRS is a proud
partner with the National Center for Missing & Exploited
Children® (NCMEC). Photographs of missing children se-
lected by the Center may appear in this publication on pa-
ges that would otherwise be blank. You can help bring
these children home by looking at the photographs and
calling 800-THE-LOST (800-843-5678) if you recognize a
child.
Per diem rates. Current and prior per diem rates may be
found on the U.S. General Services Administration (GSA)
website at GSA.gov/travel/plan-book/per-diem-rates.
Introduction
You may be able to deduct the ordinary and necessary
business-related expenses you have for:
•
Travel,
•
Non-entertainment-related meals,
•
Gifts, or
•
Transportation.
An ordinary expense is one that is common and accepted
in your trade or business. A necessary expense is one that
is helpful and appropriate for your business. An expense
doesn’t have to be required to be considered necessary.
This publication explains:
•
What expenses are deductible,
•
How to report them on your return,
•
What records you need to prove your expenses, and
•
How to treat any expense reimbursements you may
receive.
Who should use this publication. You should read this
publication if you are an employee or a sole proprietor who
has business-related travel, non-entertainment-related
meals, gift, or transportation expenses.
Users of employer-provided vehicles. If an em-
ployer-provided vehicle was available for your use, you re-
ceived a fringe benefit. Generally, your employer must in-
clude the value of the use or availability of the vehicle in
your income. However, there are exceptions if the use of
the vehicle qualifies as a working condition fringe benefit
(such as the use of a qualified nonpersonal use vehicle).
A working condition fringe benefit is any property or
service provided to you by your employer, the cost of
which would be allowable as an employee business ex-
pense deduction if you had paid for it.
A qualified nonpersonal use vehicle is one that isn’t
likely to be used more than minimally for personal purpo-
ses because of its design. See Qualified nonpersonal use
vehicles under Actual Car Expenses in chapter 4.
For information on how to report your car expenses that
your employer didn’t provide or reimburse you for (such as
when you pay for gas and maintenance for a car your em-
ployer provides), see Vehicle Provided by Your Employer
in chapter 6.
Who doesn’t need to use this publication. Partner-
ships, corporations, trusts, and employers who reimburse
their employees for business expenses should refer to the
instructions for their required tax forms, for information on
deducting travel, meals, and entertainment expenses.
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If you are an employee, you won’t need to read this
publication if all of the following are true.
•
You fully accounted to your employer for your work-re-
lated expenses.
•
You received full reimbursement for your expenses.
•
Your employer required you to return any excess reim-
bursement and you did so.
•
There is no amount shown with a code L in box 12 of
your Form W-2, Wage and Tax Statement.
If you meet all of these conditions, there is no need to
show the expenses or the reimbursements on your return.
If you would like more information on reimbursements and
accounting to your employer, see chapter 6.
If you meet these conditions and your employer
included reimbursements on your Form W-2 in er-
ror, ask your employer for a corrected Form W-2.
Volunteers. If you perform services as a volunteer
worker for a qualified charity, you may be able to deduct
some of your costs as a charitable contribution. See
Out-of-Pocket Expenses in Giving Services in Pub. 526,
Charitable Contributions, for information on the expenses
you can deduct.
Comments and suggestions. We welcome your com-
ments about this publication and suggestions for future
editions.
You can send us comments through IRS.gov/
FormComments. Or, you can write to the Internal Revenue
Service, Tax Forms and Publications, 1111 Constitution
Ave. NW, IR-6526, Washington, DC 20224.
Although we can’t respond individually to each com-
ment received, we do appreciate your feedback and will
consider your comments and suggestions as we revise
our tax forms, instructions, and publications. Don’t send
tax questions, tax returns, or payments to the above ad-
dress.
Getting answers to your tax questions. If you have
a tax question not answered by this publication or the How
To Get Tax Help section at the end of this publication, go
to the IRS Interactive Tax Assistant page at IRS.gov/
Help/ITA where you can find topics by using the search
feature or viewing the categories listed.
Getting tax forms, instructions, and publications.
Go to IRS.gov/Forms to download current and prior-year
forms, instructions, and publications.
Ordering tax forms, instructions, and publications.
Go to IRS.gov/OrderForms to order current forms, instruc-
tions, and publications; call 800-829-3676 to order
prior-year forms and instructions. The IRS will process
your order for forms and publications as soon as possible.
Don’t resubmit requests you’ve already sent us. You can
get forms and publications faster online.
TIP
Useful Items
You may want to see:
Publication
946 How To Depreciate Property
Form (and Instructions)
Schedule A (Form 1040) Itemized Deductions
Schedule C (Form 1040) Profit or Loss From
Business (Sole Proprietorship)
Schedule F (Form 1040) Profit or Loss From
Farming
2106 Employee Business Expenses
4562 Depreciation and Amortization (Including
Information on Listed Property)
See How To Get Tax Help for information about getting
these publications and forms.
1.
Travel
If you temporarily travel away from your tax home, you can
use this chapter to determine if you have deductible travel
expenses.
This chapter discusses:
•
Traveling away from home,
•
Temporary assignment or job, and
•
What travel expenses are deductible.
It also discusses the standard meal allowance, rules for
travel inside and outside the United States, luxury water
travel, and deductible convention expenses.
Travel expenses defined. For tax purposes, travel ex-
penses are the ordinary and necessary expenses of trav-
eling away from home for your business, profession, or
job.
An ordinary expense is one that is common and accep-
ted in your trade or business. A necessary expense is one
that is helpful and appropriate for your business. An ex-
pense doesn’t have to be required to be considered nec-
essary.
You will find examples of deductible travel expenses in
Table 1-1 .
946
Schedule A (Form 1040)
Schedule C (Form 1040)
Schedule F (Form 1040)
2106
4562
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Traveling Away From Home
You are traveling away from home if:
•
Your duties require you to be away from the general
area of your tax home (defined later) substantially lon-
ger than an ordinary day's work, and
•
You need to sleep or rest to meet the demands of your
work while away from home.
This rest requirement isn’t satisfied by merely napping in
your car. You don’t have to be away from your tax home for
a whole day or from dusk to dawn as long as your relief
from duty is long enough to get necessary sleep or rest.
Example 1. You are a railroad conductor. You leave
your home terminal on a regularly scheduled round-trip
run between two cities and return home 16 hours later.
During the run, you have 6 hours off at your turnaround
point where you eat two meals and rent a hotel room to
get necessary sleep before starting the return trip. You are
considered to be away from home.
Example 2. You are a truck driver. You leave your ter-
minal and return to it later the same day. You get an hour
off at your turnaround point to eat. Because you aren’t off
to get necessary sleep and the brief time off isn’t an ade-
quate rest period, you aren’t traveling away from home.
Members of the Armed Forces. If you are a member of
the U.S. Armed Forces on a permanent duty assignment
overseas, you aren’t traveling away from home. You can’t
deduct your expenses for meals and lodging. You can’t
deduct these expenses even if you have to maintain a
home in the United States for your family members who
aren’t allowed to accompany you overseas. If you are
transferred from one permanent duty station to another,
you may have deductible moving expenses, which are ex-
plained in Pub. 3, Armed Forces' Tax Guide.
A naval officer assigned to permanent duty aboard a
ship that has regular eating and living facilities has a tax
home (explained next) aboard the ship for travel expense
purposes.
Tax Home
To determine whether you are traveling away from home,
you must first determine the location of your tax home.
Generally, your tax home is your regular place of busi-
ness or post of duty, regardless of where you maintain
your family home. It includes the entire city or general area
in which your business or work is located.
If you have more than one regular place of business,
your tax home is your main place of business. See Main
place of business or work, later.
If you don’t have a regular or a main place of business
because of the nature of your work, then your tax home
may be the place where you regularly live. See No main
place of business or work, later.
If you don’t have a regular or main place of business or
post of duty and there is no place where you regularly live,
you are considered an itinerant (a transient) and your tax
home is wherever you work. As an itinerant, you can’t
claim a travel expense deduction because you are never
considered to be traveling away from home.
Main place of business or work. If you have more than
one place of work, consider the following when determin-
ing which one is your main place of business or work.
•
The total time you ordinarily spend in each place.
•
The level of your business activity in each place.
•
Whether your income from each place is significant or
insignificant.
Example. You live in Cincinnati where you have a sea-
sonal job for 8 months each year and earn $40,000. You
work the other 4 months in Miami, also at a seasonal job,
and earn $15,000. Cincinnati is your main place of work
because you spend most of your time there and earn most
of your income there.
No main place of business or work. You may have a
tax home even if you don’t have a regular or main place of
work. Your tax home may be the home where you regu-
larly live.
Factors used to determine tax home. If you don’t
have a regular or main place of business or work, use the
following three factors to determine where your tax home
is.
1. You perform part of your business in the area of your
main home and use that home for lodging while doing
business in the area.
2. You have living expenses at your main home that you
duplicate because your business requires you to be
away from that home.
3. You haven’t abandoned the area in which both your
historical place of lodging and your claimed main
home are located; you have a member or members of
your family living at your main home; or you often use
that home for lodging.
If you satisfy all three factors, your tax home is the
home where you regularly live. If you satisfy only two fac-
tors, you may have a tax home depending on all the facts
and circumstances. If you satisfy only one factor, you are
an itinerant; your tax home is wherever you work and you
can’t deduct travel expenses.
Example 1. You are single and live in Boston in an
apartment you rent. You have worked for your employer in
Boston for a number of years. Your employer enrolls you in
a 12-month executive training program. You don’t expect
to return to work in Boston after you complete your train-
ing.
During your training, you don’t do any work in Boston.
Instead, you receive classroom and on-the-job training
throughout the United States. You keep your apartment in
Boston and return to it frequently. You use your apartment
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to conduct your personal business. You also keep up your
community contacts in Boston. When you complete your
training, you are transferred to Los Angeles.
You don’t satisfy factor (1) because you didn’t work in
Boston. You satisfy factor (2) because you had duplicate
living expenses. You also satisfy factor (3) because you
didn’t abandon your apartment in Boston as your main
home, you kept your community contacts, and you fre-
quently returned to live in your apartment. Therefore, you
have a tax home in Boston.
Example 2. You are an outside salesperson with a
sales territory covering several states. Your employer's
main office is in Newark, but you don’t conduct any busi-
ness there. Your work assignments are temporary, and
you have no way of knowing where your future assign-
ments will be located. You have a room in your married si-
ster's house in Dayton. You stay there for one or two
weekends a year, but you do no work in the area. You
don’t pay your sister for the use of the room.
You don’t satisfy any of the three factors listed earlier.
You are an itinerant and have no tax home.
Tax Home Different From Family
Home
If you (and your family) don’t live at your tax home (defined
earlier), you can’t deduct the cost of traveling between
your tax home and your family home. You also can’t de-
duct the cost of meals and lodging while at your tax home.
See Example 1, later.
If you are working temporarily in the same city where
you and your family live, you may be considered as travel-
ing away from home. See Example 2, later.
Example 1. You are a truck driver and you and your
family live in Tucson. You are employed by a trucking firm
that has its terminal in Phoenix. At the end of your long
runs, you return to your home terminal in Phoenix and
spend one night there before returning home. You can’t
deduct any expenses you have for meals and lodging in
Phoenix or the cost of traveling from Phoenix to Tucson.
This is because Phoenix is your tax home.
Example 2. Your family home is in Pittsburgh, where
you work 12 weeks a year. The rest of the year you work
for the same employer in Baltimore. In Baltimore, you eat
in restaurants and sleep in a rooming house. Your salary is
the same whether you are in Pittsburgh or Baltimore.
Because you spend most of your working time and earn
most of your salary in Baltimore, that city is your tax home.
You can’t deduct any expenses you have for meals and
lodging there. However, when you return to work in Pitts-
burgh, you are away from your tax home even though you
stay at your family home. You can deduct the cost of your
round trip between Baltimore and Pittsburgh. You can also
deduct your part of your family's living expenses for
non-entertainment-related meals and lodging while you
are living and working in Pittsburgh.
Temporary
Assignment or Job
You may regularly work at your tax home and also work at
another location. It may not be practical to return to your
tax home from this other location at the end of each work-
day.
Temporary assignment vs. indefinite assignment. If
your assignment or job away from your main place of work
is temporary, your tax home doesn’t change. You are con-
sidered to be away from home for the whole period you
are away from your main place of work. You can deduct
your travel expenses if they otherwise qualify for deduc-
tion. Generally, a temporary assignment in a single loca-
tion is one that is realistically expected to last (and does in
fact last) for 1 year or less.
However, if your assignment or job is indefinite, the lo-
cation of the assignment or job becomes your new tax
home and you can’t deduct your travel expenses while
there. An assignment or job in a single location is consid-
ered indefinite if it is realistically expected to last for more
than 1 year, whether or not it actually lasts for more than 1
year.
If your assignment is indefinite, you must include in your
income any amounts you receive from your employer for
living expenses, even if they are called “travel allowances”
and you account to your employer for them. You may be
able to deduct the cost of relocating to your new tax home
as a moving expense. See Pub. 3 for more information.
For tax years beginning after December 2017 and
before January 2026, the deduction of certain
moving expenses is suspended for nonmilitary
taxpayers. In order to deduct certain moving expenses,
you must be an active member of the military and moving
due to a permanent change of duty station.
Exception for federal crime investigations or prose-
cutions. If you are a federal employee participating in a
federal crime investigation or prosecution, you aren’t sub-
ject to the 1-year rule. This means you may be able to de-
duct travel expenses even if you are away from your tax
home for more than 1 year provided you meet the other re-
quirements for deductibility.
For you to qualify, the Attorney General (or their desig-
nee) must certify that you are traveling:
•
For the federal government;
•
In a temporary duty status; and
•
To investigate, prosecute, or provide support services
for the investigation or prosecution of a federal crime.
Determining temporary or indefinite. You must deter-
mine whether your assignment is temporary or indefinite
when you start work. If you expect an assignment or job to
last for 1 year or less, it is temporary unless there are facts
and circumstances that indicate otherwise. An assignment
or job that is initially temporary may become indefinite due
CAUTION
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to changed circumstances. A series of assignments to the
same location, all for short periods but that together cover
a long period, may be considered an indefinite assign-
ment.
The following examples illustrate whether an assign-
ment or job is temporary or indefinite.
Example 1. You are a construction worker. You live
and regularly work in Los Angeles. You are a member of a
trade union in Los Angeles that helps you get work in the
Los Angeles area. Your tax home is Los Angeles. Be-
cause of a shortage of work, you took a job on a construc-
tion project in Fresno. Your job was scheduled to end in 8
months. The job actually lasted 10 months.
You realistically expected the job in Fresno to last 8
months. The job actually did last less than 1 year. The job
is temporary and your tax home is still in Los Angeles.
Example 2. The facts are the same as in Example 1,
except that you realistically expected the work in Fresno to
last 18 months. The job was actually completed in 10
months.
Your job in Fresno is indefinite because you realistically
expected the work to last longer than 1 year, even though
it actually lasted less than 1 year. You can’t deduct any
travel expenses you had in Fresno because Fresno be-
came your tax home.
Example 3. The facts are the same as in Example 1,
except that you realistically expected the work in Fresno to
last 9 months. After 8 months, however, you were asked to
remain for 7 more months (for a total actual stay of 15
months).
Initially, you realistically expected the job in Fresno to
last for only 9 months. However, due to changed circum-
stances occurring after 8 months, it was no longer realistic
for you to expect that the job in Fresno would last for 1
year or less. You can deduct only your travel expenses for
the first 8 months. You can’t deduct any travel expenses
you had after that time because Fresno became your tax
home when the job became indefinite.
Going home on days off. If you go back to your tax
home from a temporary assignment on your days off, you
aren’t considered away from home while you are in your
hometown. You can’t deduct the cost of your meals and
lodging there. However, you can deduct your travel expen-
ses, including meals and lodging, while traveling between
your temporary place of work and your tax home. You can
claim these expenses up to the amount it would have cost
you to stay at your temporary place of work.
If you keep your hotel room during your visit home, you
can deduct the cost of your hotel room. In addition, you
can deduct your expenses of returning home up to the
amount you would have spent for meals had you stayed at
your temporary place of work.
Probationary work period. If you take a job that re-
quires you to move, with the understanding that you will
keep the job if your work is satisfactory during a probation-
ary period, the job is indefinite. You can’t deduct any of
your expenses for meals and lodging during the probation-
ary period.
What Travel Expenses Are
Deductible?
Once you have determined that you are traveling away
from your tax home, you can determine what travel expen-
ses are deductible.
You can deduct ordinary and necessary expenses you
have when you travel away from home on business. The
type of expense you can deduct depends on the facts and
your circumstances.
Table 1-1 summarizes travel expenses you may be able
to deduct. You may have other deductible travel expenses
that aren’t covered there, depending on the facts and your
circumstances.
When you travel away from home on business,
you must keep records of all the expenses you
have and any advances you receive from your
employer. You can use a log, diary, notebook, or any other
written record to keep track of your expenses. The types
of expenses you need to record, along with supporting
documentation, are described in Table 5-1 (see chap-
ter 5).
Separating costs. If you have one expense that includes
the costs of non-entertainment-related meals, entertain-
ment, and other services (such as lodging or transporta-
tion), you must allocate that expense between the cost of
non-entertainment-related meals, and entertainment and
the cost of other services. You must have a reasonable
basis for making this allocation. For example, you must al-
locate your expenses if a hotel includes one or more
meals in its room charge.
Travel expenses for another individual. If a spouse,
dependent, or other individual goes with you (or your em-
ployee) on a business trip or to a business convention,
you generally can’t deduct their travel expenses.
Employee. You can deduct the travel expenses of
someone who goes with you if that person:
1. Is your employee,
2. Has a bona fide business purpose for the travel, and
3. Would otherwise be allowed to deduct the travel ex-
penses.
Business associate. If a business associate travels
with you and meets the conditions in (2) and (3) above,
you can deduct the travel expenses you have for that per-
son. A business associate is someone with whom you
could reasonably expect to actively conduct business. A
business associate can be a current or prospective (likely
to become) customer, client, supplier, employee, agent,
partner, or professional advisor.
RECORDS
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Table 1-1. Travel Expenses You Can Deduct
This chart summarizes expenses you can deduct when you travel away from home for business purposes
IF you have expenses for... THEN you can deduct the cost of...
transportation travel by airplane, train, bus, or car between your home and your business destination. If you were provided
with a free ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. If
you travel by ship, see Luxury Water Travel and Cruise Ships under Conventions, later, for additional rules and
limits.
taxi, commuter bus, and
airport limousine
fares for these and other types of transportation that take you between:
•
The airport or station and your hotel; and
•
The hotel and the work location of your customers or clients, your business meeting place, or your
temporary work location.
baggage and shipping sending baggage and sample or display material between your regular and temporary work locations.
car operating and maintaining your car when traveling away from home on business. You can deduct actual
expenses or the standard mileage rate, as well as business-related tolls and parking. If you rent a car while
away from home on business, you can deduct only the business-use portion of the expenses.
lodging and meals your lodging and non-entertainment-related meals if your business trip is overnight or long enough that you
need to stop for sleep or rest to properly perform your duties. Meals include amounts spent for food,
beverages, taxes, and related tips. See Meals, later, for additional rules and limits.
cleaning dry cleaning and laundry.
telephone business calls while on your business trip. This includes business communication by fax machine or other
communication devices.
tips tips you pay for any expenses in this chart.
other other similar ordinary and necessary expenses related to your business travel. These expenses might include
transportation to or from a business meal, public stenographer's fees, computer rental fees, and operating
and maintaining a house trailer.
Bona fide business purpose. A bona fide business
purpose exists if you can prove a real business purpose
for the individual's presence. Incidental services, such as
typing notes or assisting in entertaining customers, aren’t
enough to make the expenses deductible.
Example. You drive to Chicago on business and take
your spouse with you. Your spouse isn’t your employee.
Your spouse occasionally types notes, performs similar
services, and accompanies you to luncheons and dinners.
The performance of these services doesn’t establish that
your spouse’s presence on the trip is necessary to the
conduct of your business. Your spouse’s expenses aren’t
deductible.
You pay $199 a day for a double room. A single room
costs $149 a day. You can deduct the total cost of driving
your car to and from Chicago, but only $149 a day for your
hotel room. If both you and your spouse use public trans-
portation, you can only deduct your fare.
Meals
You can deduct a portion of the cost of meals if it is neces-
sary for you to stop for substantial sleep or rest to properly
perform your duties while traveling away from home on
business. Meal and entertainment expenses are dis-
cussed in chapter 2.
Lavish or extravagant. You can't deduct expenses for
meals that are lavish or extravagant. An expense isn't con-
sidered lavish or extravagant if it is reasonable based on
the facts and circumstances. Meal expenses won't be dis-
allowed merely because they are more than a fixed dollar
amount or because the meals take place at deluxe restau-
rants, hotels, or resorts.
50% limit on meals. You can figure your meal expenses
using either of the following methods.
•
Actual cost.
•
The standard meal allowance.
Both of these methods are explained below. But, regard-
less of the method you use, you can generally deduct only
50% of the unreimbursed cost of your meals.
If you are reimbursed for the cost of your meals, how
you apply the 50% limit depends on whether your employ-
er's reimbursement plan was accountable or nonaccount-
able. If you aren’t reimbursed, the 50% limit applies even if
the unreimbursed meal expense is for business travel.
Chapter 2 discusses the 50% Limit in more detail, and
chapter 6 discusses accountable and nonaccountable
plans.
Actual Cost
You can use the actual cost of your meals to figure the
amount of your expense before reimbursement and appli-
cation of the 50% deduction limit. If you use this method,
you must keep records of your actual cost.
Standard Meal Allowance
Generally, you can use the “standard meal allowance”
method as an alternative to the actual cost method. It al-
lows you to use a set amount for your daily meals and inci-
dental expenses (M&IE), instead of keeping records of
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your actual costs. The set amount varies depending on
where and when you travel. In this publication, “standard
meal allowance” refers to the federal rate for M&IE, dis-
cussed later under Amount of standard meal allowance. If
you use the standard meal allowance, you must still keep
records to prove the time, place, and business purpose of
your travel. See the recordkeeping rules for travel in chap-
ter 5.
Incidental expenses. The term “incidental expenses”
means fees and tips given to porters, baggage carriers,
hotel staff, and staff on ships.
Incidental expenses don’t include expenses for laundry,
cleaning and pressing of clothing, lodging taxes, costs of
telegrams or telephone calls, transportation between pla-
ces of lodging or business and places where meals are
taken, or the mailing cost of filing travel vouchers and pay-
ing employer-sponsored charge card billings.
Incidental-expenses-only method. You can use an op-
tional method (instead of actual cost) for deducting inci-
dental expenses only. The amount of the deduction is $5 a
day. You can use this method only if you didn’t pay or incur
any meal expenses. You can’t use this method on any day
that you use the standard meal allowance. This method is
subject to the proration rules for partial days. See Travel
for days you depart and return, later, in this chapter.
Note. The incidental-expenses-only method isn’t sub-
ject to the 50% limit discussed below.
Federal employees should refer to the Federal
Travel Regulations (FTR) at eCFR.gov for
changes affecting claims for reimbursement.
50% limit may apply. If you use the standard meal allow-
ance method for non-entertainment-related meal expen-
ses and you aren’t reimbursed or you are reimbursed un-
der a nonaccountable plan, you can generally deduct only
50% of the standard meal allowance. If you are reim-
bursed under an accountable plan and you are deducting
amounts that are more than your reimbursements, you
can deduct only 50% of the excess amount. The 50%
Limit is discussed in more detail in chapter 2, and ac-
countable and nonaccountable plans are discussed in
chapter 6.
There is no optional standard lodging amount
similar to the standard meal allowance. Your al-
lowable lodging expense deduction is your actual
cost.
Who can use the standard meal allowance. You can
use the standard meal allowance whether you are an em-
ployee or self-employed, and whether or not you are reim-
bursed for your traveling expenses.
Use of the standard meal allowance for other travel.
You can use the standard meal allowance to figure your
meal expenses when you travel in connection with invest-
ment and other income-producing property. You can also
use it to figure your meal expenses when you travel for
qualifying educational purposes. You can’t use the stand-
CAUTION
!
CAUTION
!
ard meal allowance to figure the cost of your meals when
you travel for medical or charitable purposes.
Amount of standard meal allowance. The standard
meal allowance is the federal M&IE rate. For travel in
2023, the rate for most small localities in the United States
is $59 per day.
Most major cities and many other localities in the Uni-
ted States are designated as high-cost areas, qualifying
for higher standard meal allowances.
You can find this information (organized by state)
at GSA.gov/travel/plan-book/per-diem-rates. En-
ter a zip code or select a city and state for the per
diem rates for the current fiscal year. Per diem rates for
prior fiscal years are available by using the drop-down
menu.
If you travel to more than one location in one day, use
the rate in effect for the area where you stop for sleep or
rest. If you work in the transportation industry, however,
see Special rate for transportation workers, later.
Federal government's fiscal year. Per diem rates are
listed by the federal government's fiscal year, which runs
from October 1 to September 30. You can choose to use
the rates from the 2022 fiscal year per diem tables or the
rates from the 2023 fiscal year tables, but you must con-
sistently use the same tables for all travel you are report-
ing on your income tax return for the year. See Transition
Rules, later.
Standard meal allowance for areas outside the
continental United States. The standard meal allow-
ance rates above don’t apply to travel in Alaska, Hawaii, or
any other location outside the continental United States.
The Department of Defense establishes per diem rates for
Alaska, Hawaii, Puerto Rico, American Samoa, Guam,
Midway, the Northern Mariana Islands, the U.S. Virgin Is-
lands, Wake Island, and other non-foreign areas outside
the continental United States. The Department of State
establishes per diem rates for all other foreign areas.
You can access per diem rates for non-foreign
areas outside the continental United States at
Travel.dod.mil/Travel-Transportation-Rates/Per-
Diem/Per-Diem-Rate-Lookup/. You can access all other
foreign per diem rates at aoprals.state.gov/web920/
per_diem.asp.
Special rate for transportation workers. You can
use a special standard meal allowance if you work in the
transportation industry. You are in the transportation in-
dustry if your work:
•
Directly involves moving people or goods by airplane,
barge, bus, ship, train, or truck; and
•
Regularly requires you to travel away from home and,
during any single trip, usually involves travel to areas
eligible for different standard meal allowance rates.
If this applies, you can claim a standard meal allowance of
$69 a day ($74 for travel outside the continental United
States) for travel in 2023.
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Using the special rate for transportation workers elimi-
nates the need for you to determine the standard meal al-
lowance for every area where you stop for sleep or rest. If
you choose to use the special rate for any trip, you must
use the special rate (and not use the regular standard
meal allowance rates) for all trips you take that year.
Travel for days you depart and return. For both the
day you depart for and the day you return from a business
trip, you must prorate the standard meal allowance (figure
a reduced amount for each day). You can do so by one of
two methods.
•
Method 1: You can claim
3
/4 of the standard meal al-
lowance.
•
Method 2: You can prorate using any method that you
consistently apply and that is in accordance with rea-
sonable business practice.
Example. You are employed in New Orleans as a con-
vention planner. In March, your employer sent you on a
3-day trip to Washington, DC, to attend a planning semi-
nar. You left your home in New Orleans at 10 a.m. on
Wednesday and arrived in Washington, DC, at 5:30 p.m.
After spending 2 nights there, you flew back to New Or-
leans on Friday and arrived back home at 8 p.m. Your em-
ployer gave you a flat amount to cover your expenses and
included it with your wages.
Under Method 1, you can claim 2
1
/2 days of the stand-
ard meal allowance for Washington, DC:
3
/4 of the daily
rate for Wednesday and Friday (the days you departed
and returned), and the full daily rate for Thursday.
Under Method 2, you could also use any method that
you apply consistently and that is in accordance with rea-
sonable business practice. For example, you could claim 3
days of the standard meal allowance even though a fed-
eral employee would have to use Method 1 and be limited
to only 2
1
/2 days.
Travel in the United States
The following discussion applies to travel in the United
States. For this purpose, the United States includes the 50
states and the District of Columbia. The treatment of your
travel expenses depends on how much of your trip was
business related and on how much of your trip occurred
within the United States. See Part of Trip Outside the Uni-
ted States, later.
Trip Primarily for Business
You can deduct all of your travel expenses if your trip was
entirely business related. If your trip was primarily for busi-
ness and, while at your business destination, you exten-
ded your stay for a vacation, made a personal side trip, or
had other personal activities, you can deduct only your
business-related travel expenses. These expenses in-
clude the travel costs of getting to and from your business
destination and any business-related expenses at your
business destination.
Example. You work in Atlanta and take a business trip
to New Orleans in May. Your business travel totals 900
miles round trip. On your way home, you stop in Mobile to
visit your parents. You spend $2,165 for the 9 days you are
away from home for travel, non-entertainment-related
meals, lodging, and other travel expenses. If you hadn’t
stopped in Mobile, you would have been gone only 6
days, and your total cost would have been $1,633.50. You
can deduct $1,633.50 for your trip, including the cost of
round-trip transportation to and from New Orleans. The
deduction for your non-entertainment-related meals is
subject to the 50% limit on meals mentioned earlier.
Trip Primarily for
Personal Reasons
If your trip was primarily for personal reasons, such as a
vacation, the entire cost of the trip is a nondeductible per-
sonal expense. However, you can deduct any expenses
you have while at your destination that are directly related
to your business.
A trip to a resort or on a cruise ship may be a vacation
even if the promoter advertises that it is primarily for busi-
ness. The scheduling of incidental business activities dur-
ing a trip, such as viewing videotapes or attending lec-
tures dealing with general subjects, won’t change what is
really a vacation into a business trip.
Part of Trip Outside
the United States
If part of your trip is outside the United States, use the
rules described later in this chapter under Travel Outside
the United States for that part of the trip. For the part of
your trip that is inside the United States, use the rules for
travel in the United States. Travel outside the United
States doesn’t include travel from one point in the United
States to another point in the United States. The following
discussion can help you determine whether your trip was
entirely within the United States.
Public transportation. If you travel by public transporta-
tion, any place in the United States where that vehicle
makes a scheduled stop is a point in the United States.
Once the vehicle leaves the last scheduled stop in the
United States on its way to a point outside the United
States, you apply the rules under Travel Outside the Uni-
ted States, later.
Example. You fly from New York to Puerto Rico with a
scheduled stop in Miami. Puerto Rico isn’t considered part
of the United States for purposes of travel. You return to
New York nonstop. The flight from New York to Miami is in
the United States, so only the flight from Miami to Puerto
Rico is outside the United States. Because there are no
scheduled stops between Puerto Rico and New York, all
of the return trip is outside the United States.
Private car. Travel by private car in the United States is
travel between points in the United States, even though
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you are on your way to a destination outside the United
States.
Example. You travel by car from Denver to Mexico City
and return. Your travel from Denver to the border and from
the border back to Denver is travel in the United States,
and the rules in this section apply. The rules below under
Travel Outside the United States apply to your trip from the
border to Mexico City and back to the border.
Travel Outside
the United States
If any part of your business travel is outside the United
States, some of your deductions for the cost of getting to
and from your destination may be limited. For this pur-
pose, the United States includes the 50 states and the
District of Columbia.
How much of your travel expenses you can deduct de-
pends in part upon how much of your trip outside the Uni-
ted States was business related.
Travel Entirely for Business or
Considered Entirely for Business
You can deduct all your travel expenses of getting to and
from your business destination if your trip is entirely for
business or considered entirely for business.
Travel entirely for business. If you travel outside the
United States and you spend the entire time on business
activities, you can deduct all of your travel expenses.
Travel considered entirely for business. Even if you
didn’t spend your entire time on business activities, your
trip is considered entirely for business if you meet at least
one of the following four exceptions.
Exception 1—No substantial control. Your trip is
considered entirely for business if you didn’t have sub-
stantial control over arranging the trip. The fact that you
control the timing of your trip doesn’t, by itself, mean that
you have substantial control over arranging your trip.
You don’t have substantial control over your trip if you:
•
Are an employee who was reimbursed or paid a travel
expense allowance, and
•
Aren’t related to your employer, or
•
Aren’t a managing executive.
“Related to your employer” is defined later in chapter 6
under Per Diem and Car Allowances.
A “managing executive” is an employee who has the
authority and responsibility, without being subject to the
veto of another, to decide on the need for the business
travel.
A self-employed person generally has substantial con-
trol over arranging business trips.
Exception 2—Outside United States no more than
a week. Your trip is considered entirely for business if you
were outside the United States for a week or less,
combining business and nonbusiness activities. One
week means 7 consecutive days. In counting the days,
don’t count the day you leave the United States, but do
count the day you return to the United States.
Example. You traveled to Brussels primarily for busi-
ness. You left Denver on Tuesday and flew to New York.
On Wednesday, you flew from New York to Brussels, arriv-
ing the next morning. On Thursday and Friday, you had
business discussions, and from Saturday until Tuesday,
you were sightseeing. You flew back to New York, arriving
Wednesday afternoon. On Thursday, you flew back to
Denver.
Although you were away from your home in Denver for
more than a week, you weren’t outside the United States
for more than a week. This is because the day you depart
doesn’t count as a day outside the United States.
You can deduct your cost of the round-trip flight be-
tween Denver and Brussels. You can also deduct the cost
of your stay in Brussels for Thursday and Friday while you
conducted business. However, you can’t deduct the cost
of your stay in Brussels from Saturday through Tuesday
because those days were spent on nonbusiness activities.
Exception 3—Less than 25% of time on personal
activities. Your trip is considered entirely for business if:
•
You were outside the United States for more than a
week, and
•
You spent less than 25% of the total time you were
outside the United States on nonbusiness activities.
For this purpose, count both the day your trip began and
the day it ended.
Example. You flew from Seattle to Tokyo, where you
spent 14 days on business and 5 days on personal mat-
ters. You then flew back to Seattle. You spent 1 day flying
in each direction.
Because only
5
/21 (less than 25%) of your total time
abroad was for nonbusiness activities, you can deduct as
travel expenses what it would have cost you to make the
trip if you hadn’t engaged in any nonbusiness activity. The
amount you can deduct is the cost of the round-trip plane
fare and 16 days of non-entertainment-related meals (sub-
ject to the 50% Limit), lodging, and other related expen-
ses.
Exception 4—Vacation not a major consideration.
Your trip is considered entirely for business if you can es-
tablish that a personal vacation wasn’t a major considera-
tion, even if you have substantial control over arranging
the trip.
Travel Primarily for Business
If you travel outside the United States primarily for busi-
ness but spend some of your time on other activities, you
generally can’t deduct all of your travel expenses. You can
only deduct the business portion of your cost of getting to
and from your destination. You must allocate the costs be-
tween your business and other activities to determine your
deductible amount. See Travel allocation rules, later.
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You don’t have to allocate your travel expenses if
you meet one of the four exceptions listed earlier
under Travel considered entirely for business. In
those cases, you can deduct the total cost of getting to
and from your destination.
Travel allocation rules. If your trip outside the United
States was primarily for business, you must allocate your
travel time on a day-to-day basis between business days
and nonbusiness days. The days you depart from and re-
turn to the United States are both counted as days outside
the United States.
To figure the deductible amount of your round-trip travel
expenses, use the following fraction. The numerator (top
number) is the total number of business days outside the
United States. The denominator (bottom number) is the
total number of business and nonbusiness days of travel.
Counting business days. Your business days include
transportation days, days your presence was required,
days you spent on business, and certain weekends and
holidays.
Transportation day. Count as a business day any day
you spend traveling to or from a business destination.
However, if because of a nonbusiness activity you don’t
travel by a direct route, your business days are the days it
would take you to travel a reasonably direct route to your
business destination. Extra days for side trips or nonbusi-
ness activities can’t be counted as business days.
Presence required. Count as a business day any day
your presence is required at a particular place for a spe-
cific business purpose. Count it as a business day even if
you spend most of the day on nonbusiness activities.
Day spent on business. If your principal activity dur-
ing working hours is the pursuit of your trade or business,
count the day as a business day. Also, count as a busi-
ness day any day you are prevented from working be-
cause of circumstances beyond your control.
Certain weekends and holidays. Count weekends,
holidays, and other necessary standby days as business
days if they fall between business days. But if they follow
your business meetings or activity and you remain at your
business destination for nonbusiness or personal reasons,
don’t count them as business days.
Example 1. Your tax home is New York City. You travel
to Quebec, where you have a business meeting on Friday.
You have another meeting on the following Monday. Be-
cause your presence was required on both Friday and
Monday, they are business days. Because the weekend is
between business days, Saturday and Sunday are coun-
ted as business days. This is true even though you use the
weekend for sightseeing, visiting friends, or other nonbusi-
ness activity.
Example 2. If, in Example 1, you had no business in
Quebec after Friday, but stayed until Monday before start-
ing home, Saturday and Sunday would be nonbusiness
days.
TIP
Nonbusiness activity on the way to or from your
business destination. If you stopped for a vacation or
other nonbusiness activity either on the way from the Uni-
ted States to your business destination, or on the way
back to the United States from your business destination,
you must allocate part of your travel expenses to the non-
business activity.
The part you must allocate is the amount it would have
cost you to travel between the point where travel outside
the United States begins and your nonbusiness destina-
tion and a return to the point where travel outside the Uni-
ted States ends.
You determine the nonbusiness portion of that expense
by multiplying it by a fraction. The numerator (top number)
of the fraction is the number of nonbusiness days during
your travel outside the United States, and the denominator
(bottom number) is the total number of days you spend
outside the United States.
Example. You live in New York. On May 4, you flew to
Paris to attend a business conference that began on May
5. The conference ended at noon on May 14. That eve-
ning, you flew to Dublin where you visited with friends until
the afternoon of May 21, when you flew directly home to
New York. The primary purpose for the trip was to attend
the conference.
If you hadn’t stopped in Dublin, you would have arrived
home the evening of May 14. You don’t meet any of the
exceptions that would allow you to consider your travel en-
tirely for business. May 4 through May 14 (11 days) are
business days and May 15 through May 21 (7 days) are
nonbusiness days.
You can deduct the cost of your non-entertainment-re-
lated meals (subject to the 50% Limit), lodging, and other
business-related travel expenses while in Paris.
You can’t deduct your expenses while in Dublin. You
also can’t deduct
7
/18 of what it would have cost you to
travel round trip between New York and Dublin.
You paid $750 to fly from New York to Paris, $400 to fly
from Paris to Dublin, and $700 to fly from Dublin back to
New York. Round-trip airfare from New York to Dublin
would have been $1,250.
You figure the deductible part of your air travel expen-
ses by subtracting
7
/18 of the round-trip airfare and other
expenses you would have had in traveling directly be-
tween New York and Dublin ($1,250 ×
7
/18 = $486) from
your total expenses in traveling from New York to Paris to
Dublin and back to New York ($750 + $400 + $700 =
$1,850).
Your deductible air travel expense is $1,364 ($1,850 −
$486).
Nonbusiness activity at, near, or beyond business
destination. If you had a vacation or other nonbusiness
activity at, near, or beyond your business destination, you
must allocate part of your travel expenses to the nonbusi-
ness activity.
The part you must allocate is the amount it would have
cost you to travel between the point where travel outside
the United States begins and your business destination
and a return to the point where travel outside the United
States ends.
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You determine the nonbusiness portion of that expense
by multiplying it by a fraction. The numerator (top number)
of the fraction is the number of nonbusiness days during
your travel outside the United States, and the denominator
(bottom number) is the total number of days you spend
outside the United States.
None of your travel expenses for nonbusiness activities
at, near, or beyond your business destination are deducti-
ble.
Example. Assume that the dates are the same as in
the previous example but that instead of going to Dublin
for your vacation, you fly to Venice, Italy, for a vacation.
You can’t deduct any part of the cost of your trip from
Paris to Venice and return to Paris. In addition, you can’t
deduct
7
/18 of the airfare and other expenses from New
York to Paris and back to New York.
You can deduct
11
/18 of the round-trip plane fare and
other travel expenses from New York to Paris, plus your
non-entertainment-related meals (subject to the 50%
Limit), lodging, and any other business expenses you had
in Paris. (Assume these expenses total $4,939.) If the
round-trip plane fare and other travel-related expenses
(such as food during the trip) are $1,750, you can deduct
travel costs of $1,069 (
11
/18 × $1,750), plus the full $4,939
for the expenses you had in Paris.
Other methods. You can use another method of count-
ing business days if you establish that it more clearly re-
flects the time spent on other than business activities out-
side the United States.
Travel Primarily for Personal Reasons
If you travel outside the United States primarily for vaca-
tion or for investment purposes, the entire cost of the trip is
a nondeductible personal expense. However, if you spend
some time attending brief professional seminars or a con-
tinuing education program, you can deduct your registra-
tion fees and other expenses you have that are directly re-
lated to your business.
Example. The university from which you graduated
has a continuing education program for members of its
alumni association. This program consists of trips to vari-
ous foreign countries where academic exercises and con-
ferences are set up to acquaint individuals in most occu-
pations with selected facilities in several regions of the
world. However, none of the conferences are directed to-
ward specific occupations or professions. It is up to each
participant to seek out specialists and organizational set-
tings appropriate to their occupational interests.
Three-hour sessions are held each day over a 5-day
period at each of the selected overseas facilities where
participants can meet with individual practitioners. These
sessions are composed of a variety of activities including
workshops, mini-lectures, roleplaying, skill development,
and exercises. Professional conference directors sched-
ule and conduct the sessions. Participants can choose
those sessions they wish to attend.
You can participate in this program because you are a
member of the alumni association. You and your family
take one of the trips. You spend about 2 hours at each of
the planned sessions. The rest of the time you go touring
and sightseeing with your family. The trip lasts less than 1
week.
Your travel expenses for the trip aren’t deductible since
the trip was primarily a vacation. However, registration
fees and any other incidental expenses you have for the
five planned sessions you attended that are directly rela-
ted and beneficial to your business are deductible busi-
ness expenses. These expenses should be specifically
stated in your records to ensure proper allocation of your
deductible business expenses.
Luxury Water Travel
If you travel by ocean liner, cruise ship, or other form of
luxury water transportation for business purposes, there is
a daily limit on the amount you can deduct. The limit is
twice the highest federal per diem rate allowable at the
time of your travel. (Generally, the federal per diem is the
amount paid to federal government employees for daily
living expenses when they travel away from home within
the United States for business purposes.)
Daily limit on luxury water travel. The highest federal
per diem rate allowed and the daily limit for luxury water
travel in 2023 are shown in the following table.
. .
2023 Dates
Highest Federal
Per Diem
Daily Limit on Luxury
Water Travel
January 1 – March 31 $564 $1,128
April 1 – April 30 498 996
May 1– May 31 398 796
June 1 – September 30 538 1,076
October 1 – October 31 401 802
November 1 – November 30 394 788
December 1 – December
31
564 1,128
Example. You are a travel agent and traveled by ocean
liner from New York to London, England, on business in
May. Your expense for the 6-day cruise was $6,200. Your
deduction for the cruise can’t exceed $4,776 (6 days ×
$796 daily limit).
Meals and entertainment. If your expenses for luxury
water travel include separately stated amounts for meals
or entertainment, those amounts are subject to the 50%
limit on non-entertainment-related meals and entertain-
ment before you apply the daily limit. For a discussion of
the 50% Limit, see chapter 2.
Example. In the previous example, your luxury water
travel had a total cost of $6,200. Of that amount, $3,700
was separately stated as non-entertainment-related meals
and $1,000 was separately stated as entertainment. Con-
sidering that you are self-employed, you aren’t reimbursed
for any of your travel expenses. You figure your deductible
travel expenses as follows.
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Entertainment ...................... $1,000
0% limit ......................... x 0.00
Allowable entertainment ................ $0.00
Non-entertainment-related meals .......... $3,700
50% limit ........................ × 0.50
Allowable non-entertainment meals &
entertainment ...................... $1,850
Other travel expenses ................ + 1,500
Allowable cost before the daily limit ............... $3,350
Daily limit for May 2023 ................ $796
Times number of days ................ × 6
Maximum luxury water travel ......
deduction .............................. $4,776
Amount of allowable deduction ................ $3,350
Your deduction for your cruise is limited to $3,350, even
though the limit on luxury water travel is higher.
Not separately stated. If your meal or entertainment
charges aren’t separately stated or aren’t clearly identifia-
ble, you don’t have to allocate any portion of the total
charge to meals or entertainment.
Exceptions
The daily limit on luxury water travel (discussed earlier)
doesn’t apply to expenses you have to attend a conven-
tion, seminar, or meeting on board a cruise ship. See
Cruise Ships, later, under Conventions.
Conventions
You can deduct your travel expenses when you attend a
convention if you can show that your attendance benefits
your trade or business. You can’t deduct the travel expen-
ses for your family.
If the convention is for investment, political, social, or
other purposes unrelated to your trade or business, you
can’t deduct the expenses.
Your appointment or election as a delegate
doesn’t, in itself, determine whether you can de-
duct travel expenses. You can deduct your travel
expenses only if your attendance is connected to your
own trade or business.
Convention agenda. The convention agenda or program
generally shows the purpose of the convention. You can
show your attendance at the convention benefits your
trade or business by comparing the agenda with the offi-
cial duties and responsibilities of your position. The
agenda doesn’t have to deal specifically with your official
duties and responsibilities; it will be enough if the agenda
is so related to your position that it shows your attendance
was for business purposes.
CAUTION
!
Conventions Held Outside
the North American Area
You can’t deduct expenses for attending a convention,
seminar, or similar meeting held outside the North Ameri-
can area unless:
•
The meeting is directly related to the active conduct of
your trade or business, and
•
It is as reasonable to hold the meeting outside the
North American area as within the North American
area. See Reasonableness test, later.
If the meeting meets these requirements, you must also
satisfy the rules for deducting expenses for business trips
in general, discussed earlier under Travel Outside the Uni-
ted States.
North American area. The North American area in-
cludes the following locations.
American Samoa Jarvis Island
Antigua and Barbuda Johnston Island
Aruba Kingman Reef
Bahamas Marshall Islands
Baker Island Mexico
Barbados Micronesia
Bermuda Midway Islands
Canada Northern Mariana
Costa Rica Islands
Curaçao Palau
Dominica Palmyra Atoll
Dominican Republic Panama
Grenada Puerto Rico
Guam Saint Lucia
Guyana Trinidad and Tobago
Honduras USA
Howland Island U.S. Virgin Islands
Jamaica Wake Island
The North American area also includes U.S. islands, cays,
and reefs that are territories of the United States and not
part of the 50 states or the District of Columbia. See Reve-
nue Ruling 2016-16, available at IRS.gov/irb/
2016-26_IRB#RR-2016-16, for more information.
Reasonableness test. The following factors are taken
into account to determine if it was as reasonable to hold
the meeting outside the North American area as within the
North American area.
•
The purpose of the meeting and the activities taking
place at the meeting.
•
The purposes and activities of the sponsoring organi-
zations or groups.
•
The homes of the active members of the sponsoring
organizations and the places at which other meetings
of the sponsoring organizations or groups have been
or will be held.
•
Other relevant factors you may present.
Cruise Ships
You can deduct up to $2,000 per year of your expenses of
attending conventions, seminars, or similar meetings held
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on cruise ships. All ships that sail are considered cruise
ships.
You can deduct these expenses only if all of the follow-
ing requirements are met.
1. The convention, seminar, or meeting is directly related
to the active conduct of your trade or business.
2. The cruise ship is a vessel registered in the United
States.
3. All of the cruise ship's ports of call are in the United
States or in territories of the United States.
4. You attach to your return a written statement signed
by you that includes information about:
a. The total days of the trip (not including the days of
transportation to and from the cruise ship port),
b. The number of hours each day that you devoted to
scheduled business activities, and
c. A program of the scheduled business activities of
the meeting.
5. You attach to your return a written statement signed
by an officer of the organization or group sponsoring
the meeting that includes:
a. A schedule of the business activities of each day
of the meeting, and
b. The number of hours you attended the scheduled
business activities.
2.
Meals and Entertainment
You can no longer take a deduction for any expense rela-
ted to activities generally considered entertainment,
amusement, or recreation. You can continue to deduct
50% of the cost of business meals if you (or your em-
ployee) are present and the food or beverages aren't con-
sidered lavish or extravagant.
If food or beverages are provided during or at an
entertainment event, and the food and beverages
were purchased separately from the entertain-
ment or the cost of the food and beverages was stated
separately from the cost of the entertainment on one or
more bills, invoices, or receipts, you may be able to deduct
the separately stated costs as a meal expense. For more
information, see Regulations section 1.274-11(d)(2), Ex-
ample 2.
TIP
Entertainment
Entertainment—Defined
Entertainment includes any activity generally considered
to provide entertainment, amusement, or recreation. Ex-
amples include entertaining guests at nightclubs; at so-
cial, athletic, and sporting clubs; at theaters; at sporting
events; on yachts; or on hunting, fishing, vacation, and
similar trips. Entertainment may also include meeting per-
sonal, living, or family needs of individuals, such as pro-
viding meals, a hotel suite, or a car to customers or their
families.
Deduction may depend on your type of business.
Your kind of business may determine if a particular activity
is considered entertainment. For example, if you are a
dress designer and have a fashion show to introduce your
new designs to store buyers, the show generally isn’t con-
sidered entertainment. This is because fashion shows are
typical in your business. But, if you are an appliance dis-
tributor and hold a fashion show for the spouses of your
retailers, the show is generally considered entertainment.
Separating costs. If you have one expense that in-
cludes the costs of entertainment and other services
(such as lodging or transportation), you must allocate that
expense between the cost of entertainment and the cost
of other services. You must have a reasonable basis for
making this allocation. For example, you must allocate
your expenses if a hotel includes entertainment in its
lounge on the same bill with your room charge.
Exceptions to the Rules
In general, entertainment expenses are nondeductible.
However, there are a few exceptions to the general rule,
including:
•
Entertainment treated as compensation on your origi-
nally filed tax returns (and treated as wages to your
employees);
•
Recreational expenses for employees such as a holi-
day party or a summer picnic;
•
Expenses related to attending business meetings or
conventions of certain exempt organizations such as
business leagues, chambers of commerce, professio-
nal associations, etc.; and
•
Entertainment sold to customers. For example, if you
run a nightclub, your expenses for the entertainment
you furnish to your customers, such as a floor show,
aren’t subject to the nondeductible rules.
Examples of Nondeductible Entertainment
Entertainment events. Generally, you can't deduct any
expense for an entertainment event. This includes expen-
ses for entertaining guests at nightclubs; at social, athletic,
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and sporting clubs; at theaters; at sporting events; on
yachts; or on hunting, fishing, vacation, and similar trips.
Entertainment facilities. Generally, you can’t deduct
any expense for the use of an entertainment facility. This
includes expenses for depreciation and operating costs
such as rent, utilities, maintenance, and protection.
An entertainment facility is any property you own, rent,
or use for entertainment. Examples include a yacht, hunt-
ing lodge, fishing camp, swimming pool, tennis court,
bowling alley, car, airplane, apartment, hotel suite, or
home in a vacation resort.
Club dues and membership fees. You can’t deduct
dues (including initiation fees) for membership in any club
organized for business, pleasure, recreation, or other so-
cial purposes.
This rule applies to any membership organization if one
of its principal purposes is either:
•
To conduct entertainment activities for members or
their guests; or
•
To provide members or their guests with access to en-
tertainment facilities, discussed later.
The purposes and activities of a club, not its name, will
determine whether or not you can deduct the dues. You
can’t deduct dues paid to:
•
Country clubs,
•
Golf and athletic clubs,
•
Airline clubs,
•
Hotel clubs, and
•
Clubs operated to provide meals under circumstances
generally considered to be conducive to business dis-
cussions.
Gift or entertainment. Any item that might be consid-
ered either a gift or entertainment will generally be consid-
ered entertainment. However, if you give a customer pack-
aged food or beverages that you intend the customer to
use at a later date, treat it as a gift.
Meals
As discussed above, entertainment expenses are gener-
ally nondeductible. However, you may continue to deduct
50% of the cost of business meals if you (or an employee)
is present and the food or beverages are not considered
lavish or extravagant. The meals may be provided to a cur-
rent or potential business customer, client, consultant, or
similar business contact.
Food and beverages that are provided during entertain-
ment events are not considered entertainment if pur-
chased separately from the entertainment, or if the cost of
the food and beverages is stated separately from the cost
of the entertainment on one or more bills, invoices, or re-
ceipts. However, the entertainment disallowance rule may
not be circumvented through inflating the amount charged
for food and beverages.
Other rules for meals and entertainment expenses.
Any allowed expense must be ordinary and necessary. An
ordinary expense is one that is common and accepted in
your trade or business. A necessary expense is one that is
helpful and appropriate for your business. An expense
doesn't have to be required to be considered necessary.
Expenses must not be lavish or extravagant. An expense
isn't considered lavish or extravagant if it is reasonable
based on the facts and circumstances.
Examples. For each example, assume that the food and
beverage expenses are ordinary and necessary expenses
under section 162(a) paid or incurred during the tax year
in carrying on a trade or business and are not lavish or ex-
travagant under the circumstances. Also assume that the
taxpayer and the business contact are not engaged in a
trade or business that has any relation to the entertain-
ment activity.
Example 1. Taxpayer A invites B, a business contact,
to a baseball game. A purchases tickets for A and B to at-
tend the game. While at the game, A buys hot dogs and
drinks for A and B. The baseball game is entertainment as
defined in Regulations section 1.274-11(b)(1)(i) and, thus,
the cost of the game tickets is an entertainment expense
and is not deductible by A. The cost of the hot dogs and
drinks, which are purchased separately from the game
tickets, is not an entertainment expense and is not subject
to the section 274(a)(1) disallowance. Therefore, A may
deduct 50% of the expenses associated with the hot dogs
and drinks purchased at the game.
Example 2. Taxpayer C invites D, a business contact,
to a basketball game. C purchases tickets for C and D to
attend the game in a suite, where they have access to
food and beverages. The cost of the basketball game tick-
ets, as stated on the invoice, includes the food and bever-
ages. The basketball game is entertainment as defined in
Regulations section 1.274-11(b)(1)(i) and, thus, the cost
of the game tickets is an entertainment expense and is not
deductible by C. The cost of the food and beverages,
which are not purchased separately from the game tick-
ets, is not stated separately on the invoice. Thus, the cost
of the food and beverages is also an entertainment ex-
pense that is subject to the section 274(a)(1) disallow-
ance. Therefore, C may not deduct any of the expenses
associated with the basketball game.
Example 3. Assume the same facts as in Example 2,
except that the invoice for the basketball game tickets sep-
arately states the cost of the food and beverages. As in
Example 2, the basketball game is entertainment as de-
fined in Regulations section 1.274-2(b)(1)(i) and, thus, the
cost of the game tickets, other than the cost of the food
and beverages, is an entertainment expense and is not
deductible by C. However, the cost of the food and bever-
ages, which is stated separately on the invoice for the
game tickets, is not an entertainment expense and is not
subject to the section 274(a)(1) disallowance. Therefore,
C may deduct 50% of the expenses associated with the
food and beverages provided at the game.
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50% Limit
In general, you can deduct only 50% of your business-re-
lated meal expenses, unless an exception applies. (If you
are subject to the Department of Transportation's “hours of
service” limits, you can deduct 80% of your business-rela-
ted meal expenses. See Individuals subject to “hours of
service” limits, later.)
The 50% limit applies to employees or their employers,
and to self-employed persons (including independent con-
tractors) or their clients, depending on whether the expen-
ses are reimbursed.
Examples of meals might include:
•
Meals while traveling away from home (whether eating
alone or with others) on business, or
•
Meal at a business convention or business league
meeting.
Costs to include or exclude. Taxes and tips relating to a
business meal are included as a cost of the meal and are
subject to the 50% limit. However, the cost of transporta-
tion to and from the meal is not treated as part of the cost
and would not be subject to the limit.
Application of 50% limit. The 50% limit on meal expen-
ses applies if the expense is otherwise deductible and
isn’t covered by one of the exceptions discussed later. Fig-
ure A can help you determine if the 50% limit applies to
you.
The 50% limit also applies to certain meal expenses
that aren’t business related. It applies to meal expenses
you have for the production of income, including rental or
royalty income. It also applies to the cost of meals inclu-
ded in deductible educational expenses.
When to apply the 50% limit. The 50% limit will apply
after determining the amount that would otherwise qualify
for a deduction. You first have to determine the amount of
meal expenses that would be deductible under the other
rules discussed in this publication.
Figure A. Does the 50% Limit Apply to Your Expenses?
There are exceptions to these rules. See Exceptions to the 50% Limit for Meals, later.
All employees and self-employed persons can use this chart.
Were your meal and entertainment expenses reimbursed?
(Count only reimbursements your employer didn’t
include in box 1 of your Form W-2. If self-employed,
count only reimbursements from clients or customers that
aren’t included on Form 1099-MISC, Miscellaneous
Income.)
If an employee, did you adequately account
to your employer under an accountable plan?
If self-employed, did you provide the payer
with adequate records? (See chapter 6.)
Did your expenses exceed the reimbursement?
For the amount reimbursed...
For the excess amount...
Yes
No
No
Yes
YesNo
Start Here
Your meal and entertainment
expenses are NOT subject to
the limitations. However, since
the reimbursement wasn’t
treated as wages or as other
taxable income, you can’t
deduct the expenses.
Your meal expenses ARE
subject to the 50% limit.
Your entertainment
expenses are nondeduct-
ible.
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Taking turns paying for meals. If a group of business
acquaintances takes turns picking up each others' meal
checks primarily for personal reasons, without regard to
whether any business purposes are served, no member of
the group can deduct any part of the expense.
Example 1. You spend $200 (including tax and tip) for
a business meal. If $110 of that amount isn’t allowable be-
cause it is lavish and extravagant, the remaining $90 is
subject to the 50% limit. Your deduction can’t be more
than $45 (50% (0.50) × $90).
Example 2. You purchase two tickets to a concert for
$200 for you and your client. Your deduction is zero be-
cause no deduction is allowed for entertainment expen-
ses.
Exception to the 50% Limit for Meals
Your meal expense isn’t subject to the 50% limit if the ex-
pense meets one of the following exceptions.
1—Expenses treated as compensation. In general,
expenses for goods, services, and facilities, to the extent
the expenses are treated by the taxpayer, with respect to
entertainment, amusement, or recreation, as compensa-
tion to an employee and as wages to the employee for tax
purposes.
2—Employee's reimbursed expenses. If you are an
employee, you aren’t subject to the 50% limit on expenses
for which your employer reimburses you under an ac-
countable plan. Accountable plans are discussed in chap-
ter 6.
3—Self-employed reimbursed expenses. If you are
self-employed, your deductible meal expenses aren’t sub-
ject to the 50% limit if all of the following requirements are
met.
•
You have these expenses as an independent contrac-
tor.
•
Your customer or client reimburses you or gives you
an allowance for these expenses in connection with
services you perform.
•
You provide adequate records of these expenses to
your customer or client. (See chapter 5.)
In this case, your client or customer is subject to the
50% limit on the expenses.
Example. You are a self-employed attorney who ade-
quately accounts for meal expenses to a client who reim-
burses you for these expenses. You aren’t subject to the
limitation on meal expenses. If the client can deduct the
expenses, the client is subject to the 50% limit.
If you (as an independent contractor) have expenses
for meals related to providing services for a client but don’t
adequately account for and seek reimbursement from the
client for those expenses, you are subject to the 50% limit
on non-entertainment-related meals and the entertain-
ment-related meal expenses are nondeductible to you.
4—Recreational expenses for employees. You
aren't subject to the 50% limit for expenses for recrea-
tional, social, or similar activities (including facilities) such
as a holiday party or a summer picnic.
5—Advertising expenses. You aren’t subject to the
50% limit if you provide meals to the general public as a
means of advertising or promoting goodwill in the com-
munity. For example, neither the expense of sponsoring a
television or radio show nor the expense of distributing
free food and beverages to the general public is subject to
the 50% limit.
6—Sale of meals. You aren’t subject to the 50% limit if
you actually sell meals to the public. For example, if you
run a restaurant, your expense for the food you furnish to
your customers isn’t subject to the 50% limit.
Individuals subject to “hours of service” limits. You
can deduct a higher percentage of your meal expenses
while traveling away from your tax home if the meals take
place during or incident to any period subject to the De-
partment of Transportation's “hours of service” limits. The
percentage is 80%.
Individuals subject to the Department of Transporta-
tion's “hours of service” limits include the following per-
sons.
•
Certain air transportation workers (such as pilots,
crew, dispatchers, mechanics, and control tower oper-
ators) who are under Federal Aviation Administration
regulations.
•
Interstate truck operators and bus drivers who are un-
der Department of Transportation regulations.
•
Certain railroad employees (such as engineers, con-
ductors, train crews, dispatchers, and control opera-
tions personnel) who are under Federal Railroad Ad-
ministration regulations.
•
Certain merchant mariners who are under Coast
Guard regulations.
The temporary 100-percent deduction for expen-
ses that were paid or incurred after December 31,
2020, and before January 1, 2023, for food or
beverages provided by a restaurant has expired. Gener-
ally, the 50% deduction continues to apply. See 50% Limit,
earlier.
3.
Gifts
If you give gifts in the course of your trade or business,
you may be able to deduct all or part of the cost. This
chapter explains the limits and rules for deducting the
costs of gifts.
CAUTION
!
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$25 limit. You can deduct no more than $25 for business
gifts you give directly or indirectly to each person during
your tax year. A gift to a company that is intended for the
eventual personal use or benefit of a particular person or a
limited class of people will be considered an indirect gift to
that particular person or to the individuals within that class
of people who receive the gift.
If you give a gift to a member of a customer's family, the
gift is generally considered to be an indirect gift to the cus-
tomer. This rule doesn’t apply if you have a bona fide, in-
dependent business connection with that family member
and the gift isn’t intended for the customer's eventual use.
If you and your spouse both give gifts, both of you are
treated as one taxpayer. It doesn’t matter whether you
have separate businesses, are separately employed, or
whether each of you has an independent connection with
the recipient. If a partnership gives gifts, the partnership
and the partners are treated as one taxpayer.
Example. You sell products to a local company. You
and your spouse gave the local company three gourmet
gift baskets to thank them for their business. You and your
spouse paid $80 for each gift basket, or $240 total. Three
of the local company's executives took the gift baskets
home for their families' use. You and your spouse have no
independent business relationship with any of the execu-
tives' other family members. You and your spouse can de-
duct a total of $75 ($25 limit × 3) for the gift baskets.
Incidental costs. Incidental costs, such as engraving on
jewelry, or packaging, insuring, and mailing, are generally
not included in determining the cost of a gift for purposes
of the $25 limit.
A cost is incidental only if it doesn’t add substantial
value to the gift. For example, the cost of gift wrapping is
an incidental cost. However, the purchase of an ornamen-
tal basket for packaging fruit isn’t an incidental cost if the
value of the basket is substantial compared to the value of
the fruit.
Exceptions. The following items aren’t considered gifts
for purposes of the $25 limit.
1. An item that costs $4 or less and:
a. Has your name clearly and permanently imprinted
on the gift, and
b. Is one of a number of identical items you widely
distribute. Examples include pens, desk sets, and
plastic bags and cases.
2. Signs, display racks, or other promotional material to
be used on the business premises of the recipient.
Gift or entertainment. Any item that might be consid-
ered either a gift or entertainment will generally be consid-
ered entertainment. However, if you give a customer pack-
aged food or beverages you intend the customer to use at
a later date, treat it as a gift.
If you are entitled to a reimbursement from your
employer but you don’t claim it, you can’t claim a
deduction for the expenses to which that un-
claimed reimbursement applies. This type of deduction is
considered a miscellaneous deduction that is no longer al-
lowable due to the suspension of miscellaneous itemized
deductions subject to the 2% floor under section 67(a).
4.
Transportation
This chapter discusses expenses you can deduct for busi-
ness transportation when you aren’t traveling away from
home, as defined in chapter 1. These expenses include
the cost of transportation by air, rail, bus, taxi, etc., and the
cost of driving and maintaining your car.
Transportation expenses include the ordinary and neces-
sary costs of all of the following.
•
Getting from one workplace to another in the course of
your business or profession when you are traveling
within the city or general area that is your tax home.
Tax home is defined in chapter 1.
•
Visiting clients or customers.
•
Going to a business meeting away from your regular
workplace.
•
Getting from your home to a temporary workplace
when you have one or more regular places of work.
These temporary workplaces can be either within the
area of your tax home or outside that area.
Transportation expenses don’t include expenses you have
while traveling away from home overnight. Those expen-
ses are travel expenses discussed in chapter 1. However,
if you use your car while traveling away from home over-
night, use the rules in this chapter to figure your car ex-
pense deduction. See Car Expenses, later.
Daily transportation expenses you incur while traveling
from home to one or more regular places of business are
generally nondeductible commuting expenses. However,
there may be exceptions to this general rule. You can de-
duct daily transportation expenses incurred going be-
tween your residence and a temporary work station out-
side the metropolitan area where you live. Also, daily
transportation expenses can be deducted if (1) you have
one or more regular work locations away from your resi-
dence; or (2) your residence is your principal place of
business and you incur expenses going between the resi-
dence and another work location in the same trade or
business, regardless of whether the work is temporary or
permanent and regardless of the distance.
CAUTION
!
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If you are entitled to a reimbursement from your
employer but you don’t claim it, you can’t claim a
deduction for the expenses to which that un-
claimed reimbursement applies. This type of deduction is
considered a miscellaneous deduction that is no longer al-
lowable due to the suspension of miscellaneous itemized
deductions subject to the 2% floor under section 67(a).
Illustration of transportation expenses. Figure B above
illustrates the rules that apply for deducting transportation
expenses when you have a regular or main job away from
your home. You may want to refer to it when deciding
whether you can deduct your transportation expenses.
Temporary work location. If you have one or more regu-
lar work locations away from your home and you commute
CAUTION
!
to a temporary work location in the same trade or busi-
ness, you can deduct the expenses of the daily round-trip
transportation between your home and the temporary lo-
cation, regardless of distance.
If your employment at a work location is realistically ex-
pected to last (and does in fact last) for 1 year or less, the
employment is temporary unless there are facts and cir-
cumstances that would indicate otherwise.
If your employment at a work location is realistically ex-
pected to last for more than 1 year or if there is no realistic
expectation that the employment will last for 1 year or less,
the employment isn’t temporary, regardless of whether it
actually lasts for more than 1 year.
If employment at a work location initially is realistically
expected to last for 1 year or less, but at some later date
the employment is realistically expected to last more than
Figure B. When Are Transportation Expenses Deductible?
Most employees and self-employed persons can use this chart. (Don’t use this chart if your home is your principal
place of business. See Office in the home, later.)
Temporary
work location
Home
Regular or
main job
Always
deductible
Always
deductible
Second job
Never deductible
Never deductible
D
e
d
u
c
tib
le
if y
o
u
h
a
v
e
a
re
g
u
la
r o
r m
a
in
jo
b
a
t a
n
o
th
e
r lo
c
a
tio
n
Always deductible
Home: The place where you reside. Transportation expenses between your home and
your main or regular place of work are personal commuting expenses.
Regular or main job: Your principal place of business. If you have more than one job,
you must determine which one is your regular or main job. Consider the time you
spend at each, the activity you have at each, and the income you earn at each.
Temporary work location: A place where your work assignment is realistically
expected to last (and does in fact last) one year or less. Unless you have a regular
place of business, you can only deduct your transportation expenses to a temporary
work location outside
your metropolitan area.
Second job: If you regularly work at two or more places in one day, whether or not
for the same employer, you can deduct your transportation expenses of getting from
one workplace to another. If you don’t go directly from your rst job to your second
job, you can only deduct the transportation expenses of going directly from your rst
job to your second job. You can’t deduct your transportation expenses between
your home and a second job on a day off from your main job.
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1 year, that employment will be treated as temporary (un-
less there are facts and circumstances that would indicate
otherwise) until your expectation changes. It won’t be trea-
ted as temporary after the date you determine it will last
more than 1 year.
If the temporary work location is beyond the general
area of your regular place of work and you stay overnight,
you are traveling away from home. You may have deducti-
ble travel expenses, as discussed in chapter 1.
No regular place of work. If you have no regular place
of work but ordinarily work in the metropolitan area where
you live, you can deduct daily transportation costs be-
tween home and a temporary work site outside that metro-
politan area.
Generally, a metropolitan area includes the area within
the city limits and the suburbs that are considered part of
that metropolitan area.
You can’t deduct daily transportation costs between
your home and temporary work sites within your metropol-
itan area. These are nondeductible commuting expenses.
Two places of work. If you work at two places in 1 day,
whether or not for the same employer, you can deduct the
expense of getting from one workplace to the other. How-
ever, if for some personal reason you don’t go directly
from one location to the other, you can’t deduct more than
the amount it would have cost you to go directly from the
first location to the second.
Transportation expenses you have in going between
home and a part-time job on a day off from your main job
are commuting expenses. You can’t deduct them.
Armed Forces reservists. A meeting of an Armed
Forces reserve unit is a second place of business if the
meeting is held on a day on which you work at your regular
job. You can deduct the expense of getting from one work-
place to the other as just discussed under Two places of
work.
You usually can’t deduct the expense if the reserve
meeting is held on a day on which you don’t work at your
regular job. In this case, your transportation is generally a
nondeductible commuting expense. However, you can de-
duct your transportation expenses if the location of the
meeting is temporary and you have one or more regular
places of work.
If you ordinarily work in a particular metropolitan area
but not at any specific location and the reserve meeting is
held at a temporary location outside that metropolitan
area, you can deduct your transportation expenses.
If you travel away from home overnight to attend a
guard or reserve meeting, you can deduct your travel ex-
penses. These expenses are discussed in chapter 1.
If you travel more than 100 miles away from home in
connection with your performance of services as a mem-
ber of the reserves, you may be able to deduct some of
your reserve-related travel costs as an adjustment to
gross income rather than as an itemized deduction. For
more information, see Armed Forces Reservists Traveling
More Than 100 Miles From Home under Special Rules in
chapter 6.
Commuting expenses. You can’t deduct the costs of
taking a bus, trolley, subway, or taxi, or of driving a car be-
tween your home and your main or regular place of work.
These costs are personal commuting expenses. You can’t
deduct commuting expenses no matter how far your home
is from your regular place of work. You can’t deduct com-
muting expenses even if you work during the commuting
trip.
Example. You sometimes use your cell phone to make
business calls while commuting to and from work. Some-
times business associates ride with you to and from work,
and you have a business discussion in the car. These ac-
tivities don’t change the trip from personal to business.
You can’t deduct your commuting expenses.
Parking fees. Fees you pay to park your car at your
place of business are nondeductible commuting expen-
ses. You can, however, deduct business-related parking
fees when visiting a customer or client.
Advertising display on car. Putting display material
that advertises your business on your car doesn’t change
the use of your car from personal use to business use. If
you use this car for commuting or other personal uses,
you still can’t deduct your expenses for those uses.
Car pools. You can’t deduct the cost of using your car
in a nonprofit car pool. Don’t include payments you re-
ceive from the passengers in your income. These pay-
ments are considered reimbursements of your expenses.
However, if you operate a car pool for a profit, you must in-
clude payments from passengers in your income. You can
then deduct your car expenses (using the rules in this
publication).
Hauling tools or instruments. Hauling tools or instru-
ments in your car while commuting to and from work
doesn’t make your car expenses deductible. However, you
can deduct any additional costs you have for hauling tools
or instruments (such as for renting a trailer you tow with
your car).
Union members' trips from a union hall. If you get
your work assignments at a union hall and then go to your
place of work, the costs of getting from the union hall to
your place of work are nondeductible commuting expen-
ses. Although you need the union to get your work assign-
ments, you are employed where you work, not where the
union hall is located.
Office in the home. If you have an office in your home
that qualifies as a principal place of business, you can de-
duct your daily transportation costs between your home
and another work location in the same trade or business.
(See Pub. 587, Business Use of Your Home, for informa-
tion on determining if your home office qualifies as a prin-
cipal place of business.)
Examples of deductible transportation. The following
examples show when you can deduct transportation ex-
penses based on the location of your work and your
home.
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Example 1. You regularly work in an office in the city
where you live. Your employer sends you to a 1-week
training session at a different office in the same city. You
travel directly from your home to the training location and
return each day. You can deduct the cost of your daily
round-trip transportation between your home and the
training location.
Example 2. Your principal place of business is in your
home. You can deduct the cost of round-trip transportation
between your qualifying home office and your client's or
customer's place of business.
Example 3. You have no regular office, and you don’t
have an office in your home. In this case, the location of
your first business contact inside the metropolitan area is
considered your office. Transportation expenses between
your home and this first contact are nondeductible com-
muting expenses. Transportation expenses between your
last business contact and your home are also nondeducti-
ble commuting expenses. While you can’t deduct the
costs of these trips, you can deduct the costs of going
from one client or customer to another.
Car Expenses
If you use your car for business purposes, you may be
able to deduct car expenses. You can generally use one of
the two following methods to figure your deductible expen-
ses.
•
Standard mileage rate.
•
Actual car expenses.
If you qualify to use both methods, you may want
to figure your deduction both ways to see which
gives you a larger deduction.
The cost of using your car as an employee, whether
measured using actual expenses or the standard mileage
rate, will no longer be allowed to be claimed as an unreim-
bursed employee travel expense as a miscellaneous item-
ized deduction due to the suspension of miscellaneous
itemized deductions that are subject to the 2% floor under
section 67(a). The suspension applies to tax years begin-
ning after December 2017 and before January 2026. De-
ductions for expenses that are deductible in determining
adjusted gross income are not suspended. For example,
Armed Forces reservists, qualified performing artists, and
fee-basis state or local government officials are allowed to
deduct unreimbursed employee travel expenses as an ad-
justment to total income on Schedule 1 (Form 1040),
line 12.
If you use actual expenses to figure your deduction for
a car you lease, there are rules that affect the amount of
your lease payments you can deduct. See Leasing a Car,
later.
In this publication, “car” includes a van, pickup, or panel
truck. For the definition of “car” for depreciation purposes,
see Car defined under Actual Car Expenses, later.
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Standard Mileage Rate
For 2023, the standard mileage rate for the cost of operat-
ing your car for business use is 65.5 cents ($0.655) per
mile.
If you use the standard mileage rate for a year,
you can’t deduct your actual car expenses for that
year. You can’t deduct depreciation, lease pay-
ments, maintenance and repairs, gasoline (including gas-
oline taxes), oil, insurance, or vehicle registration fees.
See Choosing the standard mileage rate and Standard
mileage rate not allowed, later.
You can generally use the standard mileage rate
whether or not you are reimbursed and whether or not any
reimbursement is more or less than the amount figured
using the standard mileage rate. See chapter 6 for more
information on reimbursements.
Choosing the standard mileage rate. If you want to
use the standard mileage rate for a car you own, you must
choose to use it in the first year the car is available for use
in your business. Then, in later years, you can choose to
use either the standard mileage rate or actual expenses.
If you want to use the standard mileage rate for a car
you lease, you must use it for the entire lease period. For
leases that began on or before December 31, 1997, the
standard mileage rate must be used for the entire portion
of the lease period (including renewals) that is after 1997.
You must make the choice to use the standard mileage
rate by the due date (including extensions) of your return.
You can’t revoke the choice. However, in later years, you
can switch from the standard mileage rate to the actual ex-
penses method. If you change to the actual expenses
method in a later year, but before your car is fully depreci-
ated, you have to estimate the remaining useful life of the
car and use straight line depreciation for the car’s remain-
ing estimated useful life, subject to depreciation limits (dis-
cussed later).
For more information about depreciation included in the
standard mileage rate, see Exception under Methods of
depreciation, later.
Standard mileage rate not allowed. You can’t use the
standard mileage rate if you:
•
Use five or more cars at the same time (such as in
fleet operations);
•
Claimed a depreciation deduction for the car using
any method other than straight line for the car’s esti-
mated useful life;
•
Used the Modified Accelerated Cost Recovery Sys-
tem (MACRS) (as discussed later under Depreciation
Deduction);
•
Claimed a section 179 deduction (discussed later) on
the car;
•
Claimed the special depreciation allowance on the
car; or
•
Claimed actual car expenses after 1997 for a car you
leased.
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Note. You can elect to use the standard mileage rate if
you used a car for hire (such as a taxi) unless the standard
mileage rate is otherwise not allowed, as discussed
above.
Five or more cars. If you own or lease five or more
cars that are used for business at the same time, you can’t
use the standard mileage rate for the business use of any
car. However, you may be able to deduct your actual ex-
penses for operating each of the cars in your business.
See Actual Car Expenses, later, for information on how to
figure your deduction.
You aren’t using five or more cars for business at the
same time if you alternate using (use at different times)
the cars for business.
The following examples illustrate the rules for when you
can and can’t use the standard mileage rate for five or
more cars.
Example 1. A salesperson owns three cars and two
vans that they alternate using for calling on their custom-
ers. The salesperson can use the standard mileage rate
for the business mileage of the three cars and the two
vans because they don’t use them at the same time.
Example 2. You and your employees use your four
pickup trucks in your landscaping business. During the
year, you traded in two of your old trucks for two newer
ones. You can use the standard mileage rate for the busi-
ness mileage of all six of the trucks you owned during the
year.
Example 3. You own a repair shop and an insurance
business. You and your employees use your two pickup
trucks and van for the repair shop. You alternate using
your two cars for the insurance business. No one else
uses the cars for business purposes. You can use the
standard mileage rate for the business use of the pickup
trucks, the van, and the cars because you never have
more than four vehicles used for business at the same
time.
Example 4. You own a car and four vans that are used
in your housecleaning business. Your employees use the
vans, and you use the car to travel to various customers.
You can’t use the standard mileage rate for the car or the
vans. This is because all five vehicles are used in your
business at the same time. You must use actual expenses
for all vehicles.
Interest. If you are an employee, you can’t deduct any in-
terest paid on a car loan. This applies even if you use the
car 100% for business as an employee.
However, if you are self-employed and use your car in
your business, you can deduct that part of the interest ex-
pense that represents your business use of the car. For
example, if you use your car 60% for business, you can
deduct 60% of the interest on Schedule C (Form 1040).
You can’t deduct the part of the interest expense that rep-
resents your personal use of the car.
If you use a home equity loan to purchase your
car, you may be able to deduct the interest. See
Pub. 936, Home Mortgage Interest Deduction, for
more information.
Personal property taxes. If you itemize your deductions
on Schedule A (Form 1040), you can deduct on line 5c
state and local personal property taxes on motor vehicles.
You can take this deduction even if you use the standard
mileage rate or if you don’t use the car for business.
If you are self-employed and use your car in your busi-
ness, you can deduct the business part of state and local
personal property taxes on motor vehicles on Schedule C
(Form 1040), or Schedule F (Form 1040). If you itemize
your deductions, you can include the remainder of your
state and local personal property taxes on the car on
Schedule A (Form 1040).
Parking fees and tolls. In addition to using the standard
mileage rate, you can deduct any business-related park-
ing fees and tolls. (Parking fees you pay to park your car at
your place of work are nondeductible commuting expen-
ses.)
Sale, trade-in, or other disposition. If you sell, trade in,
or otherwise dispose of your car, you may have a gain or
loss on the transaction or an adjustment to the basis of
your new car. See Disposition of a Car, later.
Actual Car Expenses
If you don’t use the standard mileage rate, you may be
able to deduct your actual car expenses.
Actual car expenses include:
Depreciation
Licenses
Lease
payments
Registration
fees
Gas Insurance Repairs
Oil Garage rent Tires
Tolls Parking fees
If you have fully depreciated a car that you still use in
your business, you can continue to claim your other actual
car expenses. Continue to keep records, as explained
later in chapter 5.
Business and personal use. If you use your car for both
business and personal purposes, you must divide your ex-
penses between business and personal use. You can di-
vide your expense based on the miles driven for each pur-
pose.
Example. You are a contractor and drive your car
20,000 miles during the year: 12,000 miles for business
use and 8,000 miles for personal use. You can claim only
60% (12,000 ÷ 20,000) of the cost of operating your car as
a business expense.
Employer-provided vehicle. If you use a vehicle provi-
ded by your employer for business purposes, you can de-
duct your actual unreimbursed car expenses. You can’t
use the standard mileage rate. See Vehicle Provided by
Your Employer in chapter 6.
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Interest on car loans. If you are an employee, you can’t
deduct any interest paid on a car loan. This interest is
treated as personal interest and isn’t deductible. If you are
self-employed and use your car in that business, see Inter-
est, earlier, under Standard Mileage Rate.
Taxes paid on your car. If you are an employee, you can
deduct personal property taxes paid on your car if you
itemize deductions. Enter the amount paid on Schedule A
(Form 1040), line 5c.
Sales taxes. Generally, sales taxes on your car are
part of your car's basis and are recovered through depre-
ciation, discussed later.
Fines and collateral. You can’t deduct fines you pay or
collateral you forfeit for traffic violations.
Casualty and theft losses. If your car is damaged, de-
stroyed, or stolen, you may be able to deduct part of the
loss not covered by insurance. See Pub. 547, Casualties,
Disasters, and Thefts, for information on deducting a loss
on your car.
Depreciation and section 179 deductions. Generally,
the cost of a car, plus sales tax and improvements, is a
capital expense. Because the benefits last longer than 1
year, you generally can’t deduct a capital expense. How-
ever, you can recover this cost through the section 179 de-
duction (the deduction allowed by section 179 of the Inter-
nal Revenue Code), special depreciation allowance, and
depreciation deductions. Depreciation allows you to re-
cover the cost over more than 1 year by deducting part of
it each year. The section 179 deduction, special deprecia-
tion allowance, and depreciation deductions are dis-
cussed later.
Generally, there are limits on these deductions. Special
rules apply if you use your car 50% or less in your work or
business.
You can claim a section 179 deduction and use a de-
preciation method other than straight line only if you don’t
use the standard mileage rate to figure your business-rela-
ted car expenses in the year you first place a car in serv-
ice.
If, in the year you first place a car in service, you claim
either a section 179 deduction or use a depreciation
method other than straight line for its estimated useful life,
you can’t use the standard mileage rate on that car in any
future year.
Car defined. For depreciation purposes, a car is any
four-wheeled vehicle (including a truck or van) made pri-
marily for use on public streets, roads, and highways. Its
unloaded gross vehicle weight (for trucks and vans, gross
vehicle weight) must not be more than 6,000 pounds. A
car includes any part, component, or other item physically
attached to it or usually included in the purchase price.
A car doesn’t include:
•
An ambulance, hearse, or combination ambu-
lance-hearse used directly in a business;
•
A vehicle used directly in the business of transporting
persons or property for pay or hire; or
•
A truck or van that is a qualified nonpersonal use vehi-
cle.
Qualified nonpersonal use vehicles. These are ve-
hicles that by their nature aren’t likely to be used more
than a minimal amount for personal purposes. They in-
clude trucks and vans that have been specially modified
so that they aren’t likely to be used more than a minimal
amount for personal purposes, such as by installation of
permanent shelving and painting the vehicle to display ad-
vertising or the company's name. Delivery trucks with
seating only for the driver, or only for the driver plus a fold-
ing jump seat, are qualified nonpersonal use vehicles.
More information. See Depreciation Deduction, later,
for more information on how to depreciate your vehicle.
Section 179 Deduction
You can elect to recover all or part of the cost of a car that
is qualifying section 179 property, up to a limit, by deduct-
ing it in the year you place the property in service. This is
the section 179 deduction. If you elect the section 179 de-
duction, you must reduce your depreciable basis in the car
by the amount of the section 179 deduction.
There is a limit on the total section 179 deduction,
special depreciation allowance, and depreciation
deduction for cars, trucks, and vans that may re-
duce or eliminate any benefit from claiming the section
179 deduction. See Depreciation Limits, later.
You can claim the section 179 deduction only in the
year you place the car in service. For this purpose, a car is
placed in service when it is ready and available for a spe-
cifically assigned use in a trade or business. Even if you
aren’t using the property, it is in service when it is ready
and available for its specifically assigned use.
A car first used for personal purposes can’t qualify for
the deduction in a later year when its use changes to busi-
ness.
Example. In 2022, you bought a new car and used it
for personal purposes. In 2023, you began to use it for
business. Changing its use to business use doesn’t qual-
ify the cost of your car for a section 179 deduction in 2023.
However, you can claim a depreciation deduction for the
business use of the car starting in 2023. See Depreciation
Deduction, later.
More than 50% business use requirement. You must
use the property more than 50% for business to claim any
section 179 deduction. If you used the property more than
50% for business, multiply the cost of the property by the
percentage of business use. The result is the cost of the
property that can qualify for the section 179 deduction.
Example. You purchased a new car in April 2023 for
$24,500 and used it 60% for business. Based on your
business usage, the total cost of your car that qualifies for
the section 179 deduction is $14,700 ($24,500 cost ×
60% (0.60) business use). But see Limit on total section
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179, special depreciation allowance, and depreciation de-
duction, discussed later.
Limits. There are limits on:
•
The amount of the section 179 deduction;
•
The section 179 deduction for sport utility and certain
other vehicles; and
•
The total amount of the section 179 deduction, special
depreciation allowance, and depreciation deduction
(discussed later) you can claim for a qualified prop-
erty.
Limit on the amount of the section 179 deduction.
For tax years beginning in 2023, the total amount you can
elect to deduct under section 179 can’t be more than
$1,160,000.
If the cost of your section 179 property placed in serv-
ice in tax years beginning in 2023 is over $2,890,000, you
must reduce the $1,160,000 dollar limit (but not below
zero) by the amount of cost over $2,890,000. If the cost of
your section 179 property placed in service during tax
years beginning in 2023 is $4,050,000 or more, you can’t
take a section 179 deduction.
The total amount you can deduct under section 179
each year after you apply the limits listed above cannot be
more than the taxable income from the active conduct of
any trade or business during the year.
If you are married and file a joint return, you and your
spouse are treated as one taxpayer in determining any re-
duction to the dollar limit, regardless of which of you pur-
chased the property or placed it in service.
If you and your spouse file separate returns, you are
treated as one taxpayer for the dollar limit. You must allo-
cate the dollar limit (after any reduction) between you.
For more information on the above section 179 deduc-
tion limits, see Pub. 946, How To Depreciate Property.
Limit for sport utility and certain other vehicles.
You cannot elect to deduct more than $28,900 of the cost
of any heavy sport utility vehicle (SUV) and certain other
vehicles placed in service during the tax years beginning
in 2023. This rule applies to any four-wheeled vehicle pri-
marily designed or used to carry passengers over public
streets, roads, or highways that isn’t subject to any of the
passenger automobile limits explained under Depreciation
Limits, later, and that is rated at more than 6,000 pounds
gross vehicle weight and not more than 14,000 pounds
gross vehicle weight. However, the $28,900 limit doesn’t
apply to any vehicle:
•
Designed to have a seating capacity of more than nine
persons behind the driver's seat;
•
Equipped with a cargo area of at least 6 feet in interior
length that is an open area or is designed for use as
an open area but is enclosed by a cap and isn’t readily
accessible directly from the passenger compartment;
or
•
That has an integral enclosure, fully enclosing the
driver compartment and load carrying device, doesn’t
have seating rearward of the driver's seat, and has no
body section protruding more than 30 inches ahead of
the leading edge of the windshield.
Limit on total section 179 deduction, special de-
preciation allowance, and depreciation deduction.
The first-year limit on the depreciation deduction, special
depreciation allowance, and section 179 deduction for ve-
hicles acquired before September 28, 2017, and placed in
service during 2023, is $12,200. The first-year limit on de-
preciation, special depreciation allowance, and section
179 deduction for vehicles acquired after September 27,
2017, and placed in service during 2023 increases to
$20,200. If you elect not to claim a special depreciation al-
lowance for a vehicle placed in service in 2023, the
amount increases to $12,200. The limit is reduced if your
business use of the vehicle is less than 100%. See Depre-
ciation Limits, later, for more information.
Example. In the earlier example under More than 50%
business use requirement, you had a car with a cost (for
purposes of the section 179 deduction) of $14,700. How-
ever, based on your business usage of the car, the total of
your section 179 deduction, special depreciation allow-
ance, and depreciation deductions is limited to $12,120
($20,200 limit x 60% (0.60) business use) because the car
was acquired after September 27, 2017, and placed in
service during 2023.
Cost of car. For purposes of the section 179 deduction,
the cost of the car doesn’t include any amount figured by
reference to any other property held by you at any time.
For example, if you buy a car as a replacement for a car
that was stolen or that was destroyed in a casualty loss,
and you use section 1033 to determine the basis in your
replacement vehicle, your cost for purposes of the section
179 deduction doesn’t include your adjusted basis in the
relinquished car. In that case, your cost includes only the
cash you paid.
Basis of car for depreciation. The amount of the
section 179 deduction reduces your basis in your car. If
you choose the section 179 deduction, you must subtract
the amount of the deduction from the cost of your car. The
resulting amount is the basis in your car you use to figure
your depreciation deduction.
When to elect. If you want to take the section 179 deduc-
tion, you must make the election in the tax year you place
the car in service for business or work.
How to elect. Employees use Form 2106, Employee
Business Expenses, to make the election and report the
section 179 deduction. All others use Form 4562, Depreci-
ation and Amortization, to make an election.
Form 2106 is only used by Armed Forces reserv-
ists, qualified performing artists, fee-basis state or
local government officials, and employees with
impairment-related work expenses. Due to the suspension
of miscellaneous itemized deductions subject to the 2%
floor under section 67(a), employees who do not fit into
one of the listed categories may not use Form 2106.
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File the appropriate form with either of the following.
•
Your original tax return filed for the year the property
was placed in service (whether or not you file it
timely).
•
An amended return filed within the time prescribed by
law. An election made on an amended return must
specify the item of section 179 property to which the
election applies and the part of the cost of each such
item to be taken into account. The amended return
must also include any resulting adjustments to taxable
income.
You must keep records that show the specific
identification of each piece of qualifying section
179 property. These records must show how you
acquired the property, the person you acquired it from,
and when you placed it in service.
Revoking an election. An election (or any specifica-
tion made in the election) to take a section 179 deduction
for 2023 can only be revoked with the Commissioner's ap-
proval.
Recapture of section 179 deduction. To be eligible to
claim the section 179 deduction, you must use your car
more than 50% for business or work in the year you ac-
quired it. If your business use of the car is 50% or less in a
later tax year during the recovery period, you have to re-
capture (include in income) in that later year any excess
depreciation. Any section 179 deduction claimed on the
car is included in figuring the excess depreciation. For in-
formation on this calculation, see Excess depreciation,
later in this chapter under Car Used 50% or Less for Busi-
ness. For more information on recapture of a section 179
deduction, see Pub. 946.
Dispositions. If you dispose of a car on which you had
claimed the section 179 deduction, the amount of that de-
duction is treated as a depreciation deduction for recap-
ture purposes. You treat any gain on the disposition of the
property as ordinary income up to the amount of the sec-
tion 179 deduction and any allowable depreciation (unless
you establish the amount actually allowed). For informa-
tion on the disposition of a car, see Disposition of a Car,
later. For more information on recapture of a section 179
deduction, see Pub. 946.
Special Depreciation Allowance
You may be able to claim the special depreciation allow-
ance for your car, truck, or van if it is qualified property and
was placed in service in 2023. The allowance for 2023 is
an additional depreciation deduction for 100% of the car's
depreciable basis (after any section 179 deduction, but
before figuring your regular depreciation deduction under
MACRS) if the vehicle was acquired after September 27,
2017, and placed in service during 2023. Further, while it
applies to a new vehicle, it also applies to a used vehicle
only if the vehicle meets the used property requirements.
For more information on the used property requirements,
see section 168(k)(2)(E)(ii). To qualify for the allowance,
CAUTION
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more than 50% of the use of the car must be in a qualified
business use (as defined under Depreciation Deduction,
later).
Combined depreciation. The first-year limit on the de-
preciation deduction, special depreciation allowance, and
section 179 deduction for vehicles acquired before Sep-
tember 28, 2017, and placed in service during 2023, is
$12,200. Your combined section 179 depreciation, special
depreciation allowance, and regular MACRS depreciation
deduction is limited to the maximum allowable deprecia-
tion deduction for vehicles acquired after September 27,
2017, and placed in service during 2023 is $20,200. If you
elect not to claim a special depreciation allowance for a
vehicle placed in service in 2023, the amount is $12,200.
See Depreciation Limits, later in this chapter.
Qualified car. To be qualified property, the car (including
the truck or van) must meet all of the following tests.
•
You acquired the car after September 27, 2017, but
only if no written binding contract to acquire the car
existed before September 28, 2017.
•
You acquired the car new or used.
•
You placed the car in service in your trade or business
before January 1, 2027.
•
You used the car more than 50% in a qualified busi-
ness use during the tax year.
Election not to claim the special depreciation allow-
ance. You can elect not to claim the special depreciation
allowance for your car, truck, or van that is qualified prop-
erty. If you make this election, it applies to all 5-year prop-
erty placed in service during the year.
To make this election, attach a statement to your timely
filed return (including extensions) indicating the class of
property (5-year for cars) for which you are making the
election and that you are electing not to claim the special
depreciation allowance for qualified property in that class
of property.
Unless you elect not to claim the special depreci-
ation allowance, you must reduce the car's adjus-
ted basis by the amount of the allowance, even if
the allowance wasn’t claimed.
Depreciation Deduction
If you use actual car expenses to figure your deduction for
a car you own and use in your business, you can claim a
depreciation deduction. This means you can deduct a cer-
tain amount each year as a recovery of your cost or other
basis in your car.
You generally need to know the following things about
the car you intend to depreciate.
•
Your basis in the car.
•
The date you place the car in service.
•
The method of depreciation and recovery period you
will use.
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Basis. Your basis in a car for figuring depreciation is gen-
erally its cost. This includes any amount you borrow or pay
in cash, other property, or services.
Generally, you figure depreciation on your car, truck, or
van using your unadjusted basis (see Unadjusted basis,
later). However, in some situations, you will use your ad-
justed basis (your basis reduced by depreciation allowed
or allowable in earlier years). For one of these situations,
see Exception under Methods of depreciation, later.
If you change the use of a car from personal to busi-
ness, your basis for depreciation is the lesser of the fair
market value or your adjusted basis in the car on the date
of conversion. Additional rules concerning basis are dis-
cussed later in this chapter under Unadjusted basis.
Placed in service. You generally place a car in service
when it is available for use in your work or business, in an
income-producing activity, or in a personal activity. Depre-
ciation begins when the car is placed in service for use in
your work or business or for the production of income.
For purposes of figuring depreciation, if you first start
using the car only for personal use and later convert it to
business use, you place the car in service on the date of
conversion.
Car placed in service and disposed of in the same
year. If you place a car in service and dispose of it in the
same tax year, you can’t claim any depreciation deduction
for that car.
Methods of depreciation. Generally, you figure depreci-
ation on cars using the Modified Accelerated Cost Recov-
ery (MACRS) discussed later in this chapter.
Exception. If you used the standard mileage rate in
the first year of business use and change to the actual ex-
penses method in a later year, you can’t depreciate your
car under the MACRS rules. You must use straight line de-
preciation over the estimated remaining useful life of the
car. The amount you depreciate can’t be more than the
depreciation limit that applies for that year. See Deprecia-
tion Limits, later.
To figure depreciation under the straight line method,
you must reduce your basis in the car (but not below zero)
by a set rate per mile for all miles for which you used the
standard mileage rate. The rate per mile varies depending
on the year(s) you used the standard mileage rate. For the
rate(s) to use, see Depreciation adjustment when you
used the standard mileage rate under Disposition of a
Car, later.
This reduction of basis is in addition to those basis ad-
justments described later under Unadjusted basis. You
must use your adjusted basis in your car to figure your de-
preciation deduction. For additional information on the
straight line method of depreciation, see Pub. 946.
More-than-50%-use test. Generally, you must use your
car more than 50% for qualified business use (defined
next) during the year to use MACRS. You must meet this
more-than-50%-use test each year of the recovery period
(6 years under MACRS) for your car.
If your business use is 50% or less, you must use the
straight line method to depreciate your car. This is ex-
plained later under Car Used 50% or Less for Business.
Qualified business use. A qualified business use is any
use in your trade or business. It doesn’t include use for the
production of income (investment use), or use provided
under lease to, or as compensation to, a 5% owner or rela-
ted person. However, you do combine your business and
investment use to figure your depreciation deduction for
the tax year.
Use of your car by another person. Don’t treat any
use of your car by another person as use in your trade or
business unless that use meets one of the following condi-
tions.
•
It is directly connected with your business.
•
It is properly reported by you as income to the other
person (and, if you have to, you withhold tax on the in-
come).
•
It results in a payment of fair market rent. This includes
any payment to you for the use of your car.
Business use changes. If you used your car more than
50% in qualified business use in the year you placed it in
service, but 50% or less in a later year (including the year
of disposition), you have to change to the straight line
method of depreciation. See Qualified business use 50%
or less in a later year under Car Used 50% or Less for
Business, later.
Property doesn’t cease to be used more than
50% in qualified business use by reason of a
transfer at death.
Use for more than one purpose. If you use your car for
more than one purpose during the tax year, you must allo-
cate the use to the various purposes. You do this on the
basis of mileage. Figure the percentage of qualified busi-
ness use by dividing the number of miles you drive your
car for business purposes during the year by the total
number of miles you drive the car during the year for any
purpose.
Change from personal to business use. If you change
the use of a car from 100% personal use to business use
during the tax year, you may not have mileage records for
the time before the change to business use. In this case,
you figure the percentage of business use for the year as
follows.
1. Determine the percentage of business use for the pe-
riod following the change. Do this by dividing business
miles by total miles driven during that period.
2. Multiply the percentage in (1) by a fraction. The nu-
merator (top number) is the number of months the car
is used for business, and the denominator (bottom
number) is 12.
Example. You use a car only for personal purposes
during the first 6 months of the year. During the last 6
months of the year, you drive the car a total of 15,000
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miles of which 12,000 miles are for business. This gives
you a business use percentage of 80% (12,000 ÷ 15,000)
for that period. Your business use for the year is 40%
(80% (0.80) ×
6
/12).
Limits. The amount you can claim for section 179, spe-
cial depreciation allowance, and depreciation deductions
may be limited. The maximum amount you can claim de-
pends on the year in which you placed your car in service.
You have to reduce the maximum amount if you did not
use the car exclusively for business. See Depreciation
Limits, later.
Unadjusted basis. You use your unadjusted basis (often
referred to as your basis or your basis for depreciation) to
figure your depreciation using the MACRS depreciation
chart, explained later under Modified Accelerated Cost
Recovery System (MACRS). Your unadjusted basis for fig-
uring depreciation is your original basis increased or de-
creased by certain amounts.
To figure your unadjusted basis, begin with your car's
original basis, which is generally its cost. Cost includes
sales taxes (see Sales taxes, earlier), destination charges,
and dealer preparation. Increase your basis by any sub-
stantial improvements you make to your car, such as add-
ing air conditioning or a new engine. Decrease your basis
by any section 179 deduction, special depreciation allow-
ance, gas guzzler tax, and vehicle credits claimed. See
Pub. 551, Basis of Assets, for further details.
If your business use later falls to 50% or less, you
may have to recapture (include in your income)
any excess depreciation. See Car Used 50% or
Less for Business, later, for more information.
If you acquired the car by gift or inheritance, see Pub.
551, Basis of Assets, for information on your basis in the
car.
Improvements. A major improvement to a car is trea-
ted as a new item of 5-year recovery property. It is treated
as placed in service in the year the improvement is made.
It doesn’t matter how old the car is when the improvement
is added. Follow the same steps for depreciating the im-
provement as you would for depreciating the original cost
of the car. However, you must treat the improvement and
the car as a whole when applying the limits on the depre-
ciation deductions. Your car's depreciation deduction for
the year (plus any section 179 deduction, special depreci-
ation allowance, and depreciation on any improvements)
can’t be more than the depreciation limit that applies for
that year. See Depreciation Limits, later.
Car trade-in. If you traded one car (the “old car”) for an-
other car (the “new car”) in 2023, you must treat the trans-
action as a disposition of the old car and the purchase of
the new car. You must treat the old car as disposed of at
the time of the trade-in. The depreciable basis of the new
car is the adjusted basis of the old car (figured as if 100%
of the car’s use had been for business purposes) plus any
additional amount you paid for the new car. You then fig-
ure your depreciation deduction for the new car beginning
with the date you placed it in service. You must also com-
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plete Form 2106, Part II, Section D. This method is ex-
plained later, beginning at Effect of trade-in on basis.
Form 2106 is only used by Armed Forces reserv-
ists, qualified performing artists, fee-basis state or
local government officials, and employees with
impairment-related work expenses. Due to the suspension
of miscellaneous itemized deductions subject to the 2%
floor under section 67(a), employees who do not fit into
one of the listed categories may not use Form 2106.
Effect of trade-in on basis. The discussion that fol-
lows applies to trade-ins of cars in 2023, where the elec-
tion was made to treat the transaction as a disposition of
the old car and the purchase of the new car. For informa-
tion on how to figure depreciation for cars involved in a
like-kind exchange (trade-in) in 2023, for which the elec-
tion wasn’t made, see Pub. 946 and Regulations section
1.168(i)-6(d)(3).
Note. Like-kind exchanges completed after December
31, 2017, are generally limited to exchanges of real prop-
erty not held primarily for sale. Regulations section
1.168(i)-6 doesn't reflect this change in law.
Traded car used only for business. If you trade in a
car you used only in your business for another car that will
be used only in your business, your original basis in the
new car is your adjusted basis in the old car, plus any ad-
ditional amount you pay for the new car.
Example. You trade in a car that has an adjusted basis
of $5,000 for a new car. In addition, you pay cash of
$20,000 for the new car. Your original basis of the new car
is $25,000 (your $5,000 adjusted basis in the old car plus
the $20,000 cash paid). Your unadjusted basis is $25,000
unless you claim the section 179 deduction, special de-
preciation allowance, or have other increases or decrea-
ses to your original basis, discussed under Unadjusted
basis, earlier.
Traded car used partly in business. If you trade in a
car you used partly in your business for a new car you will
use in your business, you must make a “trade-in” adjust-
ment for the personal use of the old car. This adjustment
has the effect of reducing your basis in your old car, but
not below zero, for purposes of figuring your depreciation
deduction for the new car. (This adjustment isn’t used,
however, when you determine the gain or loss on the later
disposition of the new car. See Pub. 544, Sales and Other
Dispositions of Assets, for information on how to report the
disposition of your car.)
To figure the unadjusted basis of your new car for de-
preciation, first add to your adjusted basis in the old car
any additional amount you pay for the new car. Then sub-
tract from that total the excess, if any, of:
1. The total of the amounts that would have been allowa-
ble as depreciation during the tax years before the
trade if 100% of the use of the car had been business
and investment use, over
2. The total of the amounts actually allowed as deprecia-
tion during those years.
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For information about figuring depreciation, see Modified
Accelerated Cost Recovery System (MACRS) next.
Modified Accelerated Cost Recovery System
(MACRS). MACRS is the name given to the tax rules for
getting back (recovering) through depreciation deductions
the cost of property used in a trade or business or to pro-
duce income.
The maximum amount you can deduct is limited, de-
pending on the year you placed your car in service. See
Depreciation Limits, later.
Recovery period. Under MACRS, cars are classified
as 5-year property. You actually depreciate the cost of a
car, truck, or van over a period of 6 calendar years. This is
because your car is generally treated as placed in service
in the middle of the year, and you claim depreciation for
one-half of both the first year and the sixth year.
For more information on the qualifications for this
shorter recovery period and the percentages to use in fig-
uring the depreciation deduction, see chapter 4 of Pub.
946.
Depreciation methods. You can use one of the fol-
lowing methods to depreciate your car.
•
The 200% declining balance method (200% DB) over
a 5-year recovery period that switches to the straight
line method when that method provides an equal or
greater deduction.
•
The 150% declining balance method (150% DB) over
a 5-year recovery period that switches to the straight
line method when that method provides an equal or
greater deduction.
•
The straight line method (SL) over a 5-year recovery
period.
If you use Table 4-1 (discussed later) to determine
your depreciation rate for 2023, you don’t need to
determine in what year using the straight line
method provides an equal or greater deduction. This is
because the chart has the switch to the straight line
method built into its rates.
Before choosing a method, you may wish to consider
the following facts.
•
Using the straight line method provides equal yearly
deductions throughout the recovery period.
•
Using the declining balance methods provides greater
deductions during the earlier recovery years with the
deductions generally getting smaller each year.
MACRS depreciation chart. A 2023 MACRS Deprecia-
tion Chart and instructions are included in this chapter as
Table 4-1. Using this table will make it easy for you to fig-
ure the 2023 depreciation deduction for your car. A similar
chart appears in the Instructions for Form 2106.
You may have to use the tables in Pub. 946 in-
stead of using this MACRS Depreciation Chart.
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CAUTION
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You must use the Depreciation Tables in Pub. 946
rather than the 2023 MACRS Depreciation Chart in this
publication if any one of the following three conditions ap-
plies to you.
1. You file your return on a fiscal year basis.
2. You file your return for a short tax year (less than 12
months).
3. During the year, all of the following conditions apply.
a. You placed some property in service from January
through September.
b. You placed some property in service from October
through December.
c. Your basis in the property you placed in service
from October through December (excluding non-
residential real property, residential rental property,
and property placed in service and disposed of in
the same year) was more than 40% of your total
bases in all property you placed in service during
the year.
Depreciation in future years. If you use the percen-
tages from the chart, you generally must continue to use
them for the entire recovery period of your car. However,
you can’t continue to use the chart if your basis in your car
is adjusted because of a casualty. In that case, for the year
of the adjustment and the remaining recovery period, fig-
ure the depreciation without the chart using your adjusted
basis in the car at the end of the year of the adjustment
and over the remaining recovery period. See Figuring the
Deduction Without Using the Tables in chapter 4 of Pub.
946.
In future years, don’t use the chart in this edition
of the publication. Instead, use the chart in the
publication or the form instructions for those future
years.
Disposition of car during recovery period. If you
dispose of the car before the last year of the recovery pe-
riod, you are generally allowed a half-year of depreciation
in the year of disposition. This rule applies unless the
mid-quarter convention applies to the vehicle being dis-
posed of. See Depreciation deduction for the year of dis-
position under Disposition of a Car, later, for information
on how to figure the depreciation allowed in the year of
disposition.
How to use the 2023 chart. To figure your deprecia-
tion deduction for 2023, find the percentage in the column
of Table 4-1 based on the date that you first placed the car
in service and the depreciation method that you are using.
Multiply the unadjusted basis of your car (defined earlier)
by that percentage to determine the amount of your depre-
ciation deduction. If you prefer to figure your depreciation
deduction without the help of the chart, see Pub. 946.
Your deduction can’t be more than the maximum
depreciation limit for cars. See Depreciation Lim-
its, later.
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Example. You bought a used truck in February 2022 to
use exclusively in your landscape business. You paid
$9,200 for the truck with no trade-in. You didn’t claim any
section 179 deduction, the truck didn’t qualify for the spe-
cial depreciation allowance, and you chose to use the
200% DB method to get the largest depreciation deduc-
tion in the early years.
You used the MACRS Depreciation Chart in 2022 to
find your percentage. The unadjusted basis of the truck
equals its cost because you used it exclusively for busi-
ness. You multiplied the unadjusted basis of the truck,
$9,200, by the percentage that applied, 20%, to figure
your 2022 depreciation deduction of $1,840.
In 2023, you used the truck for personal purposes when
you repaired your parent’s cabin. Your records show that
the business use of the truck was 90% in 2023. You used
Table 4-1 to find your percentage. Reading down the first
column for the date placed in service and across to the
200% DB column, you locate your percentage, 32%. You
multiply the unadjusted basis of the truck, $8,280 ($9,200
cost × 90% (0.90) business use), by 32% (0.32) to figure
your 2023 depreciation deduction of $2,650.
Depreciation Limits
There are limits on the amount you can deduct for depre-
ciation of your car, truck, or van. The section 179 deduc-
tion and special depreciation allowance are treated as de-
preciation for purposes of the limits. The maximum
amount you can deduct each year depends on the date
you acquired the passenger automobile and the year you
place the passenger automobile in service. These limits
are shown in the following tables for 2023.
Maximum
Depreciation Deduction
for Passenger Automobiles (Including
Trucks and
Vans) Acquired Before September 28, 2017,
and
Placed in Service During 2018–2023
Date 4th &
Placed in 1st 2nd 3rd Later
Service Year Year Year Years
2023 $12,200 $19,500 $11,700 $6,960
2022 11,200 18,000 10,800 6,460
2021 10,200 16,400 9,800 5,860
2020 10,100 16,100 9,700 5,760
2019 14,900
1
16,100 9,700 5,760
2018 16,400
2
16,000 9,600 5,760
1
$10,100 if the passenger automobile isn’t qualified property or if you elect not to claim
the special depreciation allowance.
2
$10,000 if the passenger automobile isn’t qualified property or if you elect not to claim
the special depreciation allowance.
Maximum
Depreciation Deduction
for Passenger Automobiles (Including
Trucks and
Vans) Acquired After September 27, 2017,
and
Placed in Service During 2018 or Later
Date 4th &
Placed in 1st 2nd 3rd Later
Service Year Year Year Years
2023 $20,200
1
$19,500 $11,700 $6,960
2022 19,200
2
18,000 10,800 6,460
2021 18,200
3
16,400 9,800 5,860
2019–2020 18,100
4
16,100 9,700 5,760
2018 18,000
5
16,000 9,600 5,760
1
$12,200 if the passenger automobile isn’t qualified property or if you elect not to claim
the special depreciation allowance.
2
$11,200 if the passenger automobile isn’t qualified property or if you elect not to claim
the special depreciation allowance.
3
$10,200 if the passenger automobile isn’t qualified property or if you elect not to claim
the special depreciation allowance.
4
$10,100 if the passenger automobile isn’t qualified property or if you elect not to claim
the special depreciation allowance.
5
$10,000 if the passenger automobile isn’t qualified property or if you elect not to claim
the special depreciation allowance.
The maximum amount you can deduct each year de-
pends on the year you place the car in service. These lim-
its are shown in the following tables for prior years.
Maximum
Depreciation Deduction
for Cars Placed in Service
Prior to 2018
Date 4th &
Placed 1st 2nd 3rd Later
in Service Year Year Year Years
2012–2017 $11,160
1
$5,100 $3,050 $1,875
2010–2011 11,060
2
4,900 2,950 1,775
2008–2009 10,960
3
4,800 2,850 1,775
2007 3,060 4,900 2,850 1,775
2006 2,960 4,800 2,850 1,775
2005 2,960 4,700 2,850 1,675
2004 10,610
3
4,800 2,850 1,675
5/06/2003–
12/31/2003
10,710
4
4,900 2,950 1,775
1/01/2003–
5/05/2003
7,660
5
4,900 2,950 1,775
1
$3,160 if the car isn’t qualified property or if you elect not to claim the special
depreciation allowance.
2
$3,060 if the car isn’t qualified property or if you elect not to claim the special
depreciation allowance.
3
$2,960 if the car isn’t qualified property or if you elect not to claim the special
depreciation allowance.
4
$7,660 if you acquired the car before 5/06/2003. $3,060 if the car isn’t qualified
property or if you elect not to claim any special depreciation allowance.
5
$3,060 if you acquired the car before 9/11/2001, the car isn’t qualified property, or
you elect not to claim the special depreciation allowance.
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Trucks and vans. For tax years prior to 2018, the
maximum depreciation deductions for trucks and vans are
generally higher than those for cars. A truck or van is a
passenger automobile that is classified by the manufac-
turer as a truck or van and rated at 6,000 pounds gross
vehicle weight or less.
Maximum
Depreciation Deduction
for Trucks and Vans
Placed in Service
Prior to 2018
Maximum Depreciation Deduction for Trucks and
Vans Placed in Service Prior to 2018
Date 4th &
Placed 1st 2nd 3rd Later
in Service Year Year Year Years
2017 $11,560
1
$5,700 $3,450 $2,075
2016 11,560
1
5,700 3,350 2,075
2015 11,460
1
5,600 3,350 1,975
2014 11,460
1
5,500 3,350 1,975
2013 11,360
1
5,400 3,250 1,975
2012 11,360
1
5,300 3,150 1,875
2011 11,260
1
5,200 3,150 1,875
2010 11,160
1
5,100 3,050 1,875
2009 11,060
1
4,900 2,950 1,775
2008 11,160
1
5,100 3,050 1,875
2007 3,260 5,200 3,050 1,875
2005–2006 3,260 5,200 3,150 1,875
2004 10,910
1
5,300 3,150 1,875
2003 11,010
1, 2
5,400 3,250 1,975
1
If the special depreciation allowance doesn’t apply or you make the election not to
claim the special depreciation allowance, the first-year limit is $3,560 for 2017
and 2016, $3,460 for 2015 and 2014, $3,360 for 2013 and 2012, $3,260 for
2011, $3,160 for 2010, $3,060 for 2009, $3,160 for 2008, $3,260 for 2004, and
$3,360 for 2003.
2
If the truck or van was acquired before 5/06/2003, the truck or van is qualified
property, and you claim the special depreciation allowance for the truck or van,
the maximum deduction is $7,960.
Car used less than full year. The depreciation limits
aren’t reduced if you use a car for less than a full year.
This means that you don’t reduce the limit when you either
place a car in service or dispose of a car during the year.
However, the depreciation limits are reduced if you don’t
use the car exclusively for business and investment purpo-
ses. See Reduction for personal use next.
Reduction for personal use. The depreciation limits are
reduced based on your percentage of personal use. If you
use a car less than 100% in your business or work, you
must determine the depreciation deduction limit by multi-
plying the limit amount by the percentage of business and
investment use during the tax year.
Section 179 deduction. The section 179 deduction is
treated as a depreciation deduction. If you acquired a pas-
senger automobile (including trucks and vans) after Sep-
tember 27, 2017, and placed it in service in 2023, use it
only for business, and choose the section 179 deduction,
the special depreciation allowance and depreciation de-
duction for that vehicle for 2023 is limited to $20,200.
Example. On September 4, 2023, you bought and
placed in service a used car for $15,000. You used it 80%
for your business, and you choose to take a section 179
deduction for the car. The car isn’t qualified property for
purposes of the special depreciation allowance.
Before applying the limit, you figure your maximum sec-
tion 179 deduction to be $12,000. This is the cost of your
qualifying property (up to the maximum $1,160,000
amount) multiplied by your business use ($15,000 × 80%
(0.80)).
You then figure that your section 179 deduction for
2023 is limited to $9,760 (80% of $12,200). You then fig-
ure your unadjusted basis of $2,440 (($15,000 × 80%
(0.80)) − $9,760) for determining your depreciation deduc-
tion. You have reached your maximum depreciation de-
duction for 2023. For 2024, you will use your unadjusted
basis of $2,440 to figure your depreciation deduction.
Deductions in years after the recovery period. If the
depreciation deductions for your car are reduced under
the passenger automobile limits (discussed earlier), you
will have unrecovered basis in your car at the end of the
recovery period. If you continue to use your car for busi-
ness, you can deduct that unrecovered basis (subject to
depreciation limits) after the recovery period ends.
Unrecovered basis. This is your cost or other basis in
the car reduced by any clean-fuel vehicle deduction (for
vehicles placed in service before January 1, 2006), alter-
native motor vehicle credit, electric vehicle credit, gas guz-
zler tax, and depreciation (including any special deprecia-
tion allowance, discussed earlier, unless you elect not to
claim it) and section 179 deductions that would have been
allowable if you had used the car 100% for business and
investment use.
The recovery period. For 5-year property, your recov-
ery period is 6 calendar years. A part year's depreciation
is allowed in the first calendar year, a full year's deprecia-
tion is allowed in each of the next 4 calendar years, and a
part year's depreciation is allowed in the 6th calendar
year.
Under MACRS, your recovery period is the same
whether you use declining balance or straight line depreci-
ation. You determine your unrecovered basis in the 7th
year after you placed the car in service.
How to treat unrecovered basis. If you continue to
use your car for business after the recovery period, you
can claim a depreciation deduction in each succeeding
tax year until you recover your basis in the car. The maxi-
mum amount you can deduct each year is determined by
the date you placed the car in service and your busi-
ness-use percentage. For example, no deduction is al-
lowed for a year you use your car 100% for personal pur-
poses.
Example. In April 2017, you bought and placed in
service a car you used exclusively in your business. The
car cost $31,500. You didn’t claim a section 179 deduction
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or the special depreciation allowance for the car. You con-
tinued to use the car 100% in your business throughout
the recovery period (2017 through 2022). For those years,
you used the MACRS Depreciation Chart (200% DB
method), the Maximum Depreciation Deduction for Cars
Placed in Service Prior to 2018 table and Maximum De-
preciation Deduction for Passenger Automobiles (Includ-
ing Trucks and Vans) Acquired Before September 28,
2017, and Placed in Service During 2018–2023 table, ear-
lier, for the applicable tax year to figure your depreciation
deductions during the recovery period. Your depreciation
deductions were subject to the depreciation limits, so you
will have unrecovered basis at the end of the recovery pe-
riod as shown in the following table.
MACRS Deprec.
Year % Amount Limit Allowed
2017 20.00 $6,300 $3,160 $3,160
2018 32.00 10,080 5,100 5,100
2019 19.20 6,048 3,050 3,050
2020 11.52 3,629 1,875 1,875
2021 11.52 3,629 1,875 1,875
2022 5.76 1,814 1,875 1,814
Total $31,500 $16,874
For the correct limit, see the Maximum Depreciation
Deduction for Cars Placed in Service Prior to 2018 table
and the Maximum Depreciation Deduction for Passenger
Automobiles (Including Trucks and Vans) Acquired Before
September 28, 2017, and Placed in Service During 2018–
2023 table under Depreciation Limits, earlier, for the maxi-
mum amount of depreciation allowed each year.
At the end of 2022, you had an unrecovered basis in
the car of $14,626 ($31,500 – $16,874). If you continued
to use the car 100% for business in 2023 and later years,
you can claim a depreciation deduction equal to the lesser
of $1,875 or your remaining unrecovered basis.
If your business use of the car was less than 100% dur-
ing any year, your depreciation deduction would be less
than the maximum amount allowable for that year. How-
ever, in determining your unrecovered basis in the car, you
would still reduce your original basis by the maximum
amount allowable as if the business use had been 100%.
For example, if you had used your car 60% for business
instead of 100%, your allowable depreciation deductions
would have been $10,124 ($16,874 × 60% (0.60)), but you
still would have to reduce your basis by $16,874 to deter-
mine your unrecovered basis.
Car Used 50% or Less
for Business
If you use your car 50% or less for qualified business use
(defined earlier under Depreciation Deduction) either in
the year the car is placed in service or in a later year, spe-
cial rules apply. The rules that apply in these two situa-
tions are explained in the following paragraphs. (For this
purpose, “car” was defined earlier under Actual Car Ex-
penses and includes certain trucks and vans.)
Qualified business use 50% or less in year placed in
service. If you use your car 50% or less for qualified busi-
ness use, the following rules apply.
•
You can’t take the section 179 deduction.
•
You can’t take the special depreciation allowance.
•
You must figure depreciation using the straight line
method over a 5-year recovery period. You must con-
tinue to use the straight line method even if your per-
centage of business use increases to more than 50%
in a later year.
Instead of making the computation yourself, you can
use column (c) of Table 4-1 to find the percentage to use.
Example. In May 2023, you bought and placed in
service a car for $17,500. You used it 40% for your con-
sulting business. Because you didn’t use the car more
than 50% for business, you can’t take any section 179 de-
duction or special depreciation allowance, and you must
use the straight line method over a 5-year recovery period
to recover the cost of your car.
You deduct $700 in 2023. This is the lesser of:
1. $700 (($17,500 cost × 40% (0.40) business use) ×
10% (0.10) recovery percentage (from column (c) of
Table 4-1)), or
2. $4,880 ($12,200 maximum limit × 40% (0.40) busi-
ness use).
Qualified business use 50% or less in a later year. If
you use your car more than 50% in qualified business use
in the tax year it is placed in service but the business use
drops to 50% or less in a later year, you can no longer use
an accelerated depreciation method for that car.
For the year the business use drops to 50% or less and
all later years in the recovery period, you must use the
straight line depreciation method over a 5-year recovery
period. In addition, for the year your business use drops to
50% or less, you must recapture (include in your gross in-
come) any excess depreciation (discussed later). You also
increase the adjusted basis of your car by the same
amount.
Example. In June 2020, you purchased a car for exclu-
sive use in your business. You met the
more-than-50%-use test for the first 3 years of the recov-
ery period (2020 through 2022) but failed to meet it in the
fourth year (2023). You determine your depreciation for
2023 using 20% (from column (c) of Table 4-1). You will
also have to determine and include in your gross income
any excess depreciation, discussed next.
Excess depreciation. You must include any excess
depreciation in your gross income and add it to your car's
adjusted basis for the first tax year in which you don’t use
the car more than 50% in qualified business use. Use
Form 4797, Sales of Business Property, to figure and re-
port the excess depreciation in your gross income.
Excess depreciation is:
1. The amount of the depreciation deductions allowable
for the car (including any section 179 deduction
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claimed and any special depreciation allowance
claimed) for tax years in which you used the car more
than 50% in qualified business use, minus
2. The amount of the depreciation deductions that would
have been allowable for those years if you hadn’t used
the car more than 50% in qualified business use for
the year you placed it in service. This means the
amount of depreciation figured using the straight line
method.
Example. In September 2019, you bought a car for
$20,500 and placed it in service. You didn’t claim the sec-
tion 179 deduction or the special depreciation allowance.
You used the car exclusively in qualified business use for
2019, 2020, 2021, and 2022. For those years, you used
the appropriate MACRS Depreciation Chart to figure de-
preciation deductions totaling $13,185 ($3,160 for 2019,
$5,100 for 2020, $3,050 for 2021, and $1,875 for 2022)
under the 200% DB method.
During 2023, you used the car 30% for business and
70% for personal purposes. Since you didn’t meet the
more-than-50%-use test, you must switch from the 200%
DB depreciation method to the straight line depreciation
method for 2023, and include in gross income for 2023
your excess depreciation determined as follows.
Table 4-1. 2023 MACRS Depreciation Chart
(Use To Figure Depreciation for 2023)
If you claim actual expenses for your car, use the chart below to find the
depreciation method and percentage to use for your 2023 return for cars
placed in service in 2023.
First, using the left column, find the date you first placed the car in service in
2023. Then select the depreciation method and percentage from column
(a), (b), or (c) following the rules explained in this chapter.
For cars placed in service before 2023, you must use the same
method you used on last year's return unless a decline in your
business use requires you to change to the straight line method. Refer
back to the MACRS Depreciation Chart for the year you placed the car
in service. (See Car Used 50% or Less for Business, earlier.)
Multiply the unadjusted basis of your car by your business-use
percentage. Multiply the result by the percentage you found in the
chart to find the amount of your depreciation deduction for 2023. (Also
see Depreciation Limits, earlier.)
CAUTION
!
If you placed your car in service after September of any year and you placed other business property in service during the same
year, you may have to use the Jan. 1–Sept. 30 percentage instead of the Oct. 1–Dec. 31 percentage for your car. To find out if this
applies to you, determine: 1) the basis of all business property (including other cars) you placed in service after September of that
year, and 2) the basis of all business property you placed in service during that entire year. If the basis of the property placed in
service after September isn’t more than 40% of the basis of all property (certain property is excluded) placed in service for the entire
year, use the percentage for Jan. 1–Sept. 30 for figuring depreciation for your car. See Which Convention Applies? in chapter 4 of
Pub. 946 for more details.
Example. You buy machinery (basis of $32,000) in May 2023 and a new van (basis of $20,000) in October 2023, both used 100% in your business.
You use the percentage for Jan. 1–Sept. 30, 2023, to figure the depreciation for your van. This is because the $20,000 basis of the property (van)
placed in service after September isn’t more than 40% of the basis of all property placed in service during the year (40% (0.40) × ($32,000 + 20,000)
= $20,800).
(a) (b) (c)
Date Placed in Service
200% Declining
Balance (200% DB)
1
150% Declining
Balance (150% DB)
1
Straight Line
(SL)
Oct. 1–Dec. 31, 2023 200 DB 5.0% 150 DB 3.75% SL 2.5%
Jan. 1–Sept. 30, 2023 200 DB 20.0 150 DB 15.0 SL 10.0
Oct. 1–Dec. 31, 2022 200 DB 38.0 150 DB 28.88 SL 20.0
Jan. 1–Sept. 30, 2022 200 DB 32.0 150 DB 25.5 SL 20.0
Oct. 1–Dec. 31, 2021 200 DB 22.8 150 DB 20.21 SL 20.0
Jan. 1–Sept. 30, 2021 200 DB 19.2 150 DB 17.85 SL 20.0
Oct. 1–Dec. 31, 2020 200 DB 13.68 150 DB 16.4 SL 20.0
Jan. 1–Sept. 30, 2020 200 DB 11.52 150 DB 16.66 SL 20.0
Oct. 1–Dec. 31, 2019 200 DB 10.94 150 DB 16.41 SL 20.0
Jan. 1–Sept. 30, 2019 200 DB 11.52 150 DB 16.66 SL 20.0
Oct. 1–Dec. 31, 2018 200 DB 9.58 150 DB 14.35 SL 17.5
Jan. 1–Sept. 30, 2018 200 DB 5.76 150 DB 8.33 SL 10.0
Prior to 2018
2
1
You can use this column only if the business use of your car is more than 50%.
2
If your car was subject to the maximum limits for depreciation and you have unrecovered basis in the car, you can continue to claim depreciation. See
Deductions in years after the recovery period under Depreciation Limits, earlier.
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Total depreciation claimed:
(MACRS 200% DB method) ................. $13,185
Minus total depreciation allowable:
(Straight line method)
2019—10% of $20,500 .............. $2,050
(Limit: $3,160)
2020—20% of $20,500 .............. 4,100
(Limit: $5,100)
2021—20% of $20,500 .............. 3,050
(Limit: $3,050)
2022—20% of $20,500 .............. 1,875 –11,075
(Limit: $1,875)
Excess depreciation ................ $2,110
For the correct limit, see the Maximum Depreciation
Deduction for Cars Placed in Service Prior to 2018 table
and the Maximum Depreciation Deduction for Passenger
Automobiles (Including Trucks and Vans) Acquired Before
September 28, 2017, and Placed in Service During
2018-2023 table under Depreciation Limits, earlier, for the
maximum amount of depreciation allowed each year.
In 2023, using Form 4797, you figure and report the
$2,110 excess depreciation you must include in your
gross income. Your adjusted basis in the car is also in-
creased by $2,110. Your 2023 depreciation is $1,230
($20,500 (unadjusted basis) × 30% (0.30) (business-use
percentage) × 20% (0.20) (from column (c) of Table 4-1 on
the line for Jan. 1–Sept. 30, 2019)). However, your depre-
ciation deduction is limited to $563 ($1,875 x 30% (0.30)
business use).
Leasing a Car
If you lease a car, truck, or van that you use in your busi-
ness, you can use the standard mileage rate or actual ex-
penses to figure your deductible expense. This section ex-
plains how to figure actual expenses for a leased car,
truck, or van.
Deductible payments. If you choose to use actual ex-
penses, you can deduct the part of each lease payment
that is for the use of the vehicle in your business. You can’t
deduct any part of a lease payment that is for personal
use of the vehicle, such as commuting.
You must spread any advance payments over the entire
lease period. You can’t deduct any payments you make to
buy a car, truck, or van even if the payments are called
“lease payments.”
If you lease a car, truck, or van for 30 days or more, you
may have to reduce your lease payment deduction by an
“inclusion amount,” explained next.
Inclusion Amounts
If you lease a car, truck, or van that you use in your busi-
ness for a lease term of 30 days or more, you may have to
include an inclusion amount in your income for each tax
year you lease the vehicle. To do this, you don’t add an
amount to income. Instead, you reduce your deduction for
your lease payment. (This reduction has an effect similar
to the limit on the depreciation deduction you would have
on the vehicle if you owned it.)
The inclusion amount is a percentage of part of the fair
market value of the leased vehicle multiplied by the per-
centage of business and investment use of the vehicle for
the tax year. It is prorated for the number of days of the
lease term in the tax year.
The inclusion amount applies to each tax year that you
lease the vehicle if the fair market value (defined next)
when the lease began was more than the amounts shown
in the following tables.
All vehicles are subject to a single inclusion amount
threshold for passenger automobiles leased and put into
service in 2023. You may have an inclusion amount for a
passenger automobile if:
Passenger Automobiles
(Including Trucks and Vans)
Year Lease Began Fair Market Value
2023 $60,000
2022 56,000
2021 51,000
2018
*
–2020 50,000
*If the lease term began before 2018, see tables below to find out if you have an inclusion amount.
For years prior to 2018, see the inclusion tables below.
You may have an inclusion amount for a passenger auto-
mobile if:
Cars
(Except for Trucks and Vans)
Year Lease Began Fair Market Value
2013–2017 $19,000
2010–2012 18,500
Trucks and Vans
Year Lease Began Fair Market Value
.
2014–2017 $19,500
2010–2013 19,000
Fair market value. Fair market value is the price at which
the property would change hands between a willing buyer
and seller, neither having to buy or sell, and both having
reasonable knowledge of all the necessary facts. Sales of
similar property around the same date may be helpful in
figuring the fair market value of the property.
Figure the fair market value on the first day of the lease
term. If the capitalized cost of a car is specified in the
lease agreement, use that amount as the fair market
value.
Figuring the inclusion amount. Inclusion amounts for
tax years 2018–2023 are listed in Appendices A-1 through
A-6 for passenger vehicles (including trucks and vans). If
the fair market value of the vehicle is $100,000 or less, use
the appropriate appendix (depending on the year you first
placed the vehicle in service) to determine the inclusion
amount. If the fair market value is more than $100,000,
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see the revenue procedure(s) identified in the footnote of
that year’s appendix for the inclusion amount.
For each tax year during which you lease the car for
business, determine your inclusion amount by following
these three steps.
1. Locate the appendix that applies to you. To find the in-
clusion amount, do the following.
a. Find the line that includes the fair market value of
the car on the first day of the lease term.
b. Go across the line to the column for the tax year in
which the car is used under the lease to find the
dollar amount. For the last tax year of the lease,
use the dollar amount for the preceding year.
2. Prorate the dollar amount from (1b) for the number of
days of the lease term included in the tax year.
3. Multiply the prorated amount from (2) by the percent-
age of business and investment use for the tax year.
This is your inclusion amount.
Example. On January 17, 2023, you leased a car for 3
years and placed it in service for use in your business.
The car had a fair market value of $62,500 on the first day
of the lease term. You use the car 75% for business and
25% for personal purposes during each year of the lease.
Assuming you continue to use the car 75% for business,
you use Appendix A-6 to arrive at the following inclusion
amounts for each year of the lease. For the last tax year of
the lease, 2026, you use the amount for the preceding
year.
Tax year
Dollar
amount Proration Business use
Inclusion
amount
2023 $13 348/365 75% $9
2024 29 366/366 75% 22
2025 43 365/365 75% 32
2026 43 16/365 75% 1
Note. 2024 is a leap year and includes an extra calen-
dar day, February 29, 2024.
For each year of the lease that you deduct lease pay-
ments, you must reduce your deduction by the inclusion
amount figured for that year.
Leased car changed from business to personal use.
If you lease a car for business use and, in a later year,
change it to personal use, follow the rules explained ear-
lier under Figuring the inclusion amount. For the tax year
in which you stop using the car for business, use the dollar
amount for the previous tax year. Prorate the dollar
amount for the number of days in the lease term that fall
within the tax year.
Example. On August 16, 2022, you leased a car with a
fair market value of $64,500 for 3 years. You used the car
exclusively in your data processing business. On Novem-
ber 6, 2023, you closed your business and went to work
for a company where you aren’t required to use a car for
business. Using Appendix A-5, you figured your inclusion
amount for 2022 and 2023 as shown in the following table
and reduced your deductions for lease payments by those
amounts.
Tax year Dollar amount Proration Business use
Inclusion
amount
2022 $11 137/365 100% $4
2023 11 309/365 100% 9
Leased car changed from personal to business use.
If you lease a car for personal use and, in a later year,
change it to business use, you must determine the car's
fair market value on the date of conversion. Then figure
the inclusion amount using the rules explained earlier un-
der Figuring the inclusion amount. Use the fair market
value on the date of conversion.
Example. In March 2021, you leased a truck for 4
years for personal use. On June 1, 2023, you started
working as a self-employed advertising consultant and
started using the leased truck for business purposes. Your
records show that your business use for June 1 through
December 31 was 60%. To figure your inclusion amount
for 2023, you obtained an appraisal from an independent
car leasing company that showed the fair market value of
your 2021 truck on June 1, 2023, was $62,650. Using Ap-
pendix A-6, you figured your inclusion amount for 2023 as
shown in the following table.
Tax year
Dollar
amount Proration Business use
Inclusion
amount
2023 $13 214/365 60% $5
Reporting inclusion amounts. For information on re-
porting inclusion amounts, employees should see Car
rentals under Completing Forms 2106 in chapter 6. Sole
proprietors should see the Instructions for Schedule C
(Form 1040), and farmers should see the Instructions for
Schedule F (Form 1040).
Disposition of a Car
If you dispose of your car, you may have a taxable gain or
a deductible loss. The portion of any gain that is due to
depreciation (including any section 179 deduction,
clean-fuel vehicle deduction (for vehicles placed in service
before January 1, 2006), and special depreciation allow-
ance) that you claimed on the car will be treated as ordi-
nary income. However, you may not have to recognize a
gain or loss if you dispose of the car because of a casualty
or theft.
This section gives some general information about dis-
positions of cars. For information on how to report the dis-
position of your car, see Pub. 544.
Note. Like-kind exchanges completed after December
31, 2017, are generally limited to exchanges of real prop-
erty not held primarily for sale.
Casualty or theft. For a casualty or theft, a gain results
when you receive insurance or other reimbursement that
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is more than your adjusted basis in your car. If you then
spend all of the proceeds to acquire replacement property
(a new car or repairs to the old car) within a specified pe-
riod of time, you don’t recognize any gain. Your basis in
the replacement property is its cost minus any gain that
isn’t recognized. See Pub. 547 for more information.
Trade-in. When you trade in an old car for a new one, the
transaction is considered a like-kind exchange. Generally,
no gain or loss is recognized. (For exceptions, see chap-
ter 1 of Pub. 544.) In a trade-in situation, your basis in the
new property is generally your adjusted basis in the old
property plus any additional amount you pay. (See Unad-
justed basis, earlier.)
Depreciation adjustment when you used the stand-
ard mileage rate. If you used the standard mileage rate
for the business use of your car, depreciation was inclu-
ded in that rate. The rate of depreciation that was allowed
in the standard mileage rate is shown in the Rate of De-
preciation Allowed in Standard Mileage Rate table, later.
You must reduce your basis in your car (but not below
zero) by the amount of this depreciation.
If your basis is reduced to zero (but not below zero)
through the use of the standard mileage rate, and you
continue to use your car for business, no adjustment (re-
duction) to the standard mileage rate is necessary. Use
the full standard mileage rate (65.5 cents ($0.655) per
mile from January 1–December 31 for 2023) for business
miles driven.
These rates don’t apply for any year in which the
actual expenses method was used.
Rate of Depreciation Allowed in Standard Mileage
Rate
Year(s) Depreciation Rate per Mile
.
2023 0.28
2021–2022 0.26
2020 0.27
2019 0.26
2017–2018 0.25
2015–2016 0.24
2014 0.22
2012–2013 0.23
2011 0.22
2010 0.23
2008–2009 0.21
2007 0.19
2005–2006 0.17
2003–2004 0.16
2001–2002 0.15
2000 0.14
Example. In 2018, you bought and placed in service a
car for exclusive use in your business. The car cost
$25,500. From 2018 through 2023, you used the standard
mileage rate to figure your car expense deduction. You
drove your car 14,100 miles in 2018, 16,300 miles in
2019, 15,600 miles in 2020, 16,700 miles in 2021, 15,100
miles in 2022, and 14,900 miles in 2023. The depreciation
TIP
portion of your car expense deduction is figured as fol-
lows.
Year Miles x Rate Depreciation
2018 14,100 × $0.25 $3,525
2019 16,300 × 0.26 4,238
2020 15,600 × 0.27 4,212
2021 16,700 × 0.26 4,342
2022 15,100 × 0.26 3,926
2023 14,900 × 0.28 4,172
Total depreciation $24,415
At the end of 2023, your adjusted basis in the car is
$1,085 ($25,500 − $24,415).
Depreciation deduction for the year of disposition. If
you deduct actual car expenses and you dispose of your
car before the end of the recovery period (years 2 through
5), you are allowed a reduced depreciation deduction in
the year of disposition.
Use the depreciation tables in Pub. 946 to figure the re-
duced depreciation deduction for a car disposed of in
2023.
The depreciation amounts computed using the depreci-
ation tables in Pub. 946 for years 2 through 5 that you own
your car are for a full year’s depreciation. Years 1 and 6
apply the half-year or mid-quarter convention to the com-
putation for you. If you dispose of the vehicle in years 2
through 5 and the half-year convention applies, then the
full year’s depreciation amount must be divided by 2. If the
mid-quarter convention applies, multiply the full year’s de-
preciation by the percentage from the following table for
the quarter that you disposed of the car.
Quarter Percentage
First ............................. 12.5%
Second ........................... 37.5
Third ............................. 62.5
Fourth ............................ 87.5
If the car is subject to the Depreciation Limits, dis-
cussed earlier, reduce (but do not increase) the computed
depreciation to this amount. See Sale or Other Disposition
Before the Recovery Period Ends in chapter 4 of Pub. 946
for more information.
5.
Recordkeeping
If you deduct travel, gift, or transportation expenses, you
must be able to prove (substantiate) certain elements of
expense. This chapter discusses the records you need to
keep to prove these expenses.
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If you keep timely and accurate records, you will
have support to show the IRS if your tax return is
ever examined. You will also have proof of expen-
ses that your employer may require if you are reimbursed
under an accountable plan. These plans are discussed in
chapter 6 under Reimbursements.
How To Prove Expenses
Table 5-1 is a summary of records you need to prove each
expense discussed in this publication. You must be able to
prove the elements listed across the top portion of the
chart. You prove them by having the information and re-
ceipts (where needed) for the expenses listed in the first
column.
You can’t deduct amounts that you approximate or
estimate.
You should keep adequate records to prove your ex-
penses or have sufficient evidence that will support your
own statement. You must generally prepare a written re-
cord for it to be considered adequate. This is because
written evidence is more reliable than oral evidence alone.
However, if you prepare a record on a computer, it is con-
sidered an adequate record.
What Are Adequate Records?
You should keep the proof you need in an account book,
diary, log, statement of expense, trip sheets, or similar re-
cord. You should also keep documentary evidence that,
together with your record, will support each element of an
expense.
Documentary evidence. You must generally have docu-
mentary evidence such as receipts, canceled checks, or
bills, to support your expenses.
Exception. Documentary evidence isn’t needed if any
of the following conditions apply.
•
You have meals or lodging expenses while traveling
away from home for which you account to your em-
ployer under an accountable plan, and you use a per
diem allowance method that includes meals and/or
lodging. (Accountable plans and per diem allowances
are discussed in chapter 6.)
•
Your expense, other than lodging, is less than $75.
•
You have a transportation expense for which a receipt
isn’t readily available.
Adequate evidence. Documentary evidence will ordi-
narily be considered adequate if it shows the amount,
date, place, and essential character of the expense.
For example, a hotel receipt is enough to support ex-
penses for business travel if it has all of the following infor-
mation.
•
The name and location of the hotel.
•
The dates you stayed there.
RECORDS
CAUTION
!
•
Separate amounts for charges such as lodging,
meals, and telephone calls.
A restaurant receipt is enough to prove an expense for
a business meal if it has all of the following information.
•
The name and location of the restaurant.
•
The number of people served.
•
The date and amount of the expense.
If a charge is made for items other than food and bever-
ages, the receipt must show that this is the case.
Canceled check. A canceled check, together with a
bill from the payee, ordinarily establishes the cost. How-
ever, a canceled check by itself doesn’t prove a business
expense without other evidence to show that it was for a
business purpose.
Duplicate information. You don‘t have to record infor-
mation in your account book or other record that dupli-
cates information shown on a receipt as long as your re-
cords and receipts complement each other in an orderly
manner.
You don’t have to record amounts your employer pays
directly for any ticket or other travel item. However, if you
charge these items to your employer, through a credit card
or otherwise, you must keep a record of the amounts you
spend.
Timely kept records. You should record the elements of
an expense or of a business use at or near the time of the
expense or use and support it with sufficient documentary
evidence. A timely kept record has more value than a
statement prepared later when there is generally a lack of
accurate recall.
You don’t need to write down the elements of every ex-
pense on the day of the expense. If you maintain a log on
a weekly basis that accounts for use during the week, the
log is considered a timely kept record.
If you give your employer, client, or customer an ex-
pense account statement, it can also be considered a
timely kept record. This is true if you copy it from your ac-
count book, diary, log, statement of expense, trip sheets,
or similar record.
Proving business purpose. You must generally provide
a written statement of the business purpose of an ex-
pense. However, the degree of proof varies according to
the circumstances in each case. If the business purpose
of an expense is clear from the surrounding circumstan-
ces, then you don’t need to give a written explanation.
Example. If you are a sales representative who calls
on customers on an established sales route, you don’t
have to give a written explanation of the business purpose
for traveling that route. You can satisfy the requirements by
recording the length of the delivery route once, the date of
each trip at or near the time of the trips, and the total miles
you drove the car during the tax year. You could also es-
tablish the date of each trip with a receipt, record of deliv-
ery, or other documentary evidence.
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Confidential information. You don’t need to put confi-
dential information relating to an element of a deductible
expense (such as the place, business purpose, or busi-
ness relationship) in your account book, diary, or other re-
cord. However, you do have to record the information else-
where at or near the time of the expense and have it
available to fully prove that element of the expense.
What if I Have Incomplete Records?
If you don’t have complete records to prove an element of
an expense, then you must prove the element with:
•
Your own written or oral statement containing specific
information about the element, and
•
Other supporting evidence that is sufficient to estab-
lish the element.
If the element is the description of a gift, or the cost,
time, place, or date of an expense, the supporting evi-
dence must be either direct evidence or documentary evi-
dence. Direct evidence can be written statements or the
oral testimony of your guests or other witnesses setting
forth detailed information about the element. Documen-
tary evidence can be receipts, paid bills, or similar evi-
dence.
If the element is either the business relationship of your
guests or the business purpose of the amount spent, the
supporting evidence can be circumstantial rather than di-
rect. For example, the nature of your work, such as making
deliveries, provides circumstantial evidence of the use of
your car for business purposes. Invoices of deliveries es-
tablish when you used the car for business.
Sampling. You can keep an adequate record for parts of
a tax year and use that record to prove the amount of busi-
ness or investment use for the entire year. You must dem-
onstrate by other evidence that the periods for which an
adequate record is kept are representative of the use
throughout the tax year.
Example. You use your car to visit the offices of cli-
ents, meet with suppliers and other subcontractors, and
pick up and deliver items to clients. There is no other busi-
ness use of the car, but you and your family use the car for
personal purposes. You keep adequate records during the
first week of each month that show that 75% of the use of
the car is for business. Invoices and bills show that your
business use continues at the same rate during the later
weeks of each month. Your weekly records are represen-
tative of the use of the car each month and are sufficient
evidence to support the percentage of business use for
the year.
Exceptional circumstances. You can satisfy the sub-
stantiation requirements with other evidence if, because of
the nature of the situation in which an expense is made,
you can’t get a receipt. This applies if all the following are
true.
•
You were unable to obtain evidence for an element of
the expense or use that completely satisfies the re-
quirements explained earlier under What Are Ade-
quate Records.
•
You are unable to obtain evidence for an element that
completely satisfies the two rules listed earlier under
What if I Have Incomplete Records.
Table 5-1. How To Prove Certain Business Expenses
IF you have
expenses
for . . .
THEN you must keep records that show details of the following elements . . .
Amount Time Place or
Description
Business Purpose
Business Relationship
Travel Cost of each separate
expense for travel,
lodging, and meals.
Incidental expenses
may be totaled in
reasonable categories
such as taxis, fees and
tips, etc.
Dates you left
and returned
for each trip
and number
of days spent
on business.
Destination or area of
your travel (name of
city, town, or other
designation).
Purpose: Business purpose for the expense or the
business benefit gained or expected to be gained.
Relationship: N/A
Gifts Cost of the gift. Date of the
gift.
Description of the gift.
Transportation Cost of each separate
expense. For car
expenses, the cost of
the car and any
improvements, the date
you started using it for
business, the mileage
for each business use,
and the total miles for
the year.
Date of the
expense. For
car
expenses, the
date of the
use of the car.
Your business
destination.
Purpose: Business purpose for the expense.
Relationship: N/A
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•
You have presented other evidence for the element
that is the best proof possible under the circumstan-
ces.
Destroyed records. If you can’t produce a receipt be-
cause of reasons beyond your control, you can prove a
deduction by reconstructing your records or expenses.
Reasons beyond your control include fire, flood, and other
casualties.
Separating and Combining Expenses
This section explains when expenses must be kept sepa-
rate and when expenses can be combined.
Separating expenses. Each separate payment is gener-
ally considered a separate expense. For example, if you
entertain a customer or client at dinner and then go to the
theater, the dinner expense and the cost of the theater
tickets are two separate expenses. You must record them
separately in your records.
Combining items. You can make one daily entry in your
record for reasonable categories of expenses. Examples
are taxi fares, telephone calls, or other incidental travel
costs. Nonentertainment meals should be in a separate
category. You can include tips for meal-related services
with the costs of the meals.
Expenses of a similar nature occurring during the
course of a single event are considered a single expense.
Car expenses. You can account for several uses of
your car that can be considered part of a single use, such
as a round trip or uninterrupted business use, with a single
record. Minimal personal use, such as a stop for lunch on
the way between two business stops, isn’t an interruption
of business use.
Example. You make deliveries at several different lo-
cations on a route that begins and ends at your employer's
business premises and that includes a stop at the busi-
ness premises between two deliveries. You can account
for these using a single record of miles driven.
Gift expenses. You don’t always have to record the
name of each recipient of a gift. A general listing will be
enough if it is evident that you aren’t trying to avoid the
$25 annual limit on the amount you can deduct for gifts to
any one person. For example, if you buy a large number of
tickets to local high school basketball games and give one
or two tickets to each of many customers, it is usually
enough to record a general description of the recipients.
Allocating total cost. If you can prove the total cost of
travel or entertainment but you can’t prove how much it
costs for each person who participated in the event, you
may have to allocate the total cost among you and your
guests on a pro rata basis. To do so, you must establish
the number of persons who participated in the event.
If your return is examined. If your return is examined,
you may have to provide additional information to the IRS.
This information could be needed to clarify or to establish
the accuracy or reliability of information contained in your
records, statements, testimony, or documentary evidence
before a deduction is allowed.
How Long To Keep
Records and Receipts
You must keep records as long as they may be needed for
the administration of any provision of the Internal Revenue
Code. Generally, this means you must keep records that
support your deduction (or an item of income) for 3 years
from the date you file the income tax return on which the
deduction is claimed. A return filed early is considered
filed on the due date. For a more complete explanation of
how long to keep records, see Pub. 583, Starting a Busi-
ness and Keeping Records.
You must keep records of the business use of your car
for each year of the recovery period. See
More-than-50%-use test in chapter 4 under Depreciation
Deduction.
Reimbursed for expenses. Employees who give their
records and documentation to their employers and are re-
imbursed for their expenses generally don’t have to keep
copies of this information. However, you may have to
prove your expenses if any of the following conditions ap-
ply.
•
You claim deductions for expenses that are more than
reimbursements.
•
Your expenses are reimbursed under a nonaccounta-
ble plan.
•
Your employer doesn’t use adequate accounting pro-
cedures to verify expense accounts.
•
You are related to your employer as defined under Per
Diem and Car Allowances in chapter 6.
Reimbursements, adequate accounting, and nonaccount-
able plans are discussed in chapter 6.
Examples of Records
Table 5-2 and Table 5-3 are examples of worksheets that
can be used for tracking business expenses.
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THIS IS NOT AN OFFICIAL INTERNAL REVENUE FORM
Table 5-2. Daily Business Mileage and Expense Log
Name:
Odometer Readings Expenses
Date
Destination
(City, Town, or
Area)
Business
Purpose Start Stop
Miles
this trip
Type
(Gas, oil, tolls,
etc.) Amount
Weekly
Total
Total
Year-to-Date
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THIS IS NOT AN OFFICIAL INTERNAL REVENUE FORM
Table 5-3. Weekly Traveling Expense Record
From: To: Name:
Expenses Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total
1. Travel Expenses:
Airlines
Excess Baggage
Bus – Train
Cab and Limousine
Tips
Porter
2.
Non-Entertainment-Related
Meals and Lodging:
Breakfast
Lunch
Dinner
Hotel and Motel
(Detail in Schedule B)
3. Other Expenses:
Postage
Telephone & Telegraph
Stationery & Printing
Stenographer
Sample Room
Advertising
Assistant(s)
Trade Shows
4. Car Expenses: (List all car expenses—the division between business and personal expenses may be made at the end of the year.)
(Detail mileage in Schedule A (if applicable).)
Gas, oil, lube, wash
Repairs, parts
Tires, supplies
Parking fees, tolls
5. Other (Identify)
Total
Note: Attach receipted bills for (1) ALL lodging and (2) any other expenses of $75.00 or more.
Schedule A—Car
Mileage: End
Start
Total
Business Mileage
Schedule B—Lodging
Hotel or Motel
Name
City
WEEKLY REIMBURSEMENTS:
Travel and transportation expenses.......
Other reimbursements ..............
TOTAL .......................
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6.
How To Report
This chapter explains where and how to report the expen-
ses discussed in this publication. It discusses reimburse-
ments and how to treat them under accountable and non-
accountable plans. It also explains rules for independent
contractors and clients, fee-basis officials, certain per-
forming artists, Armed Forces reservists, and certain disa-
bled employees. The chapter ends with illustrations of
how to report travel, gift, and car expenses on Forms
2106.
Where To Report
This section provides general information on where to re-
port the expenses discussed in this publication.
Self-employed. You must report your income and expen-
ses on Schedule C (Form 1040) if you are a sole proprie-
tor, or on Schedule F (Form 1040) if you are a farmer. You
don’t use Form 2106.
If you claim car or truck expenses, you must provide
certain information on the use of your vehicle. You provide
this information on Schedule C (Form 1040) or Form 4562.
If you file Schedule C (Form 1040):
•
Report your travel expenses, except meals, on
line 24a;
•
Report your deductible non-entertainment-related
meals (actual cost or standard meal allowance) on
line 24b;
•
Report your gift expenses and transportation expen-
ses, other than car expenses, on line 27a; and
•
Report your car expenses on line 9. Complete Part IV
of the form unless you have to file Form 4562 for de-
preciation or amortization.
If you file Schedule F (Form 1040), do the following.
•
Report your car expenses on line 10. Attach Form
4562 and provide information on the use of your car in
Part V of Form 4562.
•
Report all other business expenses discussed in this
publication on line 32. You can only include 50% of
your non-entertainment-related meals on that line.
See your form instructions for more information on how to
complete your tax return.
Both self-employed and an employee. If you are both
self-employed and an employee, you must keep separate
records for each business activity. Report your business
expenses for self-employment on Schedule C (Form
1040), or Schedule F (Form 1040), as discussed earlier.
Report your business expenses for your work as an em-
ployee on Form 2106, as discussed next.
Form 2106 is only used by Armed Forces reserv-
ists, qualified performing artists, fee-basis state or
local government officials, and employees with
impairment-related work expenses. Due to the suspension
of miscellaneous itemized deductions subject to the 2%
floor under section 67(a), employees who do not fit into
one of the listed categories may not use Form 2106.
Employees. If you are an employee, you must generally
complete Form 2106 to deduct your travel and transporta-
tion expenses.
•
You are an employee deducting expenses attributable
to your job.
•
You weren’t reimbursed by your employer for your ex-
penses (amounts included in box 1 of your Form W-2
aren’t considered reimbursements).
•
If you claim car expenses, you use the standard mile-
age rate.
For more information on how to report your expenses
on Form 2106, see Completing Form 2106, later.
Gifts. If you didn’t receive any reimbursements (or the
reimbursements were all included in box 1 of your Form
W-2), the only business expense you are claiming is for
gifts, and the special rules discussed later don’t apply to
you, don’t complete Form 2106.
Statutory employees. If you received a Form W-2
and the “Statutory employee” box in box 13 was checked,
report your income and expenses related to that income
on Schedule C (Form 1040). Don’t complete Form 2106.
Statutory employees include full-time life insurance
salespersons, certain agent or commission drivers, travel-
ing salespersons, and certain homeworkers.
If you are entitled to a reimbursement from your
employer but you don’t claim it, you can’t claim a
deduction for the expenses to which that un-
claimed reimbursement applies.
Reimbursement for personal expenses. If your em-
ployer reimburses you for nondeductible personal expen-
ses, such as for vacation trips, your employer must report
the reimbursement as wage income in box 1 of your Form
W-2. You can’t deduct personal expenses.
Income-producing property. If you have travel or trans-
portation expenses related to income-producing property,
report your deductible expenses on the form appropriate
for that activity.
For example, if you have rental real estate income and
expenses, report your expenses on Schedule E (Form
1040), Supplemental Income and Loss. See Pub. 527,
Residential Rental Property, for more information on the
rental of real estate.
CAUTION
!
CAUTION
!
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Vehicle Provided by
Your Employer
If your employer provides you with a car, you may be able
to deduct the actual expenses of operating that car for
business purposes. The amount you can deduct depends
on the amount that your employer included in your income
and the business and personal miles you drove during the
year. You can’t use the standard mileage rate.
Form 2106 is only used by Armed Forces reserv-
ists, qualified performing artists, fee-basis state or
local government officials, and employees with
impairment-related work expenses. Due to the suspension
of miscellaneous itemized deductions subject to the 2%
floor under section 67(a), employees who do not fit into
one of the listed categories may not use Form 2106.
Value reported on Form W-2. Your employer can figure
and report either the actual value of your personal use of
the car or the value of the car as if you used it only for per-
sonal purposes (100% income inclusion). Your employer
must separately state the amount if 100% of the annual
lease value was included in your income. If you are unsure
of the amount included on your Form W-2, ask your em-
ployer.
Full value included in your income. You may be able to
deduct the value of the business use of an employer-pro-
vided car if your employer reported 100% of the value of
the car in your income. On your 2023 Form W-2, the
amount of the value will be included in box 1, Wages, tips,
other compensation; and box 14, Other.
To claim your expenses, complete Form 2106, Part II,
Sections A and C. Enter your actual expenses on line 23
of Section C and include the entire value of the em-
ployer-provided car on line 25. Complete the rest of the
form.
Less than full value included in your income. If less
than the full annual lease value of the car was included on
your Form W-2, this means that your Form W-2 only in-
cludes the value of your personal use of the car. Don’t en-
ter this value on your Form 2106 because it isn’t deducti-
ble.
If you paid any actual costs (that your employer didn’t
provide or reimburse you for) to operate the car, you can
deduct the business portion of those costs. Examples of
costs that you may have are gas, oil, and repairs. Com-
plete Form 2106, Part II, Sections A and C. Enter your ac-
tual costs on line 23 of Section C and leave line 25 blank.
Complete the rest of the form.
Reimbursements
This section explains what to do when you receive an ad-
vance or are reimbursed for any of the employee business
expenses discussed in this publication.
If you received an advance, allowance, or reimburse-
ment for your expenses, how you report this amount and
CAUTION
!
your expenses depends on whether your employer reim-
bursed you under an accountable plan or a nonaccounta-
ble plan.
This section explains the two types of plans, how per
diem and car allowances simplify proving the amount of
your expenses, and the tax treatment of your reimburse-
ments and expenses. It also covers rules for independent
contractors.
No reimbursement. You aren’t reimbursed or given an
allowance for your expenses if you are paid a salary or
commission with the understanding that you will pay your
own expenses. In this situation, you have no reimburse-
ment or allowance arrangement, and you don’t have to
read this section on reimbursements. Instead, see Com-
pleting Form 2106, later, for information on completing
your tax return.
Form 2106 is only used by Armed Forces reserv-
ists, qualified performing artists, fee-basis state or
local government officials, and employees with
impairment-related work expenses. Due to the suspension
of miscellaneous itemized deductions subject to the 2%
floor under section 67(a), employees who do not fit into
one of the listed categories may not use Form 2106.
Reimbursement, allowance, or advance. A reimburse-
ment or other expense allowance arrangement is a system
or plan that an employer uses to pay, substantiate, and re-
cover the expenses, advances, reimbursements, and
amounts charged to the employer for employee business
expenses. Arrangements include per diem and car allow-
ances.
A per diem allowance is a fixed amount of daily reim-
bursement your employer gives you for your lodging and
M&IE when you are away from home on business. (The
term “incidental expenses” is defined in chapter 1 under
Standard Meal Allowance.) A car allowance is an amount
your employer gives you for the business use of your car.
Your employer should tell you what method of reim-
bursement is used and what records you must provide.
Employers. If you are an employer and you reimburse
employee business expenses, how you treat this reim-
bursement on your employee's Form W-2 depends in part
on whether you have an accountable plan. Reimburse-
ments treated as paid under an accountable plan, as ex-
plained next, aren’t reported as pay. Reimbursements
treated as paid under nonaccountable plans, as explained
later, are reported as pay. See Pub. 15 (Circular E), Em-
ployer's Tax Guide, for information on employee pay.
Accountable Plans
To be an accountable plan, your employer's reimburse-
ment or allowance arrangement must include all of the fol-
lowing rules.
1. Your expenses must have a business connec-
tion—that is, you must have paid or incurred deducti-
ble expenses while performing services as an em-
ployee of your employer.
CAUTION
!
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2. You must adequately account to your employer for
these expenses within a reasonable period of time.
3. You must return any excess reimbursement or allow-
ance within a reasonable period of time.
Adequate accounting and returning excess reimburse-
ments are discussed later.
An excess reimbursement or allowance is any amount
you are paid that is more than the business-related expen-
ses that you adequately accounted for to your employer.
Reasonable period of time. The definition of reason-
able period of time depends on the facts and circumstan-
ces of your situation. However, regardless of the facts and
circumstances of your situation, actions that take place
within the times specified in the following list will be trea-
ted as taking place within a reasonable period of time.
•
You receive an advance within 30 days of the time you
have an expense.
•
You adequately account for your expenses within 60
days after they were paid or incurred.
•
You return any excess reimbursement within 120 days
after the expense was paid or incurred.
•
You are given a periodic statement (at least quarterly)
that asks you to either return or adequately account for
outstanding advances and you comply within 120
days of the statement.
Employee meets accountable plan rules. If you meet
the three rules for accountable plans, your employer
shouldn’t include any reimbursements in your income in
box 1 of your Form W-2. If your expenses equal your reim-
bursements, you don’t complete Form 2106. You have no
deduction since your expenses and reimbursements are
equal.
If your employer included reimbursements in
box 1 of your Form W-2 and you meet all the rules
for accountable plans, ask your employer for a
corrected Form W-2.
Accountable plan rules not met. Even though you are
reimbursed under an accountable plan, some of your ex-
penses may not meet all three rules. All reimbursements
that fail to meet all three rules for accountable plans are
generally treated as having been reimbursed under a non-
accountable plan (discussed later).
Failure to return excess reimbursements. If you are
reimbursed under an accountable plan, but you fail to re-
turn, within a reasonable time, any amounts in excess of
the substantiated amounts, the amounts paid in excess of
the substantiated expenses are treated as paid under a
nonaccountable plan. See Reasonable period of time,
earlier, and Returning Excess Reimbursements, later.
Reimbursement of nondeductible expenses. You
may be reimbursed under your employer's accountable
plan for expenses related to that employer's business,
some of which would be allowable as employee business
expense deductions and some of which would not. The
TIP
reimbursements you receive for the nondeductible expen-
ses don’t meet rule (1) for accountable plans, and they are
treated as paid under a nonaccountable plan.
Example. Your employer's plan reimburses you for
travel expenses while away from home on business and
also for meals when you work late at the office, even
though you aren’t away from home. The part of the ar-
rangement that reimburses you for the nondeductible
meals when you work late at the office is treated as paid
under a nonaccountable plan.
The employer makes the decision whether to re-
imburse employees under an accountable plan or
a nonaccountable plan. If you are an employee
who receives payments under a nonaccountable plan, you
can’t convert these amounts to payments under an ac-
countable plan by voluntarily accounting to your employer
for the expenses and voluntarily returning excess reim-
bursements to the employer.
Adequate Accounting
One of the rules for an accountable plan is that you must
adequately account to your employer for your expenses.
You adequately account by giving your employer a state-
ment of expense, an account book, a diary, or a similar re-
cord in which you entered each expense at or near the
time you had it, along with documentary evidence (such
as receipts) of your travel, mileage, and other employee
business expenses. (See Table 5-1 in chapter 5 for details
you need to enter in your record and documents you need
to prove certain expenses.) A per diem or car allowance
satisfies the adequate accounting requirement under cer-
tain conditions. See Per Diem and Car Allowances, later.
You must account for all amounts you received from
your employer during the year as advances, reimburse-
ments, or allowances. This includes amounts you charged
to your employer by credit card or other method. You must
give your employer the same type of records and support-
ing information that you would have to give to the IRS if the
IRS questioned a deduction on your return. You must pay
back the amount of any reimbursement or other expense
allowance for which you don’t adequately account or that
is more than the amount for which you accounted.
Per Diem and Car Allowances
If your employer reimburses you for your expenses using a
per diem or a car allowance, you can generally use the al-
lowance as proof for the amount of your expenses. A per
diem or car allowance satisfies the adequate accounting
requirements for the amount of your expenses only if all
the following conditions apply.
•
Your employer reasonably limits payments of your ex-
penses to those that are ordinary and necessary in the
conduct of the trade or business.
•
The allowance is similar in form to and not more than
the federal rate (defined later).
TIP
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•
You prove the time (dates), place, and business pur-
pose of your expenses to your employer (as explained
in Table 5-1) within a reasonable period of time.
•
You aren’t related to your employer (as defined next).
If you are related to your employer, you must be able
to prove your expenses to the IRS even if you have al-
ready adequately accounted to your employer and re-
turned any excess reimbursement.
If the IRS finds that an employer's travel allowance practi-
ces are not based on reasonably accurate estimates of
travel costs (including recognition of cost differences in
different areas for per diem amounts), you won’t be con-
sidered to have accounted to your employer. In this case,
you must be able to prove your expenses to the IRS.
Related to employer. You are related to your employer if:
1. Your employer is your brother or sister, half brother or
half sister, spouse, ancestor, or lineal descendant;
2. Your employer is a corporation in which you own, di-
rectly or indirectly, more than 10% in value of the out-
standing stock; or
3. Certain relationships (such as grantor, fiduciary, or
beneficiary) exist between you, a trust, and your em-
ployer.
You may be considered to indirectly own stock for purpo-
ses of (2) if you have an interest in a corporation, partner-
ship, estate, or trust that owns the stock or if a member of
your family or your partner owns the stock.
The federal rate. The federal rate can be figured using
any one of the following methods.
1. For per diem amounts:
a. The regular federal per diem rate.
b. The standard meal allowance.
c. The high-low rate.
2. For car expenses:
a. The standard mileage rate.
b. A fixed and variable rate (FAVR).
For per diem amounts, use the rate in effect for
the locality where you stop for sleep or rest.
Regular federal per diem rate. The regular federal
per diem rate is the highest amount that the federal gov-
ernment will pay to its employees for lodging and M&IE (or
M&IE only) while they are traveling away from home in a
particular area. The rates are different for different locali-
ties. Your employer should have these rates available. You
can also find federal per diem rates at GSA.gov/travel/
plan-book/per-diem-rates.
The standard meal allowance. The standard meal
allowance is the federal M&IE rate. For travel in 2023, the
rate for most small localities in the United States is $59
per day. Most major cities and many other localities qualify
TIP
for higher rates. You can find this information at GSA.gov/
travel/plan-book/per-diem-rates.
You receive an allowance only for M&IE when your em-
ployer does one of the following.
•
Provides you with lodging (furnishes it in kind).
•
Reimburses you, based on your receipts, for the ac-
tual cost of your lodging.
•
Pays the hotel, motel, etc., directly for your lodging.
•
Doesn’t have a reasonable belief that you had (or will
have) lodging expenses, such as when you stay with
friends or relatives or sleep in the cab of your truck.
•
Figures the allowance on a basis similar to that used
in figuring your compensation, such as number of
hours worked or miles traveled.
High-low rate. This is a simplified method of figuring
the federal per diem rate for travel within the continental
United States. It eliminates the need to keep a current list
of the per diem rates for each city.
Under the high-low method, the per diem amount for
travel during January through September of 2023 is $297
(which includes $74 for M&IE) for certain high-cost loca-
tions. All other areas have a per diem amount of $204
(which includes $64 for M&IE). For more information, see
Notice 2022-44, which can be found at IRS.gov/irb/
2022-41_IRB#NOT-2022-44.
Effective October 1, 2023, the per diem rate for certain
high-cost locations increased to $309 (which includes $74
for M&IE). The rate for all other locations increased to
$214 (which includes $64 for M&IE). For more information,
see Notice 2023-68, which can be found at IRS.gov/irb/
2023-41_IRB#NOT-2023-68, and Revenue Procedure
2019-48 at IRS.gov/irb/2019-51_IRB#REV-
PROC-2019-48.
Employers who didn’t use the high-low method
during the first 9 months of 2023 can’t begin to
use it before 2024.
Prorating the standard meal allowance on partial
days of travel. The standard meal allowance is for a full
24-hour day of travel. If you travel for part of a day, such as
on the days you depart and return, you must prorate the
full-day M&IE rate. This rule also applies if your employer
uses the regular federal per diem rate or the high-low rate.
You can use either of the following methods to figure
the federal M&IE for that day.
1. Method 1:
a. For the day you depart, add
3
/4 of the standard
meal allowance amount for that day.
b. For the day you return, add
3
/4 of the standard
meal allowance amount for the preceding day.
2. Method 2: Prorate the standard meal allowance using
any method you consistently apply in accordance with
reasonable business practice. For example, an em-
ployer can treat 2 full days of per diem (that includes
M&IE) paid for travel away from home from 9 a.m. of
one day to 5 p.m. of the next day as being no more
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than the federal rate. This is true even though a fed-
eral employee would be limited to a reimbursement of
M&IE for only 1
1
/2 days of the federal M&IE rate.
The standard mileage rate. This is a set rate per mile
that you can use to figure your deductible car expenses.
For 2023, the standard mileage rate for the cost of operat-
ing your car for business use is 65.5 cents ($0.655) per
mile.
Fixed and variable rate (FAVR). This is an allowance
your employer may use to reimburse your car expenses.
Under this method, your employer pays an allowance that
includes a combination of payments covering fixed and
variable costs, such as a cents-per-mile rate to cover your
variable operating costs (such as gas, oil, etc.) plus a flat
amount to cover your fixed costs (such as depreciation (or
lease payments), insurance, etc.). If your employer choo-
ses to use this method, your employer will request the
necessary records from you.
Reporting your expenses with a per diem or car al-
lowance. If your reimbursement is in the form of an allow-
ance received under an accountable plan, the following
facts affect your reporting.
•
The federal rate.
•
Whether the allowance or your actual expenses were
more than the federal rate.
The following discussions explain where to report your ex-
penses depending upon how the amount of your allow-
ance compares to the federal rate.
Allowance less than or equal to the federal rate. If
your allowance is less than or equal to the federal rate, the
allowance won’t be included in box 1 of your Form W-2.
You don’t need to report the related expenses or the allow-
ance on your return if your expenses are equal to or less
than the allowance.
However, if your actual expenses are more than your al-
lowance, you can complete Form 2106. If you are using
actual expenses, you must be able to prove to the IRS the
total amount of your expenses and reimbursements for the
entire year. If you are using the standard meal allowance
or the standard mileage rate, you don’t have to prove that
amount.
Form 2106 is only used by Armed Forces reserv-
ists, qualified performing artists, fee-basis state or
local government officials, and employees with
impairment-related work expenses. Due to the suspension
of miscellaneous itemized deductions subject to the 2%
floor under section 67(a), employees who do not fit into
one of the listed categories may not use Form 2106.
Example 1. In April, a member of a reserve compo-
nent of the Armed Forces takes a 2-day business trip to
Denver. The federal rate for Denver is $278 ($199 lodging
+ $79 M&IE) per day. As required by their employer's ac-
countable plan, they account for the time (dates), place,
and business purpose of the trip. Their employer reimbur-
ses them $278 a day ($556 total) for living expenses.
CAUTION
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Their living expenses in Denver aren’t more than $278 a
day.
Their employer doesn’t include any of the reimburse-
ment on their Form W-2 and they don’t deduct the expen-
ses on their return.
Example 2. In June, a fee-basis local government offi-
cial takes a 2-day business trip to Boston. Their employer
uses the high-low method to reimburse employees. Be-
cause Boston is a high-cost area, they are given an ad-
vance of $297 (which includes $74 for M&IE) a day ($594
total) for their lodging and M&IE. Their actual expenses to-
taled $700.
Since their $700 of expenses are more than their $594
advance, they include the excess expenses when they
itemize their deductions. They complete Form 2106
(showing all of their expenses and reimbursements). They
must also allocate their reimbursement between their
meals and other expenses as discussed later under Com-
pleting Form 2106.
Example 3. A fee-basis state government official
drives 10,000 miles during 2023 for business. Under their
employer's accountable plan, they account for the time
(dates), place, and business purpose of each trip. Their
employer pays them a mileage allowance of 40 cents
($0.40) a mile.
Because their $6,550 expense figured under the stand-
ard mileage rate (10,000 miles x 65.5 cents ($0.655) per
mile) is more than their $4,000 reimbursement (10,000
miles × 40 cents ($0.40)), they itemize their deductions to
claim the excess expense. They complete Form 2106
(showing all their expenses and reimbursements) and en-
ter $2,550 ($6,550 − $4,000) as an itemized deduction.
Allowance more than the federal rate. If your allow-
ance is more than the federal rate, your employer must in-
clude the allowance amount up to the federal rate under
code L in box 12 of your Form W-2. This amount isn’t taxa-
ble. However, the excess allowance will be included in
box 1 of your Form W-2. You must report this part of your
allowance as if it were wage income.
If your actual expenses are less than or equal to the
federal rate, you don’t complete Form 2106 or claim any of
your expenses on your return.
However, if your actual expenses are more than the
federal rate, you can complete Form 2106 and deduct
those excess expenses. You must report on Form 2106
your reimbursements up to the federal rate (as shown un-
der code L in box 12 of your Form W-2) and all your ex-
penses. You should be able to prove these amounts to the
IRS.
Form 2106 is only used by Armed Forces reserv-
ists, qualified performing artists, fee-basis state or
local government officials, and employees with
impairment-related work expenses. Due to the suspension
of miscellaneous itemized deductions subject to the 2%
floor under section 67(a), employees who do not fit into
one of the listed categories may not use Form 2106.
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Example 1. Sasha, a performing artist, lives and works
in Austin. In July, the employer sent Sasha to Albuquerque
for 4 days on business. The employer paid the hotel di-
rectly for Sasha’s lodging and reimbursed $80 a day ($320
total) for M&IE. Sasha’s actual meal expenses weren’t
more than the federal rate for Albuquerque, which is $69
per day.
The employer included the $44 that was more than the
federal rate (($80 − $69) × 4) in box 1 of Sasha’s Form
W-2. The employer shows $276 ($69 a day × 4) under
code L in box 12 of Form W-2. This amount isn’t included
in income. Sasha doesn’t have to complete Form 2106;
however, Sasha must include the $44 in gross income as
wages (by reporting the total amount shown in box 1 of
their Form W-2).
Example 2. Another performing artist, Ari, also lives in
Austin and works for the same employer as in Example 1.
In May, the employer sent Ari to San Diego for 4 days and
paid the hotel directly for the hotel bill. The employer reim-
bursed Ari $75 a day for M&IE. The federal rate for San
Diego is $74 a day.
Ari can prove that actual non-entertainment-related
meal expenses totaled $380. The employer's accountable
plan won’t pay more than $75 a day for travel to San
Diego, so Ari doesn’t give the employer the records that
prove that the amount actually spent was $380. However,
Ari does account for the time (dates), place, and business
purpose of the trip. This is Ari’s only business trip this year.
Ari was reimbursed $300 ($75 × 4 days), which is $4
more than the federal rate of $296 ($74 × 4 days). The
employer includes the $4 as income on the employee’s
Form W-2 in box 1. The employer also enters $296 under
code L in box 12 of the employee’s Form W-2.
Ari completes Form 2106 to figure deductible expenses
and enters the total of actual expenses for the year ($380)
on Form 2106. Ari also enters the reimbursements that
weren’t included in income ($296). Ari’s total deductible
meals and beverages expense, before the 50% limit, is
$96. Ari will include $48 as an itemized deduction.
Example 3. Palmer, a fee-basis state government offi-
cial, drives 10,000 miles during 2023 for business. Under
the employer's accountable plan, Palmer gets reimbursed
70 cents ($0.70) a mile, which is more than the standard
mileage rate. The total reimbursement is $7,000.
The employer must include the reimbursement amount
up to the standard mileage rate, $6,550 (10,000 miles x
65.5 cents ($0.655) per mile), under code L in box 12 of
the employee’s Form W-2. That amount isn’t taxable. The
employer must also include $450 ($7,000 − $6,550) in
box 1 of the employee's Form W-2. This is the reimburse-
ment that is more than the standard mileage rate.
If the expenses are equal to or less than the standard
mileage rate, Palmer wouldn’t complete Form 2106. If the
expenses are more than the standard mileage rate,
Palmer would complete Form 2106 and report total expen-
ses and reimbursement (shown under code L in box 12 of
their Form W-2). Palmer would then claim the excess ex-
penses as an itemized deduction.
Returning Excess Reimbursements
Under an accountable plan, you are required to return any
excess reimbursement or other expense allowances for
your business expenses to the person paying the reim-
bursement or allowance. Excess reimbursement means
any amount for which you didn’t adequately account within
a reasonable period of time. For example, if you received
a travel advance and you didn’t spend all the money on
business-related expenses or you don’t have proof of all
your expenses, you have an excess reimbursement.
Adequate accounting and reasonable period of time
were discussed earlier in this chapter.
Travel advance. You receive a travel advance if your em-
ployer provides you with an expense allowance before you
actually have the expense, and the allowance is reasona-
bly expected to be no more than your expense. Under an
accountable plan, you are required to adequately account
to your employer for this advance and to return any excess
within a reasonable period of time.
If you don’t adequately account for or don't return any
excess advance within a reasonable period of time, the
amount you don’t account for or return will be treated as
having been paid under a nonaccountable plan (dis-
cussed later).
Unproven amounts. If you don’t prove that you ac-
tually traveled on each day for which you received a per
diem or car allowance (proving the elements described in
Table 5-1), you must return this unproven amount of the
travel advance within a reasonable period of time. If you
don’t do this, the unproven amount will be considered paid
under a nonaccountable plan (discussed later).
Per diem allowance more than federal rate. If your
employer's accountable plan pays you an allowance that
is higher than the federal rate, you don’t have to return the
difference between the two rates for the period you can
prove business-related travel expenses. However, the dif-
ference will be reported as wages on your Form W-2. This
excess amount is considered paid under a nonaccounta-
ble plan (discussed later).
Example. Your employer sends you on a 5-day busi-
ness trip to Phoenix in March 2023 and gives you a $400
($80 × 5 days) advance to cover your M&IE. The federal
per diem for M&IE for Phoenix is $69. Your trip lasts only 3
days. Under your employer's accountable plan, you must
return the $160 ($80 × 2 days) advance for the 2 days you
didn’t travel. For the 3 days you did travel, you don’t have
to return the $33 difference between the allowance you re-
ceived and the federal rate for Phoenix (($80 − $69) × 3
days). However, the $33 will be reported on your Form
W-2 as wages.
Nonaccountable Plans
A nonaccountable plan is a reimbursement or expense al-
lowance arrangement that doesn’t meet one or more of
the three rules listed earlier under Accountable Plans.
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In addition, even if your employer has an accountable
plan, the following payments will be treated as being paid
under a nonaccountable plan.
•
Excess reimbursements you fail to return to your em-
ployer.
•
Reimbursement of nondeductible expenses related to
your employer's business. See Reimbursement of
nondeductible expenses, earlier, under Accountable
Plans.
An arrangement that repays you for business expenses by
reducing the amount reported as your wages, salary, or
other pay will be treated as a nonaccountable plan. This is
because you are entitled to receive the full amount of your
pay whether or not you have any business expenses.
If you aren’t sure if the reimbursement or expense al-
lowance arrangement is an accountable or nonaccounta-
ble plan, ask your employer.
Reporting your expenses under a nonaccountable
plan. Your employer will combine the amount of any reim-
bursement or other expense allowance paid to you under
a nonaccountable plan with your wages, salary, or other
pay. Your employer will report the total in box 1 of your
Form W-2.
You must complete Form 2106 and itemize your deduc-
tions to deduct your expenses for travel, transportation, or
non-entertainment-related meals. Your meal and enter-
tainment expenses will be subject to the 50% Limit dis-
cussed in chapter 2.
Form 2106 is only used by Armed Forces reserv-
ists, qualified performing artists, fee-basis state or
local government officials, and employees with
impairment-related work expenses. Due to the suspension
of miscellaneous itemized deductions subject to the 2%
floor under section 67(a), employees who do not fit into
one of the listed categories may not use Form 2106.
Example 1. Your employer gives you $1,000 a month
($12,000 total for the year) for your business expenses.
You don’t have to provide any proof of your expenses to
your employer, and you can keep any funds that you don’t
spend.
You are a performing artist and are being reimbursed
under a nonaccountable plan. Your employer will include
the $12,000 on your Form W-2 as if it were wages. If you
want to deduct your business expenses, you must com-
plete Form 2106 and itemize your deductions.
Example 2. You are paid $2,000 a month by your em-
ployer. On days that you travel away from home on busi-
ness, your employer designates $50 a day of your salary
as paid to reimburse your travel expenses. Because your
employer would pay your monthly salary whether or not
you were traveling away from home, the arrangement is a
nonaccountable plan. No part of the $50 a day designated
by your employer is treated as paid under an accountable
plan.
CAUTION
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Rules for Independent Contractors
and Clients
This section provides rules for independent contractors
who incur expenses on behalf of a client or customer. The
rules cover the reporting and substantiation of certain ex-
penses discussed in this publication, and they affect both
independent contractors and their clients or customers.
You are considered an independent contractor if you
are self-employed and you perform services for a cus-
tomer or client.
Accounting to Your Client
If you received a reimbursement or an allowance for travel,
or gift expenses that you incurred on behalf of a client, you
should provide an adequate accounting of these expen-
ses to your client. If you don’t account to your client for
these expenses, you must include any reimbursements or
allowances in income. You must keep adequate records of
these expenses whether or not you account to your client
for these expenses.
If you don’t separately account for and seek reimburse-
ment for meal and entertainment expenses in connection
with providing services for a client, you are subject to the
50% limit on those expenses. See 50% Limit in chapter 2.
Adequate accounting. As a self-employed person, you
adequately account by reporting your actual expenses.
You should follow the recordkeeping rules in chapter 5.
How to report. For information on how to report ex-
penses on your tax return, see Self-employed at the be-
ginning of this chapter.
Required Records for
Clients or Customers
If you are a client or customer, you generally don’t have to
keep records to prove the reimbursements or allowances
you give, in the course of your business, to an independ-
ent contractor for travel or gift expenses incurred on your
behalf. However, you must keep records if:
•
You reimburse the contractor for entertainment expen-
ses incurred on your behalf, and
•
The contractor adequately accounts to you for these
expenses.
Contractor adequately accounts. If the contractor ade-
quately accounts to you for non-entertainment-related
meal expenses, you (the client or customer) must keep re-
cords documenting each element of the expense, as ex-
plained in chapter 5. Use your records as proof for a de-
duction on your tax return. If non-entertainment-related
meal expenses are accounted for separately, you are sub-
ject to the 50% limit on meals. If the contractor adequately
accounts to you for reimbursed amounts, you don’t have
to report the amounts on an information return.
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Contractor doesn’t adequately account. If the contrac-
tor doesn’t adequately account to you for allowances or
reimbursements of non-entertainment-related meal ex-
penses, you don’t have to keep records of these items.
You aren’t subject to the 50% limit on meals in this case.
You can deduct the reimbursements or allowances as pay-
ment for services if they are ordinary and necessary busi-
ness expenses. However, you must file Form 1099-MISC
to report amounts paid to the independent contractor if the
total of the reimbursements and any other fees is $600 or
more during the calendar year.
How To Use Per Diem
Rate Tables
This section contains information about the per diem rate
substantiation methods available and the choice of rates
you must make for the last 3 months of the year.
The Two Substantiation Methods
High-low method. IRS Notices list the localities that are
treated under the high-low substantiation method as
high-cost localities for all or part of the year. Notice
2022-44, available at IRS.gov/irb/
2022-41_IRB#NOT-2022-44, lists the high-cost localities
that are eligible for $297 (which includes $74 for meals
and incidental expenses (M&IE)) per diem, effective Octo-
ber 1, 2022. For travel on or after October 1, 2022, all
other localities within the continental United States
(CONUS) are eligible for $204 (which includes $64 for
M&IE) per diem under the high-low method.
Notice 2023-68, available at IRS.gov/irb/
2023-41_IRB#NOT-2023-68, lists the high-cost localities
that are eligible for $309 (which includes $74 for M&IE)
per diem, effective October 1, 2023. For travel on or after
October 1, 2023, the per diem for all other localities in-
creased to $214 (which includes $64 for M&IE).
Regular federal per diem rate method. Regular federal
per diem rates are published by the General Services Ad-
ministration (GSA). Both tables include the separate rate
for M&IE for each locality. The rates listed for FY2023 at
GSA.gov/travel/plan-book/per-diem-rates are effective Oc-
tober 1, 2022, and those listed for FY2024 are effective
October 1, 2023. The standard rate for all locations within
CONUS not specifically listed for FY2023 is $157 ($98 for
lodging and $59 for M&IE). For FY2024, this rate increa-
ses to $166 ($107 for lodging and $59 for M&IE).
Transition Rules
The transition period covers the last 3 months of the cal-
endar year, from the time that new rates are effective (gen-
erally, October 1) through December 31. During this pe-
riod, you may generally change to the new rates or finish
out the year with the rates you had been using.
High-low method. If you use the high-low substantiation
method, when new rates become effective (generally, Oc-
tober 1), you can either continue with the rates you used
for the first part of the year or change to the new rates.
However, you must continue using the high-low method
for the rest of the calendar year (through December 31). If
you are an employer, you must use the same rates for all
employees reimbursed under the high-low method during
that calendar year.
The new rates and localities for the high-low method
are included each year in a notice that is generally pub-
lished in mid to late September. You can find the notice in
the weekly Internal Revenue Bulletin (IRB) at IRS.gov/IRB,
or visit IRS.gov and enter “Special Per Diem Rates” in the
search box.
Federal per diem rate method. New CONUS per diem
rates become effective on October 1 of each year and re-
main in effect through September 30 of the following year.
Employees being reimbursed under the per diem rate
method during the first 9 months of a year (January 1–
September 30) must continue under the same method
through the end of that calendar year (December 31).
However, for travel by these employees from October 1
through December 31, you can choose to continue using
the same per diem rates or use the new rates.
The new federal CONUS per diem rates are published
each year, generally early in September. Go to GSA.gov/
travel/plan-book/per-diem-rates.
Per diem rates for localities listed for FY2024 may
change at any time. To be sure you have the most
current rate, check GSA.gov/travel/plan-book/per-
diem-rates.
Completing Form
2106
For tax years beginning after 2017, the Form 2106 will be
used by Armed Forces reservists, qualified performing ar-
tists, fee-basis state or local government officials, and em-
ployees with impairment-related work expenses. Due to
the suspension of miscellaneous itemized deductions
subject to the 2% floor under section 67(a), employees
who do not fit into one of the listed categories may not use
Form 2106.
This section briefly describes how employees complete
Forms 2106. Table 6-1 explains what the employer reports
on Form W-2 and what the employee reports on Form
2106. The instructions for the forms have more information
on completing them.
If you are self-employed, don’t file Form 2106. Re-
port your expenses on Schedule C (Form 1040)
or Schedule F (Form 1040). See the instructions
for the form that you must file.
CAUTION
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CAUTION
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Reporting Travel, Nonentertainment Meal, Gift, and Car Expenses and
Reimbursements
Table 6-1.
IF the type of reimbursement (or
other expense allowance)
arrangement is under:
THEN the employer reports on Form
W-2:
AND the employee
reports on
Form 2106:
An accountable plan with:
Actual expense reimbursement: Adequate accounting
made and excess returned.
No amount. No amount.
Actual expense reimbursement: Adequate accounting and
return of excess both required but excess not returned.
The excess amount as wages in box 1. No amount.
Per diem or mileage allowance up to the federal rate:
Adequate accounting made and excess returned.
No amount. All expenses and reimbursements only if
excess expenses are claimed. Otherwise,
form is not filed.
Per diem or mileage allowance up to the federal rate:
Adequate accounting and return of excess both required
but excess not returned.
The excess amount as wages in box 1.
The amount up to the federal rate is
reported only under code L in box 12 of
Form W-2—it isn’t reported in box 1.
No amount.
Per diem or mileage allowance exceeds the federal rate:
Adequate accounting up to the federal rate only and
excess not returned.
The excess amount as wages in box 1.
The amount up to the federal rate is
reported only under code L in box 12 of
Form W-2—it isn’t reported in box 1.
All expenses (and reimbursements
reported under code L in box 12 of Form
W-2) only if expenses in excess of the
federal rate are claimed. Otherwise, form
isn’t filed.
A nonaccountable plan with:
Either adequate accounting or return of excess, or both,
not required by plan.
The entire amount as wages in box 1. All expenses.
No reimbursement plan: The entire amount as wages in box 1. All expenses.
Car expenses. If you used a car to perform your job as
an employee, you may be able to deduct certain car ex-
penses. These are generally figured on Form 2106, Part II,
and then claimed on Form 2106, Part I, line 1, column A.
Information on use of cars. If you claim any deduc-
tion for the business use of a car, you must answer certain
questions and provide information about the use of the
car. The information relates to the following items.
•
Date placed in service.
•
Mileage (total, business, commuting, and other per-
sonal mileage).
•
Percentage of business use.
•
After-work use.
•
Use of other vehicles.
•
Whether you have evidence to support the deduction.
•
Whether or not the evidence is written.
Employees must complete Form 2106, Part II, Section A,
to provide this information.
Standard mileage rate. If you claim a deduction
based on the standard mileage rate instead of your actual
expenses, you must complete Form 2106, Part II, Sec-
tion B. The amount on line 22 (Section B) is carried to
Form 2106, Part I, line 1. In addition, on Part I, line 2, you
can deduct parking fees and tolls that apply to the busi-
ness use of the car. See Standard Mileage Rate in chap-
ter 4 for information on using this rate.
Actual expenses. If you claim a deduction based on
actual car expenses, you must complete Form 2106, Part
II, Section C. In addition, unless you lease your car, you
must complete Section D to show your depreciation de-
duction and any section 179 deduction you claim.
If you are still using a car that is fully depreciated, con-
tinue to complete Section C. Since you have no deprecia-
tion deduction, enter zero on line 28. In this case, don’t
complete Section D.
Car rentals. If you claim car rental expenses on Form
2106, line 24a, you may have to reduce that expense by
an inclusion amount, as described in chapter 4. If so, you
can show your car expenses and any inclusion amount as
follows.
1. Figure the inclusion amount without taking into ac-
count your business-use percentage for the tax year.
2. Report the inclusion amount from (1) on Form 2106,
Part II, line 24b.
3. Report on line 24c the net amount of car rental expen-
ses (total car rental expenses minus the inclusion
amount figured in (1)).
The net amount of car rental expenses will be adjusted on
Form 2106, Part II, line 27, to reflect the percentage of
business use for the tax year.
Transportation expenses. Show your transportation ex-
penses that didn’t involve overnight travel on Form 2106,
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line 2, column A. Also include on this line business expen-
ses you have for parking fees and tolls. Don’t include ex-
penses of operating your car or expenses of commuting
between your home and work.
Employee business expenses other than nonenter-
tainment meals. Show your other employee business
expenses on Form 2106, lines 3 and 4, column A. Don’t
include expenses for nonentertainment meals on those
lines. Line 4 is for expenses such as gifts, educational ex-
penses (tuition and books), office-in-the-home expenses,
and trade and professional publications.
If line 4 expenses are the only ones you are claim-
ing, you received no reimbursements (or the reim-
bursements were all included in box 1 of your
Form W-2), and the special rules discussed later don’t ap-
ply to you, don’t complete Form 2106.
Non-entertainment-related meal expenses. Show the
full amount of your expenses for nonentertainment busi-
ness-related meals on Form 2106, line 5, column B. In-
clude meals while away from your tax home overnight and
other business meals. Enter 50% of the line 8, column B,
meal expenses on line 9, column B.
“Hours of service” limits. If you are subject to the
Department of Transportation's “hours of service” limits
(as explained earlier under Individuals subject to “hours of
service” limits in chapter 2), use 80% instead of 50% for
meals while away from your tax home.
Reimbursements. Enter on Form 2106, line 7, the
amounts your employer (or third party) reimbursed you
that weren’t reported to you in box 1 of your Form W-2.
This includes any amount reported under code L in box 12
of Form W-2.
Allocating your reimbursement. If you were reim-
bursed under an accountable plan and want to deduct ex-
cess expenses that weren’t reimbursed, you may have to
allocate your reimbursement. This is necessary when your
employer pays your reimbursement in the following man-
ner.
•
Pays you a single amount that covers non-entertain-
ment-related meals and/or entertainment, as well as
other business expenses.
•
Doesn’t clearly identify how much is for deductible
non-entertainment-related meals.
You must allocate that single payment so that you know
how much to enter on Form 2106, line 7, column A and
column B.
Example. Your employer paid you an expense allow-
ance of $12,000 this year under an accountable plan. The
$12,000 payment consisted of $5,000 for airfare and
$7,000 for non-entertainment-related meals, and car ex-
penses. Your employer didn’t clearly show how much of
the $7,000 was for the cost of deductible non-entertain-
ment-related meals. You actually spent $14,000 during the
year ($5,500 for airfare, $4,500 for non-entertainment-re-
lated meals, and $4,000 for car expenses).
TIP
Since the airfare allowance was clearly identified, you
know that $5,000 of the payment goes in column A, line 7,
of Form 2106. To allocate the remaining $7,000, you use
the worksheet from the Instructions for Form 2106. Your
completed worksheet follows.
Reimbursement Allocation Worksheet
(Keep for your records.)
1. Enter the total amount of reimbursements your
employer gave you that weren’t reported to you
in box 1 of Form W-2 ................ $7,000
2. Enter the total amount of your expenses for the
periods covered by this reimbursement ..... 8,500
3. Enter the part of the amount on line 2 that was
your total expense for
non-entertainment-related meals ......... 4,500
4. Divide line 3 by line 2. Enter the result as a
decimal (rounded to at least three places) .... 0.529
5. Multiply line 1 by line 4. Enter the result here
and in column B, line 7 ............... 3,703
6. Subtract line 5 from line 1. Enter the result here
and in column A, line 7 ............... $3,297
On line 7 of Form 2106, you enter $8,297 ($5,000 airfare
and $3,297 of the $7,000) in column A and $3,703 (of the
$7,000) in column B.
After you complete the form. If you are a government
official paid on a fee basis, a performing artist, an Armed
Forces reservist, or a disabled employee with impair-
ment-related work expenses, see Special Rules, later.
Limits on employee business expenses. Your em-
ployee business expenses may be subject to either of the
limits described next. They are figured in the following or-
der on the specified form.
1. Limit on meals and entertainment. Certain
non-entertainment-related meal expenses are subject to a
50% limit. Generally, entertainment expenses are nonde-
ductible if paid or incurred after December 2017. If you are
an employee, you figure this limit on line 9 of Form 2106.
(See 50% Limit in chapter 2.)
2. Limit on total itemized deductions. Limitations on
itemized deductions are suspended for tax years begin-
ning after 2017 and before tax year January 2026, per
section 68(g).
Special Rules
This section discusses special rules that apply only to
Armed Forces reservists, government officials who are
paid on a fee basis, performing artists, and disabled em-
ployees with impairment-related work expenses. For tax
years beginning after 2017, they are the only taxpayers
who can use Form 2106.
Armed Forces Reservists Traveling More
Than 100 Miles From Home
If you are a member of a reserve component of the Armed
Forces of the United States and you travel more than 100
miles away from home in connection with your
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performance of services as a member of the reserves, you
can deduct your travel expenses as an adjustment to
gross income rather than as a miscellaneous itemized de-
duction. The amount of expenses you can deduct as an
adjustment to gross income is limited to the regular federal
per diem rate (for lodging and M&IE) and the standard
mileage rate (for car expenses) plus any parking fees,
ferry fees, and tolls. See Per Diem and Car Allowances,
earlier, for more information.
Member of a reserve component. You are a member of
a reserve component of the Armed Forces of the United
States if you are in the Army, Navy, Marine Corps, Air
Force, or Coast Guard Reserve; the Army National Guard
of the United States; the Air National Guard of the United
States; or the Reserve Corps of the Public Health Service.
How to report. If you have reserve-related travel that
takes you more than 100 miles from home, you should first
complete Form 2106. Then include your expenses for re-
serve travel over 100 miles from home, up to the federal
rate, from Form 2106, line 10, in the total on Schedule 1
(Form 1040), line 12.
You can’t deduct expenses of travel that doesn’t take
you more than 100 miles from home as an adjustment to
gross income.
Officials Paid on a Fee Basis
Certain fee-basis officials can claim their employee busi-
ness expenses on Form 2106.
Fee-basis officials are persons who are employed by a
state or local government and who are paid in whole or in
part on a fee basis. They can deduct their business ex-
penses in performing services in that job as an adjustment
to gross income rather than as a miscellaneous itemized
deduction.
If you are a fee-basis official, include your employee
business expenses from Form 2106, line 10, in the total on
Schedule 1 (Form 1040), line 12.
Expenses of Certain
Performing Artists
If you are a performing artist, you may qualify to deduct
your employee business expenses as an adjustment to
gross income. To qualify, you must meet all of the following
requirements.
1. During the tax year, you perform services in the per-
forming arts as an employee for at least two employ-
ers.
2. You receive at least $200 each from any two of these
employers.
3. Your related performing-arts business expenses are
more than 10% of your gross income from the per-
formance of those services.
4. Your adjusted gross income isn’t more than $16,000
before deducting these business expenses.
Special rules for married persons. If you are married,
you must file a joint return unless you lived apart from your
spouse at all times during the tax year. If you file a joint re-
turn, you must figure requirements (1), (2), and (3) sepa-
rately for both you and your spouse. However, requirement
(4) applies to your and your spouse's combined adjusted
gross income.
Where to report. If you meet all of the above require-
ments, you should first complete Form 2106. Then you in-
clude your performing-arts-related expenses from Form
2106, line 10, in the total on Schedule 1 (Form 1040),
line 12.
If you don’t meet all of the above requirements, you
don’t qualify to deduct your expenses as an adjustment to
gross income.
Impairment-Related Work Expenses of
Disabled Employees
If you are an employee with a physical or mental disability,
your impairment-related work expenses aren’t subject to
the 2%-of-adjusted-gross-income limit that applies to
most other employee business expenses. After you com-
plete Form 2106, enter your impairment-related work ex-
penses from Form 2106, line 10, on Schedule A (Form
1040), line 16, and identify the type and amount of this ex-
pense on the line next to line 16.
Impairment-related work expenses are your allowable
expenses for attendant care at your workplace and other
expenses in connection with your workplace that are nec-
essary for you to be able to work.
You are disabled if you have:
•
A physical or mental disability (for example, blindness
or deafness) that functionally limits your being em-
ployed; or
•
A physical or mental impairment (for example, a sight
or hearing impairment) that substantially limits one or
more of your major life activities, such as performing
manual tasks, walking, speaking, breathing, learning,
or working.
You can deduct impairment-related expenses as busi-
ness expenses if they are:
•
Necessary for you to do your work satisfactorily;
•
For goods and services not required or used, other
than incidentally, in your personal activities; and
•
Not specifically covered under other income tax laws.
Example 1. You are blind. You must use a reader to do
your work. You use the reader both during your regular
working hours at your place of work and outside your reg-
ular working hours away from your place of work. The
reader's services are only for your work. You can deduct
your expenses for the reader as business expenses.
Example 2. You are deaf. You must use a sign lan-
guage interpreter during meetings while you are at work.
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The interpreter's services are used only for your work. You
can deduct your expenses for the interpreter as business
expenses.
How To Get Tax Help
If you have questions about a tax issue; need help prepar-
ing your tax return; or want to download free publications,
forms, or instructions, go to IRS.gov to find resources that
can help you right away.
Preparing and filing your tax return. After receiving all
your wage and earnings statements (Forms W-2, W-2G,
1099-R, 1099-MISC, 1099-NEC, etc.); unemployment
compensation statements (by mail or in a digital format) or
other government payment statements (Form 1099-G);
and interest, dividend, and retirement statements from
banks and investment firms (Forms 1099), you have sev-
eral options to choose from to prepare and file your tax re-
turn. You can prepare the tax return yourself, see if you
qualify for free tax preparation, or hire a tax professional to
prepare your return.
Free options for tax preparation. Your options for pre-
paring and filing your return online or in your local com-
munity, if you qualify, include the following.
•
Free File. This program lets you prepare and file your
federal individual income tax return for free using soft-
ware or Free File Fillable Forms. However, state tax
preparation may not be available through Free File. Go
to IRS.gov/FreeFile to see if you qualify for free online
federal tax preparation, e-filing, and direct deposit or
payment options.
•
VITA. The Volunteer Income Tax Assistance (VITA)
program offers free tax help to people with
low-to-moderate incomes, persons with disabilities,
and limited-English-speaking taxpayers who need
help preparing their own tax returns. Go to IRS.gov/
VITA, download the free IRS2Go app, or call
800-906-9887 for information on free tax return prepa-
ration.
•
TCE. The Tax Counseling for the Elderly (TCE) pro-
gram offers free tax help for all taxpayers, particularly
those who are 60 years of age and older. TCE volun-
teers specialize in answering questions about pen-
sions and retirement-related issues unique to seniors.
Go to IRS.gov/TCE or download the free IRS2Go app
for information on free tax return preparation.
•
MilTax. Members of the U.S. Armed Forces and quali-
fied veterans may use MilTax, a free tax service of-
fered by the Department of Defense through Military
OneSource. For more information, go to
MilitaryOneSource (MilitaryOneSource.mil/MilTax).
Also, the IRS offers Free Fillable Forms, which can be
completed online and then e-filed regardless of income.
Using online tools to help prepare your return. Go to
IRS.gov/Tools for the following.
•
The Earned Income Tax Credit Assistant (IRS.gov/
EITCAssistant) determines if you’re eligible for the
earned income credit (EIC).
•
The Online EIN Application (IRS.gov/EIN) helps you
get an employer identification number (EIN) at no
cost.
•
The Tax Withholding Estimator (IRS.gov/W4App)
makes it easier for you to estimate the federal income
tax you want your employer to withhold from your pay-
check. This is tax withholding. See how your withhold-
ing affects your refund, take-home pay, or tax due.
•
The First Time Homebuyer Credit Account Look-up
(IRS.gov/HomeBuyer) tool provides information on
your repayments and account balance.
•
The Sales Tax Deduction Calculator (IRS.gov/
SalesTax) figures the amount you can claim if you
itemize deductions on Schedule A (Form 1040).
Getting answers to your tax questions. On
IRS.gov, you can get up-to-date information on
current events and changes in tax law.
•
Go to IRS.gov/Help: A variety of tools to help you get
answers to some of the most common tax questions.
•
Go to IRS.gov/ITA: The Interactive Tax Assistant, a
tool that will ask you questions and, based on your in-
put, provide answers on a number of tax topics.
•
Go to IRS.gov/Forms: Find forms, instructions, and
publications. You will find details on the most recent
tax changes and interactive links to help you find an-
swers to your questions.
•
You may also be able to access tax information in your
e-filing software.
Need someone to prepare your tax return? There are
various types of tax return preparers, including enrolled
agents, certified public accountants (CPAs), accountants,
and many others who don’t have professional credentials.
If you choose to have someone prepare your tax return,
choose that preparer wisely. A paid tax preparer is:
•
Primarily responsible for the overall substantive accu-
racy of your return,
•
Required to sign the return, and
•
Required to include their preparer tax identification
number (PTIN).
Although the tax preparer always signs the return,
you're ultimately responsible for providing all the
information required for the preparer to accurately
prepare your return and for the accuracy of every item re-
ported on the return. Anyone paid to prepare tax returns
for others should have a thorough understanding of tax
matters. For more information on how to choose a tax pre-
parer, go to Tips for Choosing a Tax Preparer on IRS.gov.
CAUTION
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Employers can register to use Business Services On-
line. The Social Security Administration (SSA) offers on-
line service at SSA.gov/employer for fast, free, and secure
W-2 filing options to CPAs, accountants, enrolled agents,
and individuals who process Form W-2, Wage and Tax
Statement, and Form W-2c, Corrected Wage and Tax
Statement.
IRS social media. Go to IRS.gov/SocialMedia to see the
various social media tools the IRS uses to share the latest
information on tax changes, scam alerts, initiatives, prod-
ucts, and services. At the IRS, privacy and security are our
highest priority. We use these tools to share public infor-
mation with you. Don’t post your social security number
(SSN) or other confidential information on social media
sites. Always protect your identity when using any social
networking site.
The following IRS YouTube channels provide short, in-
formative videos on various tax-related topics in English,
Spanish, and ASL.
•
Youtube.com/irsvideos.
•
Youtube.com/irsvideosmultilingua.
•
Youtube.com/irsvideosASL.
Watching IRS videos. The IRS Video portal
(IRSVideos.gov) contains video and audio presentations
for individuals, small businesses, and tax professionals.
Online tax information in other languages. You can
find information on IRS.gov/MyLanguage if English isn’t
your native language.
Free Over-the-Phone Interpreter (OPI) Service. The
IRS is committed to serving taxpayers with limited-English
proficiency (LEP) by offering OPI services. The OPI Serv-
ice is a federally funded program and is available at Tax-
payer Assistance Centers (TACs), most IRS offices, and
every VITA/TCE tax return site. The OPI Service is acces-
sible in more than 350 languages.
Accessibility Helpline available for taxpayers with
disabilities. Taxpayers who need information about ac-
cessibility services can call 833-690-0598. The Accessi-
bility Helpline can answer questions related to current and
future accessibility products and services available in al-
ternative media formats (for example, braille, large print,
audio, etc.). The Accessibility Helpline does not have ac-
cess to your IRS account. For help with tax law, refunds, or
account-related issues, go to IRS.gov/LetUsHelp.
Note. Form 9000, Alternative Media Preference, or
Form 9000(SP) allows you to elect to receive certain types
of written correspondence in the following formats.
•
Standard Print.
•
Large Print.
•
Braille.
•
Audio (MP3).
•
Plain Text File (TXT).
•
Braille Ready File (BRF).
Disasters. Go to IRS.gov/DisasterRelief to review the
available disaster tax relief.
Getting tax forms and publications. Go to IRS.gov/
Forms to view, download, or print all the forms, instruc-
tions, and publications you may need. Or, you can go to
IRS.gov/OrderForms to place an order.
Getting tax publications and instructions in eBook
format. Download and view most tax publications and in-
structions (including the Instructions for Form 1040) on
mobile devices as eBooks at IRS.gov/eBooks.
IRS eBooks have been tested using Apple's iBooks for
iPad. Our eBooks haven’t been tested on other dedicated
eBook readers, and eBook functionality may not operate
as intended.
Access your online account (individual taxpayers
only). Go to IRS.gov/Account to securely access infor-
mation about your federal tax account.
•
View the amount you owe and a breakdown by tax
year.
•
See payment plan details or apply for a new payment
plan.
•
Make a payment or view 5 years of payment history
and any pending or scheduled payments.
•
Access your tax records, including key data from your
most recent tax return, and transcripts.
•
View digital copies of select notices from the IRS.
•
Approve or reject authorization requests from tax pro-
fessionals.
•
View your address on file or manage your communica-
tion preferences.
Get a transcript of your return. With an online account,
you can access a variety of information to help you during
the filing season. You can get a transcript, review your
most recently filed tax return, and get your adjusted gross
income. Create or access your online account at IRS.gov/
Account.
Tax Pro Account. This tool lets your tax professional
submit an authorization request to access your individual
taxpayer IRS online account. For more information, go to
IRS.gov/TaxProAccount.
Using direct deposit. The safest and easiest way to re-
ceive a tax refund is to e-file and choose direct deposit,
which securely and electronically transfers your refund di-
rectly into your financial account. Direct deposit also
avoids the possibility that your check could be lost, stolen,
destroyed, or returned undeliverable to the IRS. Eight in
10 taxpayers use direct deposit to receive their refunds. If
you don’t have a bank account, go to IRS.gov/
DirectDeposit for more information on where to find a bank
or credit union that can open an account online.
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Reporting and resolving your tax-related identity
theft issues.
•
Tax-related identity theft happens when someone
steals your personal information to commit tax fraud.
Your taxes can be affected if your SSN is used to file a
fraudulent return or to claim a refund or credit.
•
The IRS doesn’t initiate contact with taxpayers by
email, text messages (including shortened links), tele-
phone calls, or social media channels to request or
verify personal or financial information. This includes
requests for personal identification numbers (PINs),
passwords, or similar information for credit cards,
banks, or other financial accounts.
•
Go to IRS.gov/IdentityTheft, the IRS Identity Theft
Central webpage, for information on identity theft and
data security protection for taxpayers, tax professio-
nals, and businesses. If your SSN has been lost or
stolen or you suspect you’re a victim of tax-related
identity theft, you can learn what steps you should
take.
•
Get an Identity Protection PIN (IP PIN). IP PINs are
six-digit numbers assigned to taxpayers to help pre-
vent the misuse of their SSNs on fraudulent federal in-
come tax returns. When you have an IP PIN, it pre-
vents someone else from filing a tax return with your
SSN. To learn more, go to IRS.gov/IPPIN.
Ways to check on the status of your refund.
•
Go to IRS.gov/Refunds.
•
Download the official IRS2Go app to your mobile de-
vice to check your refund status.
•
Call the automated refund hotline at 800-829-1954.
The IRS can’t issue refunds before mid-February
for returns that claimed the EIC or the additional
child tax credit (ACTC). This applies to the entire
refund, not just the portion associated with these credits.
Making a tax payment. Payments of U.S. tax must be
remitted to the IRS in U.S. dollars. Digital assets are not
accepted. Go to IRS.gov/Payments for information on how
to make a payment using any of the following options.
•
IRS Direct Pay: Pay your individual tax bill or estimated
tax payment directly from your checking or savings ac-
count at no cost to you.
•
Debit Card, Credit Card, or Digital Wallet: Choose an
approved payment processor to pay online or by
phone.
•
Electronic Funds Withdrawal: Schedule a payment
when filing your federal taxes using tax return prepara-
tion software or through a tax professional.
•
Electronic Federal Tax Payment System: Best option
for businesses. Enrollment is required.
•
Check or Money Order: Mail your payment to the ad-
dress listed on the notice or instructions.
•
Cash: You may be able to pay your taxes with cash at
a participating retail store.
CAUTION
!
•
Same-Day Wire: You may be able to do same-day
wire from your financial institution. Contact your finan-
cial institution for availability, cost, and time frames.
Note. The IRS uses the latest encryption technology to
ensure that the electronic payments you make online, by
phone, or from a mobile device using the IRS2Go app are
safe and secure. Paying electronically is quick, easy, and
faster than mailing in a check or money order.
What if I can’t pay now? Go to IRS.gov/Payments for
more information about your options.
•
Apply for an online payment agreement (IRS.gov/
OPA) to meet your tax obligation in monthly install-
ments if you can’t pay your taxes in full today. Once
you complete the online process, you will receive im-
mediate notification of whether your agreement has
been approved.
•
Use the Offer in Compromise Pre-Qualifier to see if
you can settle your tax debt for less than the full
amount you owe. For more information on the Offer in
Compromise program, go to IRS.gov/OIC.
Filing an amended return. Go to IRS.gov/Form1040X
for information and updates.
Checking the status of your amended return. Go to
IRS.gov/WMAR to track the status of Form 1040-X amen-
ded returns.
It can take up to 3 weeks from the date you filed
your amended return for it to show up in our sys-
tem, and processing it can take up to 16 weeks.
Understanding an IRS notice or letter you’ve re-
ceived. Go to IRS.gov/Notices to find additional informa-
tion about responding to an IRS notice or letter.
Responding to an IRS notice or letter. You can now
upload responses to all notices and letters using the
Document Upload Tool. For notices that require additional
action, taxpayers will be redirected appropriately on
IRS.gov to take further action. To learn more about the
tool, go to IRS.gov/Upload.
Note. You can use Schedule LEP (Form 1040), Re-
quest for Change in Language Preference, to state a pref-
erence to receive notices, letters, or other written commu-
nications from the IRS in an alternative language. You may
not immediately receive written communications in the re-
quested language. The IRS’s commitment to LEP taxpay-
ers is part of a multi-year timeline that began providing
translations in 2023. You will continue to receive communi-
cations, including notices and letters, in English until they
are translated to your preferred language.
Contacting your local TAC. Keep in mind, many ques-
tions can be answered on IRS.gov without visiting a TAC.
Go to IRS.gov/LetUsHelp for the topics people ask about
most. If you still need help, TACs provide tax help when a
tax issue can’t be handled online or by phone. All TACs
now provide service by appointment, so you’ll know in ad-
vance that you can get the service you need without long
CAUTION
!
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wait times. Before you visit, go to IRS.gov/TACLocator to
find the nearest TAC and to check hours, available serv-
ices, and appointment options. Or, on the IRS2Go app,
under the Stay Connected tab, choose the Contact Us op-
tion and click on “Local Offices.”
The Taxpayer Advocate Service (TAS)
Is Here To Help You
What Is TAS?
TAS is an independent organization within the IRS that
helps taxpayers and protects taxpayer rights. TAS strives
to ensure that every taxpayer is treated fairly and that you
know and understand your rights under the Taxpayer Bill
of Rights.
How Can You Learn About Your Taxpayer
Rights?
The Taxpayer Bill of Rights describes 10 basic rights that
all taxpayers have when dealing with the IRS. Go to
TaxpayerAdvocate.IRS.gov to help you understand what
these rights mean to you and how they apply. These are
your rights. Know them. Use them.
What Can TAS Do For You?
TAS can help you resolve problems that you can’t resolve
with the IRS. And their service is free. If you qualify for
their assistance, you will be assigned to one advocate
who will work with you throughout the process and will do
everything possible to resolve your issue. TAS can help
you if:
•
Your problem is causing financial difficulty for you,
your family, or your business;
•
You face (or your business is facing) an immediate
threat of adverse action; or
•
You’ve tried repeatedly to contact the IRS but no one
has responded, or the IRS hasn’t responded by the
date promised.
How Can You Reach TAS?
TAS has offices in every state, the District of Columbia,
and Puerto Rico. To find your advocate’s number:
•
Go to TaxpayerAdvocate.IRS.gov/Contact-Us;
•
Download Pub. 1546, The Taxpayer Advocate Service
Is Your Voice at the IRS, available at IRS.gov/pub/irs-
pdf/p1546.pdf;
•
Call the IRS toll free at 800-TAX-FORM
(800-829-3676) to order a copy of Pub. 1546;
•
Check your local directory; or
•
Call TAS toll free at 877-777-4778.
How Else Does TAS Help Taxpayers?
TAS works to resolve large-scale problems that affect
many taxpayers. If you know of one of these broad issues,
report it to TAS at IRS.gov/SAMS. Be sure to not include
any personal taxpayer information.
Low Income Taxpayer Clinics (LITCs)
LITCs are independent from the IRS and TAS. LITCs rep-
resent individuals whose income is below a certain level
and who need to resolve tax problems with the IRS. LITCs
can represent taxpayers in audits, appeals, and tax collec-
tion disputes before the IRS and in court. In addition,
LITCs can provide information about taxpayer rights and
responsibilities in different languages for individuals who
speak English as a second language. Services are offered
for free or a small fee. For more information or to find an
LITC near you, go to the LITC page at
TaxpayerAdvocate.IRS.gov/LITC or see IRS Pub. 4134,
Low Income Taxpayer Clinic List, at IRS.gov/pub/irs-pdf/
p4134.pdf.
Appendices
Appendices A-1 through A-6 show the lease inclusion
amounts that you may need to report if you first leased a
passenger automobile (including a truck and van) in 2018
through 2023 for 30 days or more.
If any of these apply to you, use the appendix for the
year you first leased the car. (See Leasing a Car in chap-
ter 4.)
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Appendix A-1. Inclusion Amounts for Passenger Automobiles First Leased in 2018
Fair Market Value Tax Year of Lease
1
Over Not Over 1st 2nd 3rd 4th 5th and Later
. . . . . . .
$50,000 $51,000 $1 $3 $5 $5 $6
51,000 52,000 4 9 13 16 19
52,000 53,000 7 15 22 27 31
53,000 54,000 10 21 31 37 44
54,000 55,000 12 27 40 48 56
55,000 56,000 15 33 49 59 68
56,000 57,000 18 39 58 69 81
57,000 58,000 20 45 67 80 93
58,000 59,000 23 51 76 91 105
59,000 60,000 26 57 85 101 117
60,000 62,000 30 66 98 118 135
62,000 64,000 36 78 116 139 160
64,000 66,000 41 90 134 160 185
66,000 68,000 46 102 152 181 210
68,000 70,000 52 114 169 203 235
70,000 72,000 57 126 187 225 259
72,000 74,000 63 138 205 246 284
74,000 76,000 68 150 223 267 309
76,000 78,000 74 162 241 288 333
78,000 80,000 79 174 259 310 357
80,000 85,000 89 195 290 347 401
85,000 90,000 102 225 335 400 463
90,000 95,000 116 255 379 454 525
95,000 100,000
2
130 285 423 508 586
1
For the last tax year of the lease, use the dollar amount for the preceding year.
2
If the fair market value of the vehicle is more than $100,000, see Rev. Proc. 2018-25 (2018-18 I.R.B. 543), available at https://www.irs.gov/pub/irs-drop/rp-18-25.pdf.
Appendix A-2. Inclusion Amounts for Passenger Automobiles First Leased in 2019
Fair Market Value Tax Year of Lease
1
Over Not Over 1st 2nd 3rd 4th 5th and Later
. . . . . . .
$50,000 $51,000 $0 $1 $1 $3 $3
51,000 52,000 4 11 15 20 23
52,000 53,000 9 20 30 36 43
53,000 54,000 13 30 44 53 63
54,000 55,000 17 40 58 70 83
55,000 56,000 22 49 72 88 102
56,000 57,000 26 59 86 105 122
57,000 58,000 31 68 101 122 142
58,000 59,000 35 78 115 139 161
59,000 60,000 39 88 129 156 181
60,000 62,000 46 102 151 181 211
62,000 64,000 55 121 179 216 250
64,000 66,000 63 140 208 251 289
66,000 68,000 72 160 236 284 329
68,000 70,000 81 179 265 318 369
70,000 72,000 90 198 293 353 408
72,000 74,000 98 217 322 387 448
74,000 76,000 107 236 351 421 487
76,000 78,000 116 255 379 456 526
78,000 80,000 125 275 407 489 567
80,000 85,000 140 308 458 549 635
85,000 90,000 162 356 529 635 734
90,000 95,000 184 404 600 720 833
95,000 100,000
2
206 452 671 806 931
1
For the last tax year of the lease, use the dollar amount for the preceding year.
2
If the fair market value of the vehicle is more than $100,000, see Rev. Proc. 2019-26 (2019-24 I.R.B. 1323), available at https://www.irs.gov/pub/irs-drop/rp-19-26.pdf.
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Appendix A-3. Inclusion Amounts for Passenger Automobiles First Leased in 2020
Fair Market Value Tax Year of Lease
1
Over Not Over 1st 2nd 3rd 4th 5th and Later
. . . . . . .
$50,000 $51,000 $0 $1 $0 $2 $2
51,000 52,000 2 6 9 10 13
52,000 53,000 5 11 17 20 24
53,000 54,000 7 17 24 30 35
54,000 55,000 10 22 32 39 46
55,000 56,000 12 27 41 48 57
56,000 57,000 15 32 49 58 68
57,000 58,000 17 38 56 68 79
58,000 59,000 19 44 64 77 90
59,000 60,000 22 49 72 87 100
60,000 62,000 26 56 84 102 117
62,000 64,000 30 68 99 121 139
64,000 66,000 35 78 116 139 161
66,000 68,000 40 89 131 159 183
68,000 70,000 45 99 148 177 205
70,000 72,000 50 110 163 197 227
72,000 74,000 55 121 179 215 249
74,000 76,000 60 131 195 235 271
76,000 78,000 64 142 211 254 293
78,000 80,000 69 153 227 272 315
80,000 85,000 78 172 254 306 353
85,000 90,000 90 198 295 353 408
90,000 95,000 102 225 334 401 463
95,000 100,000
2
114 252 373 449 518
1
For the last tax year of the lease, use the dollar amount for the preceding year.
2
If the fair market value of the vehicle is more than $100,000, see Rev. Proc. 2020-37 (2020-33 I.R.B. 381), available at https://www.irs.gov/pub/irs-drop/rp-20-37.pdf.
Appendix A-4. Inclusion Amounts for Passenger Automobiles First Leased in 2021
Fair Market Value Tax Year of Lease
1
Over Not Over 1st 2nd 3rd 4th 5th and Later
. . . . . . .
$51,000 $52,000 $0 $0 $1 $0 $1
52,000 53,000 1 1 1 2 2
53,000 54,000 1 2 2 3 4
54,000 55,000 1 3 3 5 5
55,000 56,000 2 3 5 6 6
56,000 57,000 2 4 6 7 8
57,000 58,000 2 5 7 8 10
58,000 59,000 3 5 8 10 11
59,000 60,000 3 6 9 11 13
60,000 62,000 3 7 11 13 15
62,000 64,000 4 9 13 15 18
64,000 66,000 5 10 15 18 21
66,000 68,000 5 12 17 21 24
68,000 70,000 6 13 20 23 27
70,000 72,000 7 14 22 26 30
72,000 74,000 7 16 24 29 33
74,000 76,000 8 18 26 31 36
76,000 78,000 9 19 28 34 39
78,000 80,000 9 21 30 37 42
80,000 85,000 11 23 34 41 48
85,000 90,000 12 27 40 47 55
90,000 95,000 14 30 45 55 62
95,000 100,000
2
16 34 50 61 70
1
For the last tax year of the lease, use the dollar amount for the preceding year.
2
If the fair market value of the vehicle is more than $100,000, see Rev. Proc. 2021-31 (2021-34 I.R.B. 324), available at https://www.irs.gov/pub/irs-drop/rp-21-31.pdf.
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Appendix A-5. Inclusion Amounts for Passenger Automobiles First Leased in 2022
Fair Market Value Tax Year of Lease
1
Over Not Over 1st 2nd 3rd 4th 5th and Later
. . . . . . .
$56,000 $57,000 $1 $1 $1 $2 $2
57,000 58,000 2 4 5 7 7
58,000 59,000 3 7 9 11 13
59,000 60,000 4 9 14 16 19
60,000 62,000 6 13 20 23 28
62,000 64,000 9 19 27 34 38
64,000 66,000 11 24 36 43 50
66,000 68,000 14 30 43 53 61
68,000 70,000 16 35 52 63 72
70,000 72,000 19 40 61 72 83
72,000 74,000 21 46 68 82 95
74,000 76,000 24 51 77 91 106
76,000 78,000 26 57 85 101 117
78,000 80,000 29 62 93 111 128
80,000 85,000 33 72 107 128 148
85,000 90,000 39 86 127 152 176
90,000 95,000 45 100 147 177 204
95,000 100,000
2
52 113 167 201 233
1
For the last tax year of the lease, use the dollar amount for the preceding year.
2
If the fair market value of the vehicle is more than $100,000, see Rev. Proc. 2022-17 (2022-13 I.R.B. 930), available at IRS.gov/pub/irs-drop/rp-22-17.pdf.
Appendix A-6. Inclusion Amounts for Passenger Automobiles First Leased in 2023
Fair Market Value Tax Year of Lease
1
Over Not Over 1st 2nd 3rd 4th 5th and Later
. . . . . . .
60,000 62,000 0 0 1 3 5
62,000 64,000 13 29 43 54 63
64,000 66,000 26 57 86 104 122
66,000 68,000 39 86 128 154 181
68,000 70,000 52 114 170 206 239
70,000 72,000 65 143 212 256 297
72,000 74,000 78 171 255 306 356
74,000 76,000 91 200 296 358 414
76,000 78,000 104 228 339 408 473
78,000 80,000 117 257 381 459 531
80,000 85,000 140 306 455 548 634
85,000 90,000 172 378 560 674 780
90,000 95,000 204 449 666 801 926
95,000 100,000
2
237 520 772 927 1,073
1
For the last tax year of the lease, use the dollar amount for the preceding year.
2
If the fair market value of the vehicle is more than $100,000, see Rev. Proc. 2023-14 (2023-6 I.R.B. 466), available at https://www.irs.gov/pub/irs-drop/rp-23-14.pdf.
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To help us develop a more useful index, please let us know if you have ideas for index entries.
See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.
Index
"Hours of service" limits 17
Form 2106 50
50% limit on meals 7
A
Accountable plans 42-46
Accounting to employer 42
Adequate accounting 43
Independent contractors 47
Adequate records 36
Advertising:
Car display 20
Expenses 17
Signs, display racks, or other
promotional material to be used
on recipient's business
premises 18
Airline clubs 15
Allocating costs 6, 38
Allowance (See Reimbursements)
Armed forces:
Assigned overseas 4
Assistance (See Tax help)
Athletic clubs 15
B
Basis of car 26
(See also Depreciation of car)
Bona fide business purpose 7
Business travel 9
Outside U.S. 10
Business use of car 22
More-than-50%-use test. 26
Qualified business use 26
C
Canceled checks:
As evidence of business
expenses 36
Car expenses 21-34
Actual expenses 22
Allowances for 43-46
Business and personal use 22
Combining expenses 38
Disposition of car 34
Fixed and variable rate (FAVR)
allowance 45
Form 2106 49
Leasing a car, truck, or van 33, 34
Mileage rate (See Standard mileage
rate)
Taxes paid on car 23
Traffic tickets 23
Car pools 20
Car rentals 34
Form 2106 49
Car, defined 23
Car, truck, or van rentals 33, 34
Casualty and theft losses:
Cars 23
Depreciation 34
Club dues 15
Commuting expenses 20
Conventions 13
Country clubs 15
Cruise ships 13
D
Daily business mileage and
expense log (Table 5-2) 39
Depreciation of car 23
(See also Section 179 deductions)
Adjustment for using standard
mileage rate 35
Basis 26
Sales taxes 23
Unrecovered basis 30
Casualty or theft, effect 34
Deduction 23, 35
Excess depreciation 31
Modified Accelerated Cost
Recovery System (MACRS) 28
Trade-in, effect 27, 35
Trucks and vans 30
Depreciation of Car:
Section 179 deduction 30
Disabled employees:
Impairment-related work
expenses 51
Documentary evidence 36
E
Employer-provided vehicles 22
Reporting requirements 42
Entertainment expenses 18
50% limit:
Determination of applicability
(Figure A) 16
Entertainment, defined 14
Form 2106 50
Estimates of expenses 36
Exceptions to the 50% Limit 17
Excess reimbursements
(See Reimbursements)
F
Fair market value of car 33
Farmers:
Form 1040, Schedule F 41
Federal crime investigations or
prosecutions:
Federal employees engaged in 5
Federal rate for per diem 8, 44
Fee-basis officials 51
Fees you pay 20
Fixed and variable rate (FAVR)
allowance 45
Form 1040, Schedule C 41
Form 1040, Schedule F 41
Form 2106 24, 41, 42, 47, 48
Form 4562 41
Form 4797 31
Form W-2:
Employer-provided vehicles 42
Reimbursement of personal
expenses 41
Statutory employees 41
G
Gifts 15, 17
$25 limit 18
Combining for recordkeeping
purposes 38
Reporting requirements 41
Golf clubs 15
H
Hauling tools 20
High-low method:
Introduction 48
Transition rules 48
High-low rate method 44
Home office 20
Hotel clubs 15
I
Identity theft 54
Impairment-related work
expenses 51
Incidental expenses:
Defined 8
Gifts 18
No meals, incidentals only 8
Income-producing property 41
Incomplete records 37
Indefinite job assignment 5
Independent contractors 47
Interest on car loans 23
Itinerants 4
L
Leasing a car, truck, or van 33, 34
Luxury water travel 12
M
MACRS (Modified Accelerated Cost
Recovery System) 28
2023 chart (Table 4-1) 32
Main place of business or work 4
Married taxpayers:
Performing artists 51
Meal expenses 7
50% limit 16
Determination of applicability
(Figure A) 16
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Exceptions 17
Actual cost method 7
Form 2106 50
Major cities with higher
allowances 8
Standard meal allowance 7, 8, 44
Meals and Entertainment
expenses 14
Mileage rate (See Standard mileage
rate)
Military (See Armed forces)
Missing children, photographs of 2
Modified Accelerated Cost
Recovery System (MACRS) 28
2023 chart (Table 4-1) 32
N
Nonaccountable plans 46
O
Office in the home 20
Officials paid on fee basis 51
Overseas travel:
Conventions 13
Meal allowance 8
Part of trip outside U.S. 9
P
Parking fees 20, 22
Per diem allowances 43-46
Defined 42
Federal rate for 44
Per diem rates:
High-cost localities 48
High-low method 48
Regular federal method 48
Standard rate for unlisted
localities 48
Transition rules 48
Performing artists 51
Personal property taxes 22, 23
Personal trips 9
Outside U.S. 12
Placed in service, cars 26
Probationary work period 6
Proving business purpose 36
Public transportation:
Outside of U.S. travel 9
Publications (See Tax help)
R
Recordkeeping requirements 35-38
Adequate records 36
Daily business mileage and
expense log (Table 5-2) 39
Destroyed records 38
How to prove expenses
(Table 5-1) 37
Incomplete records 37
Reimbursed expenses 38
Sampling to prove expenses 37
Separating and combining
expenses 38
Three-year period of retention 38
Weekly traveling expense record
(Table 5-3) 40
Regular federal method:
Introduction 48
Transition rules 48
Reimbursements 42-48
Accountable plans 42
Excess 46, 47
Form 2106 50
Nonaccountable plans 46
Nondeductible expenses 43
Personal expenses 41
Recordkeeping 38
Reporting (Table 6-1) 49
Unclaimed 41
Reporting requirements 41
Per diem or car allowance 45
Reimbursements 42-48
Reservists:
Transportation expenses 20
Traveling more than 100 miles from
home 50
Returning excess
reimbursements 46
S
Section 179 deduction:
Amended return 25
Deduction 23
Limits 24
Self-employed persons 17
Reporting requirements 41
Spouse, expenses for 6
Standard meal allowance 7, 8, 44
Standard mileage rate 2, 21, 45
Depreciation adjustment for
using 35
Form 2106 49
Statutory employees 41
T
Tables and figures:
50% limit determination (Figure
A) 16
Daily business mileage and
expense log (Table 5-2) 39
Maximum depreciation deduction
for cars placed in service prior to
2018 table 29
Maximum depreciation deduction
for Passenger Automobiles
(Including Trucks and Vans)
acquired after September 27,
2017, and placed in service
during 2018 or later 29
Maximum depreciation deduction
for Passenger Automobiles
(Including Trucks and Vans)
acquired before September 28,
2017, and placed in service
during 2018–2023 29
Modified Accelerated Cost
Recovery System (MACRS) 2023
chart (Table 4-1) 32
Proving expenses (Table 5-1) 37
Reporting reimbursements
(Table 6-1) 49
Transportation expenses,
determination of deductibility
(Figure B) 18, 19
Travel expenses, determination of
deductibility (Table 1-1) 7
Weekly traveling expense record
(Table 5-3) 40
Tax help 52
Tax home, determination of 4
Temporary job assignments 5
Temporary work location 19
Tickets:
Traffic violations 23
Tools:
Hauling tools 20
Trade-in of car 27, 35
Traffic tickets 23
Transients 4
Transition rules 48
Example:
High-low method 48
High-low method 48
Regular federal method 48
Transportation expenses 18
Car expenses 21-34
Deductible (Figure B) 18, 19
five or more cars 22
Form 2106 49
Transportation workers 8, 17
Travel advance 42, 46
(See also Reimbursements)
Travel expenses 3-14
Another individual accompanying
taxpayer 6
Away from home 4, 5
Deductible 6, 14
Summary of (Table 1-1) 7
Defined 3
Going home on days off 6
In U.S. 9
Lodging 8
Luxury water travel 12
Outside U.S. 10
Travel to family home 5
Trucks and vans:
Depreciation 30
Transportation workers 17
Transportation workers' expenses 8
Two places of work 20
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U
Unclaimed reimbursements 41
Unions:
Trips from union hall to place of
work 20
Unrecovered basis of car 30
V
Volunteers 3
W
Weekly traveling expense record
(Table 5-3) 40
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