Contents
Future Developments . . . . . . . . . . . . 2
What's New . . . . . . . . . . . . . . . . . . 2
Reminder . . . . . . . . . . . . . . . . . . . . 2
Introduction . . . . . . . . . . . . . . . . . . 2
Chapter 1. Travel . . . . . . . . . . . . . . 3
Traveling Away From Home . . . . . . . 3
Tax Home . . . . . . . . . . . . . . 3
Tax Home Different From
Family Home . . . . . . . . . . 4
Temporary Assignment or Job . . . . . 4
What Travel Expenses Are
Deductible? . . . . . . . . . . . . . . 4
Meals . . . . . . . . . . . . . . . . 5
Travel in the United States . . . . 6
Travel Outside the United
States . . . . . . . . . . . . . . 7
Luxury Water Travel . . . . . . . . 9
Conventions . . . . . . . . . . . . 9
Chapter 2. Meals and
Entertainment . . . . . . . . . . . . . 10
50% Limit . . . . . . . . . . . . . . . . 11
Exception to the 50% Limit
for Meals . . . . . . . . . . . 12
Chapter 3. Gifts . . . . . . . . . . . . . . 13
Chapter 4. Transportation . . . . . . . . 13
Car Expenses . . . . . . . . . . . . . . 14
Standard Mileage Rate . . . . . 14
Actual Car Expenses . . . . . . . 15
Leasing a Car . . . . . . . . . . . 22
Disposition of a Car . . . . . . . . . . 24
Chapter 5. Recordkeeping . . . . . . . . 24
How To Prove Expenses . . . . . . . 24
What Are Adequate
Records? . . . . . . . . . . . 24
What if I Have Incomplete
Records? . . . . . . . . . . . 25
Separating and Combining
Expenses . . . . . . . . . . . 25
How Long To Keep
Records and Receipts . . . . 26
Examples of Records . . . . . . 28
Chapter 6. How To Report . . . . . . . . 28
Where To Report . . . . . . . . . . . . 28
Vehicle Provided by Your
Employer . . . . . . . . . . . 28
Reimbursements . . . . . . . . . . . . 29
Accountable Plans . . . . . . . . 29
Nonaccountable Plans . . . . . . 32
Rules for Independent
Contractors and Clients . . . 32
How To Use Per Diem Rate
Tables . . . . . . . . . . . . . . . . 33
The Two Substantiation
Methods . . . . . . . . . . . . 33
Transition Rules . . . . . . . . . 33
Completing Form 2106 . . . . . . . . 33
Special Rules . . . . . . . . . . . 34
How To Get Tax Help . . . . . . . . . . . 35
Appendices . . . . . . . . . . . . . . . . . 39
Department
of the
Treasury
Internal
Revenue
Service
Publication 463
Cat. No. 11081L
Travel,
Gift, and Car
Expenses
For use in preparing
2021 Returns
Get forms and other information faster and easier at:
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Mar 24, 2022
Index . . . . . . . . . . . . . . . . . . . . . 43
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
Temporary deduction of 100% business
meals. A 100% deduction is allowed for certain
business meals paid or incurred after 2020 and
before 2023. See 50% Limit in chapter 2 for
more information.
Temporary 100% deduction of the full meal
portion of a per diem rate or allowance. A
100% deduction is allowed for certain business
meals paid or incurred after 2020 and before
2023. A special rule allows this 100% deduction
for the full meal portion of a per diem rate or al-
lowance. See Exception to the 50% Limit for
Meals in chapter 2 for more information.
Standard mileage rate. For 2021, the stand-
ard mileage rate for the cost of operating your
car for business use is 56 cents (0.56) per mile.
Car expenses and use of the standard mileage
rate are explained in chapter 4.
Depreciation limits on cars, trucks, and
vans. The additional first-year limit on depreci-
ation for vehicles acquired before September
28, 2017, is no longer allowed if placed in serv-
ice after 2019. The first-year limit on deprecia-
tion, special depreciation allowance, and sec-
tion 179 deduction for vehicles acquired after
September 27, 2017, and placed in service dur-
ing 2021 increases to $18,200. If you elect not
to claim a special depreciation allowance for a
vehicle placed in service in 2021, the amount
increases to $10,200. Depreciation limits are
explained in chapter 4.
Section 179 deduction. The maximum
amount you can elect to deduct for most section
179 property (including cars, trucks, and vans)
you placed in service in tax years beginning in
2021 is $1,050,000. This limit is reduced by the
amount by which the cost of section 179 prop-
erty placed in service during the tax year ex-
ceeds $2,620,000. Section 179 deduction is ex-
plained in chapter 4.
Also, the maximum section 179 expense de-
duction for sport utility vehicles placed in serv-
ice in tax years beginning in 2021 is $26,200.
Reminder
Photographs of missing children. The IRS is
a proud partner with the National Center for
Missing & Exploited Children® (NCMEC). Pho-
tographs of missing children selected by the
Center may appear in this publication on pages
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 neces-
sary expense is one that is helpful and appropri-
ate 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 ex-
penses, and
• How to treat any expense reimbursements
you may receive.
Who should use this publication. You
should read this publication if you are an em-
ployee or a sole proprietor who has busi-
ness-related travel, non-entertainment-related
meals, gift, or transportation expenses.
Users of employer-provided vehicles. If
an employer-provided vehicle was available for
your use, you received a fringe benefit. Gener-
ally, your employer must include the value of
the use or availability of the vehicle in your in-
come. 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 em-
ployer, the cost of which would be allowable as
an employee business expense 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 purposes because of its design.
See Qualified nonpersonal use vehicles under
Actual Car Expenses in chapter 4.
For information on how to report your car ex-
penses that your employer didn’t provide or re-
imburse you for (such as when you pay for gas
and maintenance for a car your employer pro-
vides), see Vehicle Provided by Your Employer
in chapter 6.
Who doesn’t need to use this publication.
Partnerships, corporations, trusts, and employ-
ers who reimburse their employees for business
expenses should refer to the instructions for
their required tax forms and chapter 11 of Pub.
535, Business Expenses, for information on de-
ducting travel, meals, and entertainment expen-
ses.
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-related expenses.
• You received full reimbursement for your
expenses.
• Your employer required you to return any
excess reimbursement 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 reimburse-
ments on your return. If you would like more in-
formation 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 error, ask your em-
ployer 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 chari-
table contribution. See Out-of-Pocket Expenses
in Giving Services in Pub. 526, Charitable Con-
tributions, for information on the expenses you
can deduct.
Comments and suggestions. We welcome
your comments about this publication and your
suggestions for future editions.
You can send us comments through
IRS.gov/FormComments. Or, you can write to:
Internal Revenue Service
Tax Forms and Publications
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
Although we can’t respond individually to
each comment received, we do appreciate your
feedback and will consider your comments as
we revise our tax forms, instructions, and publi-
cations. Don’t send tax questions, tax returns,
or payments to the above address.
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 In-
teractive 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 pub-
lications. 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, instructions, and publica-
tions; 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 al-
ready sent us. You can get forms and publica-
tions faster online.
Useful Items
You may want to see:
Publication
535 Business Expenses
946 How To Depreciate Property
Form (and Instructions)
Schedule A (Form 1040) Itemized
DeductionsTIP
Schedule A (Form 1040)
Page 2 Publication 463 (2021)
Schedule C (Form 1040) Profit or Loss
From Business
Schedule F (Form 1040) Profit or Loss
From Farming
2106 Employee Business Expenses
4562 Depreciation and Amortization
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 con-
vention expenses.
Travel expenses defined. For tax purposes,
travel expenses are the ordinary and necessary
expenses of traveling away from home for your
business, profession, or job.
An ordinary expense is one that is common
and accepted in your trade or business. A nec-
essary expense is one that is helpful and appro-
priate for your business. An expense doesn’t
have to be required to be considered neces-
sary.
You will find examples of deductible travel
expenses in Table 1-1.
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 longer than an ordinary
day's work, and
• You need to sleep or rest to meet the de-
mands 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
Schedule C (Form 1040)
Schedule F (Form 1040)
2106
4562
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 terminal and return to it later the
same day. You get an hour off at your turn-
around point to eat. Because you aren’t off to
get necessary sleep and the brief time off isn’t
an adequate 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 perma-
nent duty assignment overseas, you aren’t trav-
eling away from home. You can’t deduct your
expenses for meals and lodging. You can’t de-
duct these expenses even if you have to main-
tain a home in the United States for your family
members who aren’t allowed to accompany you
overseas. If you are transferred from one per-
manent duty station to another, you may have
deductible moving expenses, which are ex-
plained in Pub. 521, Moving Expenses.
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 loca-
tion of your tax home.
Generally, your tax home is your regular
place of business or post of duty, regardless of
where you maintain your family home. It in-
cludes 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 fol-
lowing when determining 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 seasonal 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 regularly live.
Factors used to determine tax home. If
you don’t have a regular or main place of busi-
ness 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 sat-
isfy only two factors, 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 Bos-
ton 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
training.
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
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) be-
cause you had duplicate living expenses. You
also satisfy factor (3) because you didn’t aban-
don your apartment in Boston as your main
home, you kept your community contacts, and
you frequently returned to live in your apart-
ment. Therefore, you have a tax home in Bos-
ton.
Example 2. You are an outside salesper-
son with a sales territory covering several
states. Your employer's main office is in New-
ark, but you don’t conduct any business there.
Your work assignments are temporary, and you
have no way of knowing where your future as-
signments will be located. You have a room in
your married sister'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 sis-
ter for the use of the room.
Chapter 1 Travel Page 3
You don’t satisfy any of the three factors lis-
ted 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 deduct 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 traveling away from home. See
Example 2, later.
Example 1. You are a truck driver and you
and your family live in Tucson. You are em-
ployed by a trucking firm that has its terminal in
Phoenix. At the end of your long runs, you re-
turn 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 be-
cause Phoenix is your tax home.
Example 2. Your family home is in Pitts-
burgh, 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 Balti-
more.
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
Pittsburgh, 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 workday.
Temporary assignment vs. indefinite as-
signment. If your assignment or job away from
your main place of work is temporary, your tax
home doesn’t change. You are considered 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 other-
wise qualify for deduction. Generally, a tempo-
rary assignment in a single location 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 indefi-
nite, the location of the assignment or job be-
comes your new tax home and you can’t deduct
your travel expenses while there. An assign-
ment or job in a single location is considered in-
definite 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 in-
clude in your income any amounts you receive
from your employer for living expenses, even if
they are called “travel allowances” and you ac-
count 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. 521
for more information.
For tax years beginning after Decem-
ber 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 prosecutions. If you are a federal em-
ployee participating in a federal crime investiga-
tion or prosecution, you aren’t subject 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 requirements for deductibil-
ity.
For you to qualify, the Attorney General (or
his or her designee) must certify that you are
traveling:
• For the federal government;
• In a temporary duty status; and
• To investigate, prosecute, or provide sup-
port services for the investigation or prose-
cution of a federal crime.
Determining temporary or indefinite. You
must determine 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 other-
wise. An assignment or job that is initially tem-
porary may become indefinite due to changed
circumstances. A series of assignments to the
same location, all for short periods but that to-
gether cover a long period, may be considered
an indefinite assignment.
The following examples illustrate whether an
assignment 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. Because 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 expec-
ted the work in Fresno to last 18 months. The
job was actually completed in 10 months.CAUTION
!
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 expen-
ses you had in Fresno because Fresno became
your tax home.
Example 3. The facts are the same as in
Example 1, except that you realistically expec-
ted 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 circumstances occurring after 8
months, it was no longer realistic for you to ex-
pect that the job in Fresno would last for 1 year
or less. You can deduct only your travel expen-
ses 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 be-
came 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 ex-
penses, including meals and lodging, while
traveling between your temporary place of work
and your tax home. You can claim these expen-
ses 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 expen-
ses 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 requires you to move, with the understand-
ing that you will keep the job if your work is sat-
isfactory during a probationary period, the job is
indefinite. You can’t deduct any of your expen-
ses for meals and lodging during the probation-
ary period.
What Travel Expenses
Are Deductible?
Once you have determined that you are travel-
ing away from your tax home, you can deter-
mine what travel expenses are deductible.
You can deduct ordinary and necessary ex-
penses you have when you travel away from
home on business. The type of expense you
can deduct depends on the facts and your cir-
cumstances.
Table 1-1 summarizes travel expenses you
may be able to deduct. You may have other de-
ductible travel expenses that aren’t covered
there, depending on the facts and your circum-
stances.
Page 4 Chapter 1 Travel
When you travel away from home on
business, you must keep records of all
the expenses you have and any advan-
ces 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 chapter 5).
Separating costs. If you have one expense
that includes the costs of non-entertainment-re-
lated meals, entertainment, and other services
(such as lodging or transportation), you must al-
locate that expense between the cost of
non-entertainment-related meals, and entertain-
ment and the cost of other services. You must
have a reasonable basis for making this alloca-
tion. For example, you must allocate your ex-
penses 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 employee) on a business trip
or to a business convention, you generally can’t
deduct his or her travel expenses.
Employee. You can deduct the travel ex-
penses of someone who goes with you if that
person:RECORDS
1. Is your employee,
2. Has a bona fide business purpose for the
travel, and
3. Would otherwise be allowed to deduct the
travel expenses.
Business associate. If a business asso-
ciate travels with you and meets the conditions
in (2) and (3) above, you can deduct the travel
expenses you have for that person. A business
associate is someone with whom you could rea-
sonably expect to actively conduct business. A
business associate can be a current or pro-
spective (likely to become) customer, client,
supplier, employee, agent, partner, or profes-
sional advisor.
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 as-
sisting in entertaining customers, aren’t enough
to make the expenses deductible.
Example. Jerry drives to Chicago on busi-
ness and takes his wife Linda with him. Linda
isn’t Jerry's employee. Linda occasionally types
notes, performs similar services, and accompa-
nies Jerry to luncheons and dinners. The per-
formance of these services doesn’t establish
that her presence on the trip is necessary to the
conduct of Jerry's business. Her expenses
aren’t deductible.
Jerry pays $199 a day for a double room. A
single room costs $149 a day. He can deduct
the total cost of driving his car to and from Chi-
cago, but only $149 a day for his hotel room. If
both Jerry and Linda use public transportation,
Jerry can deduct only his fare.
Meals
You can deduct 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 enter-
tainment expenses are discussed in chapter 2.
Lavish or extravagant. You can't deduct ex-
penses for meals that are lavish or extravagant.
An expense isn't considered lavish or extrava-
gant if it is reasonable based on the facts and
circumstances. Meal expenses won't be disal-
lowed merely because they are more than a
fixed dollar amount or because the meals take
place at deluxe restaurants, 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, regardless of the method you use, you can
generally deduct only 50% of the unreimbursed
cost of your meals. However, you can deduct
100% of your meal expenses if the meals are
food and beverages provided by a restaurant,
and paid or incurred after December 31, 2020,
and before January 1, 2023. See IRS.gov/
Newsroom/IRS-Provides-Guidance-on-Per-
Diem-Rates-and-the-Temporary-100-Percent-
Deduction-for-Food-or-Beverages-From-
Restaurants for additional information.
If you are reimbursed for the cost of your
meals, how you apply the 50% limit depends on
whether your employer's reimbursement plan
was accountable or nonaccountable. 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 accounta-
ble and nonaccountable plans.
Actual Cost
You can use the actual cost of your meals to fig-
ure the amount of your expense before reim-
bursement and application of the 50% deduc-
tion limit. If you use this method, you must keep
records of your actual cost.
Standard Meal Allowance
Generally, you can use the “standard meal al-
lowance” method as an alternative to the actual
cost method. It allows you to use a set amount
for your daily meals and incidental expenses
(M&IE), instead of keeping records of your ac-
tual 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, discussed later under Amount of
standard meal allowance. If you use the
standard meal allowance, you must still keep
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.
Chapter 1 Travel Page 5
records to prove the time, place, and business
purpose of your travel. See the recordkeeping
rules for travel in chapter 5.
Incidental expenses. The term “incidental ex-
penses” 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 places of lodging
or business and places where meals are taken,
or the mailing cost of filing travel vouchers and
paying employer-sponsored charge card bill-
ings.
Incidental-expenses-only method. You can
use an optional method (instead of actual cost)
for deducting incidental 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 al-
lowance. 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 subject to the 50% limit discussed
below.
Federal employees should refer to the
Federal Travel Regulations at GSA.gov
for changes affecting claims for reim-
bursement.
50% limit may apply. If you use the standard
meal allowance method for non-entertain-
ment-related meal expenses and you aren’t re-
imbursed or you are reimbursed under a nonac-
countable plan, you can generally deduct only
50% of the standard meal allowance. If you are
reimbursed 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 accountable
and nonaccountable plans are discussed in
chapter 6.
There is no optional standard lodging
amount similar to the standard meal al-
lowance. Your allowable lodging ex-
pense deduction is your actual cost.
Who can use the standard meal allowance.
You can use the standard meal allowance
whether you are an employee or self-employed,
and whether or not you are reimbursed 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 investment 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 standard meal allowance to figure
the cost of your meals when you travel for medi-
cal or charitable purposes.
Amount of standard meal allowance. The
standard meal allowance is the federal M&IECAUTION
!CAUTION
!
rate. For travel from January 1–September 30,
2021, the rate for most small localities in the
United States is $55 per day and from October
1–December 31, 2021, is $59 per day.
Most major cities and many other localities
in the United States are designated as
high-cost areas, qualifying for higher standard
meal allowances.
You can find this information (organ-
ized by state) at GSA.gov/travel/plan-
book/per-diem-rates. Enter 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 govern-
ment's fiscal year, which runs from October 1 to
September 30. You can choose to use the rates
from the 2020 fiscal year per diem tables or the
rates from the 2021 fiscal year tables, but you
must consistently use the same tables for all
travel you are reporting on your income tax re-
turn for the year. See Transition Rules, later.
Standard meal allowance for areas out-
side the continental United States. The
standard meal allowance rates above don’t ap-
ply to travel in Alaska, Hawaii, or any other loca-
tion 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 Islands, Wake Island,
and other non-foreign areas outside the conti-
nental 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 continen-
tal United States at
Defensetravel.dod.mil/site/perdiemCalc.cfm.
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 industry 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 al-
lowance of $69 a day ($74 for travel outside the
continental United States) for travel in 2021.
Using the special rate for transportation
workers eliminates the need for you to deter-
mine the standard meal allowance 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 regu-
lar 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 re-
turn 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 stand-
ard meal allowance.
• Method 2: You can prorate using any
method that you consistently apply and
that is in accordance with reasonable busi-
ness practice.
Example. Jen is employed in New Orleans
as a convention planner. In March, her em-
ployer sent her on a 3-day trip to Washington,
DC, to attend a planning seminar. She left her
home in New Orleans at 10 a.m. on Wednesday
and arrived in Washington, DC, at 5:30 p.m. Af-
ter spending 2 nights there, she flew back to
New Orleans on Friday and arrived back home
at 8 p.m. Jen's employer gave her a flat amount
to cover her expenses and included it with her
wages.
Under Method 1, Jen can claim 21/2 days of
the standard meal allowance for Washington,
DC: 3/4 of the daily rate for Wednesday and Fri-
day (the days she departed and returned), and
the full daily rate for Thursday.
Under Method 2, Jen could also use any
method that she applies consistently and that is
in accordance with reasonable business prac-
tice. For example, she could claim 3 days of the
standard meal allowance even though a federal
employee would have to use Method 1 and be
limited to only 21/2 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 expen-
ses 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 United 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 business and, while at your
business destination, you extended 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 include 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 busi-
ness travel totals 900 miles round trip. On your
way home, you stop in Mobile to visit your pa-
rents. You spend $2,165 for the 9 days you are
away from home for travel, non-entertain-
ment-related meals, lodging, and other travel
expenses. If you hadn’t stopped in Mobile, you
would have been gone only 6 days, and your to-
tal cost would have been $1,633.50. You can
deduct $1,633.50 for your trip, including the
Page 6 Chapter 1 Travel
cost of round-trip transportation to and from
New Orleans. The deduction for your non-enter-
tainment-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 personal 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 business. The scheduling of inci-
dental business activities during a trip, such as
viewing videotapes or attending lectures deal-
ing 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 un-
der Travel Outside the United States for that
part of the trip. For the part of your trip that is in-
side 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
transportation, 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 Out-
side the United 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. Be-
cause 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 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 Den-
ver 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 purpose, the United States
includes the 50 states and the District of Colum-
bia.
How much of your travel expenses you can
deduct depends in part upon how much of your
trip outside the United States was business re-
lated.
Travel Entirely for Business or
Considered Entirely for Business
You can deduct all your travel expenses of get-
ting 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 out-
side 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 en-
tirely 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 substantial control over arrang-
ing 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 be-
ing subject to the veto of another, to decide on
the need for the business travel.
A self-employed person generally has sub-
stantial control over arranging business trips.
Exception 2—Outside United States no
more than a week. Your trip is considered en-
tirely 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 primar-
ily for business. You left Denver on Tuesday
and flew to New York. On Wednesday, you flew
from New York to Brussels, arriving 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 out-
side 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 between Denver and Brussels. You can
also deduct the cost of your stay in Brussels for
Thursday and Friday while you conducted busi-
ness. 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 matters. You then flew back
to Seattle. You spent 1 day flying in each direc-
tion.
Because only 5/21 (less than 25%) of your to-
tal 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-enter-
tainment-related meals (subject to the 50%
Limit), lodging, and other related expenses.
Exception 4—Vacation not a major con-
sideration. Your trip is considered entirely for
business if you can establish that a personal va-
cation wasn’t a major consideration, even if you
have substantial control over arranging the trip.
Travel Primarily for Business
If you travel outside the United States primarily
for business 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 between your business and other activi-
ties to determine your deductible amount. See
Travel allocation rules, later.
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 ca-
ses, 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 return to
the United States are both counted as days out-
side the United States.TIP
Chapter 1 Travel Page 7
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 busi-
ness, 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 nonbusiness activities can’t be counted
as business days.
Presence required. Count as a business
day any day your presence is required at a par-
ticular place for a specific 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 during working hours is the pursuit of
your trade or business, count the day as a busi-
ness day. Also, count as a business day any
day you are prevented from working because of
circumstances beyond your control.
Certain weekends and holidays. Count
weekends, holidays, and other necessary
standby days as business days if they fall be-
tween 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 appointment on Friday. You have an-
other appointment on the following Monday.
Because your presence was required on both
Friday and Monday, they are business days.
Because the weekend is between business
days, Saturday and Sunday are counted as
business days. This is true even though you use
the weekend for sightseeing, visiting friends, or
other nonbusiness activity.
Example 2. If, in Example 1, you had no
business in Quebec after Friday, but stayed un-
til Monday before starting home, Saturday and
Sunday would be nonbusiness days.
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 United States to your busi-
ness destination, or on the way back to the Uni-
ted States from your business destination, you
must allocate part of your travel expenses to the
nonbusiness 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 destination and a return
to the point where travel outside the United
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 confer-
ence that began on May 5. The conference
ended at noon on May 14. That evening, you
flew to Dublin where you visited with friends un-
til the afternoon of May 21, when you flew di-
rectly 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 al-
low you to consider your travel entirely for busi-
ness. May 4 through May 14 (11 days) are busi-
ness days and May 15 through May 21 (7 days)
are nonbusiness days.
You can deduct the cost of your non-enter-
tainment-related 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 be-
tween 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 air-
fare from New York to Dublin would have been
$1,250.
You figure the deductible part of your air
travel expenses by subtracting 7/18 of the
round-trip airfare and other expenses you would
have had in traveling directly between 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 nonbusiness
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.
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 nonbusi-
ness activities at, near, or beyond your busi-
ness destination are deductible.
Example. Assume that the dates are the
same as in the previous example but that in-
stead 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 ex-
penses you had in Paris.
Other methods. You can use another method
of counting business days if you establish that it
more clearly reflects the time spent on other
than business activities outside the United
States.
Travel Primarily for Personal
Reasons
If you travel outside the United States primarily
for vacation or for investment purposes, the en-
tire cost of the trip is a nondeductible personal
expense. However, if you spend some time at-
tending brief professional seminars or a con-
tinuing education program, you can deduct your
registration fees and other expenses you have
that are directly related to your business.
Example. The university from which you
graduated has a continuing education program
for members of its alumni association. This pro-
gram consists of trips to various foreign coun-
tries where academic exercises and conferen-
ces are set up to acquaint individuals in most
occupations with selected facilities in several
regions of the world. However, none of the con-
ferences are directed toward specific occupa-
tions or professions. It is up to each participant
to seek out specialists and organizational set-
tings appropriate to his or her occupational in-
terests.
Three-hour sessions are held each day over
a 5-day period at each of the selected overseas
facilities where participants can meet with indi-
vidual practitioners. These sessions are com-
posed of a variety of activities including work-
shops, mini-lectures, roleplaying, skill
development, and exercises. Professional con-
ference directors schedule and conduct the
sessions. Participants can choose those ses-
sions 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 de-
ductible since the trip was primarily a vacation.
However, registration fees and any other inci-
dental expenses you have for the five planned
sessions you attended that are directly related
and beneficial to your business are deductible
business expenses. These expenses should be
specifically stated in your records to ensure
Page 8 Chapter 1 Travel
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 employ-
ees for daily living expenses when they travel
away from home within the United States for
business purposes.)
Daily limit on luxury water travel. The high-
est federal per diem rate allowed and the daily
limit for luxury water travel in 2021 are shown in
the following table. . .
2021 Dates
Highest
Federal
Per Diem
Daily Limit on
Luxury Water
Travel
January 1 –
March 31
$494 $988
April 1 – April 30 370 740
May 1– May 31 352 704
June 1 –
September 30
430 860
October 1 –
October 31
388 776
November 1 –
November 30
367 734
December 1 –
December 31
497 994
Example. Caroline, a travel agent, traveled
by ocean liner from New York to London, Eng-
land, on business in May. Her expense for the
6-day cruise was $6,200. Caroline's deduction
for the cruise can’t exceed $4,224 (6 days ×
$704 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-en-
tertainment-related meals and entertainment
before you apply the daily limit. For a discussion
of the 50% Limit, see chapter 2.
Example. In the previous example, Caro-
line's 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.
Caroline, who is self-employed, isn’t reim-
bursed for any of her travel expenses. Caroline
figures her deductible travel expenses as fol-
lows.
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 2021 . . . . . . $ 704
Times number of days . . . . . . . × 6
Maximum luxury water travel . . . .
deduction . . . . . . . . . . . . . . . . . . . . . . . $4,224
Amount of allowable deduction . . . . $3,350
Caroline's deduction for her cruise is limited
to $3,350, even though the limit on luxury water
travel is higher.
Not separately stated. If your meal or en-
tertainment charges aren’t separately stated or
aren’t clearly identifiable, you don’t have to allo-
cate 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 convention, seminar, or meeting on
board a cruise ship. See Cruise Ships, later, un-
der 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 expenses 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 expen-
ses.
Your appointment or election as a dele-
gate doesn’t, in itself, determine
whether you can deduct travel expen-
ses. 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 official 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 posi-
tion that it shows your attendance was for busi-
ness purposes.CAUTION
!
Conventions Held Outside
the North American Area
You can’t deduct expenses for attending a con-
vention, seminar, or similar meeting held
outside the North American 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 out-
side the North American area as within the
North American area. See Reasonable-
ness test, later.
If the meeting meets these requirements, you
must also satisfy the rules for deducting expen-
ses for business trips in general, discussed ear-
lier under Travel Outside the United States.
North American area. The North American
area includes 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. is-
lands, cays, and reefs that are possessions of
the United States and not part of the 50 states
or the District of Columbia. See Revenue Ruling
2016-16, available at IRS.gov/irb/
2016-26_IRB#RR-2016-16, for more informa-
tion.
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 Ameri-
can area.
• The purpose of the meeting and the activi-
ties taking place at the meeting.
• The purposes and activities of the spon-
soring organizations or groups.
• The homes of the active members of the
sponsoring organizations and the places at
which other meetings of the sponsoring or-
ganizations 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 on cruise ships. All
ships that sail are considered cruise ships.
You can deduct these expenses only if all of
the following requirements are met.
Chapter 1 Travel Page 9
1. The convention, seminar, or meeting is di-
rectly 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 possessions of the
United States.
4. You attach to your return a written state-
ment signed by you that includes informa-
tion 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 state-
ment signed by an officer of the organiza-
tion 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 ex-
pense related to activities generally considered
entertainment, amusement, or recreation. You
can continue to deduct 50% of the cost of busi-
ness meals if you (or your employee) are
present and the food or beverages aren't con-
sidered lavish or extravagant. You can deduct
100% of your meal expenses if the meals are
food and beverages provided by a restaurant,
and paid or incurred after December 31, 2020,
and before January 1, 2023. See IRS.gov/
Newsroom/IRS-Provides-Guidance-on-Per-
Diem-Rates-and-the-Temporary-100-Percent-
Deduction-for-Food-or-Beverages-From-
Restaurants for additional information.
If food or beverages are provided dur-
ing or at an entertainment event, and
the food and beverages were pur-
chased separately from the entertainment 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), Example 2.TIP
Entertainment
Entertainment—Defined
Entertainment includes any activity generally
considered to provide entertainment, amuse-
ment, or recreation. Examples include enter-
taining guests at nightclubs; at social, athletic,
and sporting clubs; at theaters; at sporting
events; on yachts; or on hunting, fishing, vaca-
tion, and similar trips. Entertainment may also
include meeting personal, living, or family
needs of individuals, such as providing meals, a
hotel suite, or a car to customers or their fami-
lies.
Deduction may depend on your type of
business. Your kind of business may deter-
mine if a particular activity is considered enter-
tainment. For example, if you are a dress de-
signer and have a fashion show to introduce
your new designs to store buyers, the show
generally isn’t considered entertainment. This is
because fashion shows are typical in your busi-
ness. But, if you are an appliance distributor
and hold a fashion show for the spouses of your
retailers, the show is generally considered en-
tertainment.
Separating costs. If you have one expense
that includes the costs of entertainment and
other services (such as lodging or transporta-
tion), 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 enter-
tainment in its lounge on the same bill with your
room charge.
Exceptions to the Rules
In general, entertainment expenses are nonde-
ductible. However, there are a few exceptions
to the general rule, including:
• Entertainment treated as compensation on
your originally filed tax returns (and treated
as wages to your employees);
• Recreational expenses for employees
such as a holiday party or a summer pic-
nic;
• Expenses related to attending business
meetings or conventions of certain exempt
organizations such as business leagues,
chambers of commerce, professional as-
sociations, etc.; and
• Entertainment sold to customers. For ex-
ample, if you run a nightclub, your expen-
ses 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 expenses for entertaining guests
at nightclubs; at social, athletic, 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 entertain-
ment facility. This includes expenses for depre-
ciation and operating costs such as rent, utilit-
ies, maintenance, and protection.
An entertainment facility is any property you
own, rent, or use for entertainment. Examples
include a yacht, hunting 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 mem-
bership in any club organized for business,
pleasure, recreation, or other social purposes.
This rule applies to any membership organi-
zation 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 entertainment facilities, dis-
cussed 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 cir-
cumstances generally considered to be
conducive to business discussions.
Gift or entertainment. Any item that might be
considered either a gift or entertainment will
generally be considered entertainment. How-
ever, if you give a customer packaged 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 generally 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. You can deduct 100% of your
meal expenses if the meals are food and bever-
ages provided by a restaurant, and paid or in-
curred after December 31, 2020, and before
January 1, 2023. The meals may be provided to
a current or potential business customer, client,
consultant, or similar business contact.
Food and beverages that are provided dur-
ing entertainment events are not considered en-
tertainment if purchased separately from the
entertainment, or if the cost of the food and bev-
erages is stated separately from the cost of the
entertainment on one or more bills, invoices, or
receipts. However, the entertainment disallow-
ance rule may not be circumvented through in-
flating the amount charged for food and bever-
ages.
Other rules for meals and entertainment ex-
penses. Any allowed expense must be ordi-
nary and necessary. An ordinary expense is
Page 10 Chapter 2 Meals and Entertainment
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 con-
sidered necessary. Expenses must not be lav-
ish 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 extrava-
gant 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 entertainment activity.
Example 1. Taxpayer A invites B, a busi-
ness contact, to a baseball game. A purchases
tickets for A and B to attend the game. While at
the game, A buys hot dogs and drinks for A and
B. The baseball game is entertainment as de-
fined in Regulations section 1.274-11(b)(1)(i)
and, thus, the cost of the game tickets is an en-
tertainment 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 sub-
ject to the section 274(a)(1) disallowance.
Therefore, A may deduct 50% of the expenses
associated with the hot dogs and drinks pur-
chased at the game.
Example 2. Taxpayer C invites D, a busi-
ness contact, to a basketball game. C purcha-
ses tickets for C and D to attend the game in a
suite, where they have access to food and bev-
erages. The cost of the basketball game tickets,
as stated on the invoice, includes the food and
beverages. The basketball game is entertain-
ment 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 tickets, is not stated separately
on the invoice. Thus, the cost of the food and
beverages is also an entertainment expense
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 bas-
ketball game tickets separately states the cost
of the food and beverages. As in Example 2,
the basketball game is entertainment as defined
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 ex-
pense 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.
50% Limit
In general, you can deduct only 50% of your
business-related meal expenses, unless an ex-
ception applies. However, you can deduct
100% of your meal expenses if the meals are
food and beverages provided by a restaurant,
and paid or incurred after December 31, 2020,
and before January 1, 2023. See IRS.gov/
Newsroom/IRS-Provides-Guidance-on-Per-
Diem-Rates-and-the-Temporary-100-Percent-
Deduction-for-Food-or-Beverages-From-
Restaurants for additional information. (If you
are subject to the Department of Transporta-
tion's “hours of service” limits, you can deduct
80% of your business-related meal expenses.
See Individuals subject to “hours of service” lim-
its, later.)
The 50% limit applies to employees or their
employers, and to self-employed persons (in-
cluding independent contractors) or their cli-
ents, depending on whether the expenses 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 transportation 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 expenses applies if the expense is other-
wise deductible and isn’t covered by one of the
exceptions discussed later. Figure 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 included in de-
ductible 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 ex-
penses that would be deductible under the
other rules discussed in this publication.
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
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.
Chapter 2 Meals and Entertainment Page 11
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 because 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 because no deduction is al-
lowed for entertainment expenses.
Exception to the 50% Limit
for Meals
Your meal expense isn’t subject to the 50% limit
if the expense meets one of the following ex-
ceptions.
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 compensation 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 accountable plan. Ac-
countable plans are discussed in chapter 6.
3—Self-employed reimbursed expenses.
If you are self-employed, your deductible meal
expenses aren’t subject to the 50% limit if all of
the following requirements are met.
• You have these expenses as an independ-
ent contractor.
• 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 ex-
penses to your customer or client. (See
chapter 5.)
In this case, your client or customer is sub-
ject to the 50% limit on the expenses.
Example. You are a self-employed attorney
who adequately accounts for meal expenses to
a client who reimburses you for these expen-
ses. You aren’t subject to the limitation on meal
expenses. If the client can deduct the expen-
ses, the client is subject to the 50% limit.
If you (as an independent contractor) have
expenses for meals related to providing serv-
ices 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 entertainment-related meal expenses are
nondeductible to you.
4—Recreational expenses for employ-
ees. You aren't subject to the 50% limit for ex-
penses for recreational, social, or similar activi-
ties (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 community. For ex-
ample, neither the expense of sponsoring a tel-
evision or radio show nor the expense of distrib-
uting 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 ex-
pense for the food you furnish to your custom-
ers 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 Department
of Transportation's “hours of service” limits. The
percentage is 80%.
Individuals subject to the Department of
Transportation's “hours of service” limits include
the following persons.
• Certain air transportation workers (such as
pilots, crew, dispatchers, mechanics, and
control tower operators) who are under
Federal Aviation Administration regula-
tions.
• Interstate truck operators and bus drivers
who are under Department of Transporta-
tion regulations.
• Certain railroad employees (such as engi-
neers, conductors, train crews, dispatch-
ers, and control operations personnel) who
are under Federal Railroad Administration
regulations.
• Certain merchant mariners who are under
Coast Guard regulations.
7—Food and beverages provided by a
restaurant. You can deduct 100% of your
meal expenses if the meals are food and bever-
ages provided by a restaurant, and paid or in-
curred after December 31, 2020, and before
January 1, 2023. See 50% Limit above and
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
Deductible if you have a
regular or main job
at another location
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 first job to your second
job, you can only deduct the transportation expenses of going directly from your first
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.
Page 12 Chapter 2 Meals and Entertainment
IRS.gov/Newsroom/IRS-Provides-Guidance-
on-Per-Diem-Rates-and-the-Temporary-100-
Percent-Deduction-for-Food-or-Beverages-
From-Restaurants for additional information.
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.
$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 per-
sonal use or benefit of a particular person or a
limited class of people will be considered an in-
direct gift to that particular person or to the indi-
viduals within that class of people who receive
the gift.
If you give a gift to a member of a custom-
er's family, the gift is generally considered to be
an indirect gift to the customer. This rule doesn’t
apply if you have a bona fide, independent busi-
ness connection with that family member and
the gift isn’t intended for the customer's even-
tual 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 re-
cipient. If a partnership gives gifts, the partner-
ship and the partners are treated as one tax-
payer.
Example. Bob Jones sells products to Lo-
cal Company. He and his wife Jan gave Local
Company three gourmet gift baskets to thank
them for their business. They paid $80 for each
gift basket, or $240 total. Three of Local Com-
pany's executives took the gift baskets home for
their families' use. Bob and Jan have no inde-
pendent business relationship with any of the
executives' other family members. They can de-
duct a total of $75 ($25 limit × 3) for the gift bas-
kets.
Incidental costs. Incidental costs, such as en-
graving on jewelry, or packaging, insuring, and
mailing, are generally not included in determin-
ing the cost of a gift for purposes of the $25
limit.
A cost is incidental only if it doesn’t add sub-
stantial value to the gift. For example, the cost
of gift wrapping is an incidental cost. However,
the purchase of an ornamental basket for pack-
aging 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 consid-
ered gifts for purposes of the $25 limit.
1. An item that costs $4 or less and:
a. Has your name clearly and perma-
nently imprinted on the gift, and
b. Is one of a number of identical items
you widely distribute. Examples in-
clude pens, desk sets, and plastic
bags and cases.
2. Signs, display racks, or other promotional
material to be used on the business prem-
ises of the recipient.
Gift or entertainment. Any item that might be
considered either a gift or entertainment will
generally be considered entertainment. How-
ever, if you give a customer packaged 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 unclaimed reimburse-
ment applies. This type of deduction is consid-
ered a miscellaneous deduction that is no lon-
ger allowable 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 de-
duct for business 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 necessary 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 expen-
ses you have while traveling away from home
overnight. Those expenses 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 expense deduction. See Car Expenses,
later.CAUTION
!
Daily transportation expenses you incur while
traveling from home to one or more regular pla-
ces of business are generally nondeductible
commuting expenses. However, there may be
exceptions to this general rule. You can deduct
daily transportation expenses incurred going
between your residence and a temporary work
station outside 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 residence; or (2)
your residence is your principal place of busi-
ness and you incur expenses going between
the residence and another work location in the
same trade or business, regardless of whether
the work is temporary or permanent and regard-
less of the distance.
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 unclaimed reimburse-
ment applies. This type of deduction is consid-
ered a miscellaneous deduction that is no lon-
ger allowable due to the suspension of
miscellaneous itemized deductions subject to
the 2% floor under section 67(a).
Illustration of transportation expenses. Fig-
ure B, earlier, 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 decid-
ing whether you can deduct your transportation
expenses.
Temporary work location. If you have one or
more regular work locations away from your
home and you commute to a temporary work lo-
cation in the same trade or business, you can
deduct the expenses of the daily round-trip
transportation between your home and the tem-
porary location, regardless of distance.
If your employment at a work location is real-
istically expected to last (and does in fact last)
for 1 year or less, the employment is temporary
unless there are facts and circumstances that
would indicate otherwise.
If your employment at a work location is real-
istically expected to last for more than 1 year or
if there is no realistic expectation that the em-
ployment will last for 1 year or less, the employ-
ment 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 realis-
tically expected to last more than 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 treated 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 deductible travel expen-
ses, as discussed in chapter 1.
No regular place of work. If you have no reg-
ular place of work but ordinarily work in the met-
ropolitan area where you live, you can deduct
daily transportation costs between home and aCAUTION
!
Chapter 4 Transportation Page 13
temporary work site outside that metropolitan
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 metropolitan area. These are nonde-
ductible 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. However, 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 di-
rectly 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 de-
duct the expense of getting from one workplace
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 deduct
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 metro-
politan area but not at any specific location and
the reserve meeting is held at a temporary loca-
tion outside that metropolitan area, you can de-
duct your transportation expenses.
If you travel away from home overnight to at-
tend a guard or reserve meeting, you can de-
duct your travel expenses. 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 member 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 Trav-
eling 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 between your home and your
main or regular place of work. These costs are
personal commuting expenses. You can’t de-
duct commuting expenses no matter how far
your home is from your regular place of work.
You can’t deduct commuting 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. Sometimes business asso-
ciates ride with you to and from work, and you
have a business discussion in the car. These
activities don’t change the trip from personal to
business. You can’t deduct your commuting ex-
penses.
Parking fees. Fees you pay to park your
car at your place of business are nondeductible
commuting expenses. You can, however, de-
duct business-related parking fees when visit-
ing a customer or client.
Advertising display on car. Putting dis-
play 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 us-
ing your car in a nonprofit car pool. Don’t in-
clude payments you receive from the passen-
gers in your income. These payments are
considered reimbursements of your expenses.
However, if you operate a car pool for a profit,
you must include payments from passengers in
your income. You can then deduct your car ex-
penses (using the rules in this publication).
Hauling tools or instruments. Hauling
tools or instruments in your car while commut-
ing to and from work doesn’t make your car ex-
penses 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 expenses. Al-
though you need the union to get your work as-
signments, 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 deduct your daily transporta-
tion costs between your home and another
work location in the same trade or business.
(See Pub. 587, Business Use of Your Home, for
information on determining if your home office
qualifies as a principal place of business.)
Examples of deductible transportation. The
following examples show when you can deduct
transportation expenses based on the location
of your work and your home.
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 busi-
ness is in your home. You can deduct the cost
of round-trip transportation between your quali-
fying home office and your client's or custom-
er'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
commuting expenses. Transportation expenses
between your last business contact and your
home are also nondeductible commuting ex-
penses. 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 expenses.
• Standard mileage rate.
• Actual car expenses.
The cost of using your car as an employee,
whether measured using actual expenses or
the standard mileage rate, will no longer be al-
lowed to be claimed as an unreimbursed em-
ployee 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 beginning after
December 2017 and before January 2026. De-
ductions for expenses that are deductible in de-
termining adjusted gross income are not sus-
pended. For example, Armed Forces reservists,
qualified performing artists, and fee-basis state
or local government officials are allowed to de-
duct unreimbursed employee travel expenses
as an adjustment to total income on Schedule 1
(Form 1040), line 12.
If you use actual expenses to figure your de-
duction 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 un-
der Actual Car Expenses, later.
Standard Mileage Rate
For 2021, the standard mileage rate for the cost
of operating your car for business use is 56
cents (0.56) 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 de-
duct depreciation, lease payments, mainte-
nance and repairs, gasoline (including gasoline
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 informa-
tion 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 yourCAUTION
!
Page 14 Chapter 4 Transportation
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 be-
fore 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 stand-
ard mileage rate by the due date (including ex-
tensions) 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 ex-
penses method in a later year, but before your
car is fully depreciated, you have to estimate
the remaining useful life of the car and use
straight line depreciation.
For more information about depreciation in-
cluded in the standard mileage rate, see Excep-
tion 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 example, Modified Accelerated
Cost Recovery System (MACRS) (as dis-
cussed later under Depreciation Deduc-
tion);
• Claimed a section 179 deduction (dis-
cussed later) on the car;
• Claimed the special depreciation allow-
ance on the car; or
• Claimed actual car expenses after 1997 for
a car you leased.
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 other-
wise 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 expen-
ses for operating each of the cars in your busi-
ness. See Actual Car Expenses, later, for infor-
mation on how to figure your deduction.
You aren’t using five or more cars for busi-
ness 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. Marcia, a salesperson, owns
three cars and two vans that she alternates us-
ing for calling on her customers. She can use
the standard mileage rate for the business mile-
age of the three cars and the two vans because
she doesn’t use them at the same time.
Example 2. Tony and his employees use
his four pickup trucks in his landscaping busi-
ness. During the year, he traded in two of his
old trucks for two newer ones. Tony can use the
standard mileage rate for the business mileage
of all six of the trucks he owned during the year.
Example 3. Chris owns a repair shop and
an insurance business. He and his employees
use his two pickup trucks and van for the repair
shop. Chris alternates using his two cars for the
insurance business. No one else uses the cars
for business purposes. Chris can use the stand-
ard mileage rate for the business use of the
pickup trucks, the van, and the cars because he
never has more than four vehicles used for
business at the same time.
Example 4. Maureen owns a car and four
vans that are used in her housecleaning busi-
ness. Her employees use the vans, and she
uses the car to travel to various customers.
Maureen can’t use the standard mileage rate for
the car or the vans. This is because all five vehi-
cles are used in Maureen's business at the
same time. She must use actual expenses for
all vehicles.
Interest. If you are an employee, you can’t de-
duct any interest paid on a car loan. This ap-
plies 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 expense 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 represents your personal use of the car.
If you use a home equity loan to pur-
chase your car, you may be able to de-
duct the interest. See Pub. 936, Home
Mortgage Interest Deduction, for more informa-
tion.
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 busi-
ness.
If you are self-employed and use your car in
your business, 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 parking fees and tolls. (Park-
ing 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 expen-
ses.TIP
If you qualify to use both methods, you
may want to figure your deduction both
ways to see which gives you a larger
deduction.
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 expenses between busi-
ness and personal use. You can divide your ex-
pense 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 per-
sonal 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 ve-
hicle provided by your employer for business
purposes, you can deduct your actual unreim-
bursed car expenses. You can’t use the stand-
ard mileage rate. See Vehicle Provided by Your
Employer in chapter 6.
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 Interest, ear-
lier, under Standard Mileage Rate.
Taxes paid on your car. If you are an em-
ployee, you can deduct personal property taxes
paid on your car if you itemize deductions. En-
ter 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 re-
covered through depreciation, discussed later.
Fines and collateral. You can’t deduct fines
you pay or collateral you forfeit for traffic viola-
tions.
Casualty and theft losses. If your car is dam-
aged, destroyed, or stolen, you may be able to
deduct part of the loss not covered by insur-
ance. 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 gener-
ally can’t deduct a capital expense. However,
you can recover this cost through the section
179 deduction (the deduction allowed byTIP
Chapter 4 Transportation Page 15
section 179 of the Internal Revenue Code), spe-
cial depreciation allowance, and depreciation
deductions. Depreciation allows you to recover
the cost over more than 1 year by deducting
part of it each year. The section 179 deduction,
special depreciation allowance, and deprecia-
tion deductions are discussed later.
Generally, there are limits on these deduc-
tions. 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 depreciation method other than straight
line only if you don’t use the standard mileage
rate to figure your business-related car expen-
ses in the year you first place a car in service.
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 primarily for use on public streets,
roads, and highways. Its unloaded gross vehi-
cle 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
ambulance-hearse used directly in a busi-
ness;
• 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 nonperso-
nal use vehicle.
Qualified nonpersonal use vehicles.
These are vehicles that by their nature aren’t
likely to be used more than a minimal amount
for personal purposes. They include trucks and
vans that have been specially modified so that
they aren’t likely to be used more than a mini-
mal amount for personal purposes, such as by
installation of permanent shelving and painting
the vehicle to display advertising or the compa-
ny's name. Delivery trucks with seating only for
the driver, or only for the driver plus a folding
jump seat, are qualified nonpersonal use vehi-
cles.
More information. See Depreciation De-
duction, 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 deducting it in the year you place
the property in service. This is the section 179
deduction. If you elect the section 179 deduc-
tion, you must reduce your depreciable basis in
the car by the amount of the section 179 deduc-
tion.
There is a limit on the total section 179
deduction, special depreciation allow-
ance, and depreciation deduction for
cars, trucks, and vans that may reduce or elimi-
nate 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 specifically as-
signed 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 as-
signed use.
A car first used for personal purposes can’t
qualify for the deduction in a later year when its
use changes to business.
Example. In 2020, you bought a new car
and used it for personal purposes. In 2021, you
began to use it for business. Changing its use to
business use doesn’t qualify the cost of your car
for a section 179 deduction in 2021. However,
you can claim a depreciation deduction for the
business use of the car starting in 2021. 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 busi-
ness, 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 sec-
tion 179 deduction.
Example. Peter purchased a new car in
April 2021 for $24,500 and used it 60% for busi-
ness. Based on his business usage, the total
cost of Peter's car that qualifies for the section
179 deduction is $14,700 ($24,500 cost × 60%
(0.60) business use). But see Limit on total sec-
tion 179, special depreciation allowance, and
depreciation deduction, 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 deduc-
tion, special depreciation allowance, and
depreciation deduction (discussed later)
you can claim for a qualified property.
Limit on the amount of the section 179
deduction. For tax years beginning in 2021,
the total amount you can elect to deduct under
section 179 generally can’t be more than
$1,050,000.
If the cost of your section 179 property
placed in service in tax years beginning in 2021
is over $2,620,000, you must reduce the
$1,050,000 dollar limit (but not below zero) by
the amount of cost over $2,620,000. If the cost
of your section 179 property placed in service
during tax years beginning in 2021 is
$3,670,000 or more, you can’t take a section
179 deduction.TIP
The total amount you can deduct under sec-
tion 179 each year after you apply the limits lis-
ted above cannot be more than the taxable in-
come 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 reduction to the dollar limit, re-
gardless of which of you purchased the prop-
erty 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 allocate the dollar limit (after any
reduction) between you.
For more information on the above section
179 deduction limits, see Pub. 946, How To De-
preciate Property.
Limit for sport utility and certain other
vehicles. You cannot elect to deduct more
than $26,200 of the cost of any heavy sport util-
ity vehicle (SUV) and certain other vehicles
placed in service during the tax years beginning
in 2021. This rule applies to any four-wheeled
vehicle primarily designed or used to carry pas-
sengers over public streets, roads, or highways
that isn’t subject to any of the passenger auto-
mobile limits explained under Depreciation Lim-
its, 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 $26,200 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 ac-
cessible directly from the passenger com-
partment; or
• That has an integral enclosure, fully en-
closing the driver compartment and load
carrying device, doesn’t have seating rear-
ward of the driver's seat, and has no body
section protruding more than 30 inches
ahead of the leading edge of the wind-
shield.
Limit on total section 179 deduction,
special depreciation allowance, and depre-
ciation deduction. The additional first-year
limit on depreciation for vehicles acquired be-
fore September 28, 2017, is no longer allowed if
placed in service after 2019. The first-year limit
on depreciation, special depreciation allow-
ance, and section 179 deduction for vehicles
acquired after September 27, 2017, and placed
in service during 2021 increases to $18,200. If
you elect not to claim a special depreciation al-
lowance for a vehicle placed in service in 2021,
the amount increases to $10,200. The limit is
reduced if your business use of the vehicle is
less than 100%. See Depreciation Limits, later,
for more information.
Example. In the earlier example under
More than 50% business use requirement, Pe-
ter had a car with a cost (for purposes of the
section 179 deduction) of $14,700. However,
based on Peter's business usage of his car, the
total of his section 179 deduction, special de-
preciation allowance, and depreciation deduc-
tions is limited to $10,920 ($18,200 limit x 60%
Page 16 Chapter 4 Transportation
(0.60) business use) because the car was ac-
quired after September 27, 2017, and placed in
service during 2021.
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 (for cash and a trade-in) a new car to
use in your business, your cost for purposes of
the section 179 deduction doesn’t include your
adjusted basis in the car you trade in for the
new car. 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 re-
sulting 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 deduction, 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, Em-
ployee Business Expenses, to make the elec-
tion and report the section 179 deduction. All
others use Form 4562, Depreciation and Amor-
tization, to make an election.
The Form 2106 will be used by Armed
Forces reservists, qualified performing
artists, fee-basis state or local govern-
ment officials, and employees with impair-
ment-related work expenses. Due to the sus-
pension of miscellaneous itemized deductions
subject to the 2% floor under section 67(a), em-
ployees who do not fit into one of the listed cat-
egories may not use Form 2106.
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 re-
sulting 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 prop-
erty, the person you acquired it from, and when
you placed it in service.
Revoking an election. An election (or any
specification made in the election) to take a
section 179 deduction for 2021 can only be re-
voked with the Commissioner's approval.
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 acquired it. If your busi-
ness use of the car is 50% or less in a later tax
year during the recovery period, you have to re-CAUTION
!CAUTION
!
capture (include in income) in that later year
any excess depreciation. Any section 179 de-
duction claimed on the car is included in figur-
ing the excess depreciation. For information on
this calculation, see Excess depreciation, later
in this chapter under Car Used 50% or Less for
Business. 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 deduction is treated as a depre-
ciation deduction for recapture 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 deprecia-
tion (unless you establish the amount actually
allowed). For information on the disposition of a
car, see Disposition of a Car, later. For more in-
formation on recapture of a section 179 deduc-
tion, see Pub. 946.
Special Depreciation Allowance
You may be able to claim the special deprecia-
tion allowance for your car, truck, or van if it is
qualified property and was placed in service in
2021. The allowance for 2021 is an additional
depreciation deduction for 100% of the car's
depreciable basis (after any section 179 deduc-
tion, but before figuring your regular deprecia-
tion deduction under MACRS) if the vehicle was
acquired after September 27, 2017, and placed
in service during 2021. Further, while it applies
to a new vehicle, it also applies to a used vehi-
cle 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, more than 50%
of the use of the car must be in a qualified busi-
ness use (as defined under Depreciation De-
duction, later).
Combined depreciation. The additional
first-year limit on depreciation for vehicles ac-
quired before September 28, 2017, is no longer
allowed if placed in service after 2019. Your
combined section 179 depreciation, special de-
preciation allowance, and regular MACRS de-
preciation deduction is limited to the maximum
allowable depreciation deduction for vehicles
acquired after September 27, 2017, and placed
in service during 2021 is $18,200. If you elect
not to claim a special depreciation allowance for
a vehicle placed in service in 2021, the amount
is $10,200. 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 Septem-
ber 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 quali-
fied business use during the tax year.
Election not to claim the special deprecia-
tion allowance. You can elect not to claim the
special depreciation allowance for your car,
truck, or van that is qualified property. 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) in-
dicating 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 depre-
ciation allowance for qualified property in that
class of property.
Unless you elect not to claim the spe-
cial depreciation allowance, you must
reduce the car's adjusted 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 de-
duction for a car you own and use in your busi-
ness, you can claim a depreciation deduction.
This means you can deduct a certain 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.
Basis. Your basis in a car for figuring deprecia-
tion is generally its cost. This includes any
amount you borrow or pay in cash, other prop-
erty, 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 adjusted ba-
sis (your basis reduced by depreciation allowed
or allowable in earlier years). For one of these
situations, see Exception under Methods of de-
preciation, later.
If you change the use of a car from personal
to business, your basis for depreciation is the
lesser of the fair market value or your adjusted
basis in the car on the date of conversion. Addi-
tional rules concerning basis are discussed
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 activ-
ity, or in a personal activity. Depreciation begins
when the car is placed in service for use in your
work or business or for the production of in-
come.
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 fig-
ure depreciation on cars using the Modified Ac-
celerated Cost Recovery (MACRS) discussed
later in this chapter.CAUTION
!
Chapter 4 Transportation Page 17
Exception. If you used the standard mile-
age rate in the first year of business use and
change to the actual expenses method in a later
year, you can’t depreciate your car under the
MACRS rules. You must use straight line depre-
ciation over the estimated remaining useful life
of the car.
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 adjustments described later under Unad-
justed basis. You must use your adjusted basis
in your car to figure your depreciation deduc-
tion. 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 busi-
ness use (defined next) during the year to use
MACRS. You must meet this
more-than-50%-use test each year of the recov-
ery 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 explained 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 in-
come (investment use), or use provided under
lease to, or as compensation to, a 5% owner or
related person. However, you do combine your
business and investment use to figure your de-
preciation 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 conditions.
• 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 income).
• 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 allocate the use to the vari-
ous purposes. You do this on the basis of mile-
age. Figure the percentage of qualified busi-
ness use by dividing the number of miles youTIP
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% per-
sonal 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 period 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 numerator (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 miles of which 12,000
miles are for business. This gives you a busi-
ness 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, special depreciation allowance, and de-
preciation deductions may be limited. The maxi-
mum amount you can claim depends 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 ba-
sis for depreciation) to figure your depreciation
using the MACRS depreciation chart, explained
later under Modified Accelerated Cost Recov-
ery System (MACRS). Your unadjusted basis
for figuring depreciation is your original basis in-
creased or decreased 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 adding air conditioning or a new en-
gine. Decrease your basis by any section 179
deduction, special depreciation allowance, gas
guzzler tax, and alternative motor vehicle credit.
See Form 8910, Alternative Motor Vehicle
Credit, for information on the alternative motor
vehicle credit.
If your business use later falls to 50%
or less, you may have to recapture (in-
clude in your income) any excess de-
preciation. See Car Used 50% or Less for Busi-
ness, 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 treated as a new item of 5-year recoveryCAUTION
!
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 improvement 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 depreciation de-
ductions. Your car's depreciation deduction for
the year (plus any section 179 deduction, spe-
cial depreciation 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 another car (the “new car”) in 2021,
there are two ways you can treat the transac-
tion.
1. You can elect to treat the transaction as a
disposition of the old car and the purchase
of the new car. If you make this election,
you 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 figure your depreciation de-
duction for the new car beginning with the
date you placed it in service. You make
this election by completing Form 2106,
Part II, Section D. This method is ex-
plained later, beginning at Effect of
trade-in on basis.
2. If you don’t make the election described in
(1), you must figure depreciation sepa-
rately for the remaining basis of the old car
and for any additional amount you paid for
the new car. You must apply two deprecia-
tion limits (see Depreciation Limits, later).
The limit that applies to the remaining ba-
sis of the old car is generally the amount
that would have been allowed had you not
traded in the old car. The limit that applies
to the additional amount you paid for the
new car is generally the limit that applies
for the tax year, reduced by the deprecia-
tion allowance for the remaining basis of
the old car. You must use Form 4562 to
figure your depreciation deduction. You
can’t use Form 2106, Part II, Section D.
This method is explained in Pub. 946.
Note. Like-kind exchanges completed after
December 31, 2017, are generally limited to ex-
changes of real property not held primarily for
sale.
If you elect to use the method described in
(1), you must do so on a timely filed tax return
(including extensions). Otherwise, you must
use the method described in (2).
Form 2106 will be used by Armed
Forces reservists, qualified performing
artists, fee-basis state or local govern-
ment officials, and employees with impair-
ment-related work expenses. Due to the sus-
pension of miscellaneous itemized deductions
subject to the 2% floor under section 67(a), em-
ployees who do not fit into one of the listed cat-
egories may not use Form 2106.CAUTION
!
Page 18 Chapter 4 Transportation
Effect of trade-in on basis. The discus-
sion that follows applies to trade-ins of cars in
2021, where the election was made to treat the
transaction as a disposition of the old car and
the purchase of the new car. For information on
how to figure depreciation for cars involved in a
like-kind exchange (trade-in) in 2021, for which
the election 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 ex-
changes of real property not held primarily for
sale. Regulations section 1.168(i)-6 doesn't re-
flect this change in law.
Traded car used only for business. If
you trade in a car you used only in your busi-
ness 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
additional amount you pay for the new car.
Example. Paul trades in a car that has an
adjusted basis of $5,000 for a new car. In addi-
tion, he pays cash of $20,000 for the new car.
His original basis of the new car is $25,000 (his
$5,000 adjusted basis in the old car plus the
$20,000 cash paid). Paul's unadjusted basis is
$25,000 unless he claims the section 179 de-
duction, special depreciation allowance, or has
other increases or decreases to his original ba-
sis, discussed under Unadjusted basis, earlier.
Traded car used partly in business. If
you trade in a car you used partly in your busi-
ness for a new car you will use in your business,
you must make a “trade-in” adjustment 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 de-
termine 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 depreciation, first add to your adjusted
basis in the old car any additional amount you
pay for the new car. Then subtract from that to-
tal the excess, if any, of:
1. The total of the amounts that would have
been allowable as depreciation during the
tax years before the trade if 100% of the
use of the car had been business and in-
vestment use, over
2. The total of the amounts actually allowed
as depreciation during those years.
For information about figuring depreciation, see
Modified Accelerated Cost Recovery System
(MACRS), next.
Modified Accelerated Cost Recovery Sys-
tem (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, depending 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 de-
preciate 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 deprecia-
tion 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 percen-
tages to use in figuring the depreciation deduc-
tion, see chapter 4 of Pub. 946.
Depreciation methods. You can use one
of the following 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
2021, you don’t need to determine in
what year using the straight line method pro-
vides an equal or greater deduction. This is be-
cause 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 re-
covery period.
• Using the declining balance methods pro-
vides greater deductions during the earlier
recovery years with the deductions gener-
ally getting smaller each year.
MACRS depreciation chart. A 2021 MACRS
Depreciation Chart and instructions are inclu-
ded in this chapter as Table 4-1. Using this ta-
ble will make it easy for you to figure the 2021
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 instead of using this MACRS De-
preciation Chart.
You must use the Depreciation Tables in
Pub. 946 rather than the 2021 MACRS Depreci-
ation Chart in this publication if any one of the
following three conditions applies 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 condi-
tions 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 nonresidentialTIPCAUTION
!
real property, residential rental prop-
erty, 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 percentages from the chart, you generally
must continue to use them for the entire recov-
ery period of your car. However, you can’t con-
tinue 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 re-
covery period, figure 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 chap-
ter 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 pe-
riod. If you dispose of the car before the end of
the recovery period, you are generally allowed a
half year of depreciation in the year of disposi-
tion unless you purchased the car during the
last quarter of a year. See Depreciation deduc-
tion for the year of disposition under Disposition
of a Car, later, for information on how to figure
the depreciation allowed in the year of disposi-
tion.
How to use the 2021 chart. To figure your
depreciation deduction for 2021, find the per-
centage 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 (de-
fined earlier) by that percentage to determine
the amount of your depreciation 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 Limits, later.
Example. Phil bought a used truck in Feb-
ruary 2020 to use exclusively in his landscape
business. He paid $9,200 for the truck with no
trade-in. Phil didn’t claim any section 179 de-
duction, the truck didn’t qualify for the special
depreciation allowance, and he chose to use
the 200% DB method to get the largest depreci-
ation deduction in the early years.
Phil used the MACRS Depreciation Chart in
2020 to find his percentage. The unadjusted ba-
sis of his truck equals its cost because Phil
used it exclusively for business. He multiplied
the unadjusted basis of his truck, $9,200, by the
percentage that applied, 20%, to figure his 2020
depreciation deduction of $1,840.
In 2021, Phil used the truck for personal pur-
poses when he repaired his father's cabin. His
records show that the business use of his truck
was 90% in 2021. Phil used Table 4-1 to find his
percentage. Reading down the first column for
the date placed in service and across to the
200% DB column, he locates his percentage,
32%. He multiplies the unadjusted basis of hisTIPCAUTION
!
Chapter 4 Transportation Page 19
truck, $8,280 ($9,200 cost × 90% (0.90) busi-
ness use), by 32% (0.32) to figure his 2021 de-
preciation deduction of $2,650.
Depreciation Limits
There are limits on the amount you can deduct
for depreciation of your car, truck, or van. The
section 179 deduction and special depreciation
allowance are treated as depreciation for pur-
poses 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 2021.
Maximum
Depreciation Deduction
for Passenger Automobiles
(Including Trucks and
Vans) acquired before September
28, 2017, and
placed in service during 2018–
2021
Date 4th &
Placed in 1st 2nd 3rd Later
Service Year Year Year Years
2021 $10,200 $16,400 $9,800 $5,860
2020 10,100 16,100 9,700 5,760
2019 14,9001 16,100 9,700 5,760
2018 16,4002 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
2021 $18,2001 $16,400 $9,800 $5,860
2019–2020 18,1002 16,100 9,700 5,760
2018 18,0003 16,000 9,600 5,760
1 $10,200 if the passenger automobile isn’t qualified
property or if you elect not to claim the special
depreciation allowance.
2 $10,100 if the passenger automobile isn’t qualified
property or if you elect not to claim the special
depreciation allowance.
3 $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 depends on the year you place the car in
service. These limits 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 $11,1601 $5,100 $3,050 $1,875
2010–2011 11,0602 4,900 2,950 1,775
2008–2009 10,9603 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 10,6103 4,800 2,850 1,675
5/06/2003–
12/31/2003
10,7104 4,900 2,950 1,775
1/01/2003–
5/05/2003
7,6605 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.
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 automo-
bile that is classified by the manufacturer 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
Date 4th &
Placed 1st 2nd 3rd Later
in Service Year Year Year Years
2017 $11,5601 $5,700 $3,450 $2,075
2016 11,5601 5,700 3,350 2,075
2015 11,4601 5,600 3,350 1,975
2014 11,4601 5,500 3,350 1,975
2013 11,3601 5,400 3,250 1,975
2012 11,3601 5,300 3,150 1,875
2011 11,2601 5,200 3,150 1,875
2010 11,1601 5,100 3,050 1,875
2009 11,0601 4,900 2,950 1,775
2008 11,1601 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 10,9101 5,300 3,150 1,875
2003 11,0101,2 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 depreci-
ation 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 purposes. See Reduction for
personal use next.
Reduction for personal use. The deprecia-
tion limits are reduced based on your percent-
age of personal use. If you use a car less than
100% in your business or work, you must deter-
mine 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 de-
duction is treated as a depreciation deduction.
If you acquired a passenger automobile (includ-
ing trucks and vans) after September 27, 2017,
and placed it in service in 2021, use it only for
business, and choose the section 179 deduc-
tion, the special depreciation allowance, and
depreciation deduction for that vehicle for 2021
is limited to $18,200.
Example. On September 4, 2021, Jack
bought and placed in service a used car for
$15,000 and placed it in service. He used it
Page 20 Chapter 4 Transportation
80% for his business, and he chooses 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, Jack figures his
maximum section 179 deduction to be $12,000.
This is the cost of his qualifying property (up to
the maximum $1,050,000 amount) multiplied by
his business use ($15,000 × 80% (0.80)).
Jack then figures that his section 179 de-
duction for 2021 is limited to $8,160 (80% of
$10,200). He then figures his unadjusted basis
of $3,840 (($15,000 × 80% (0.80)) − $8,160) for
determining his depreciation deduction. Jack
has reached his maximum depreciation deduc-
tion for 2021. For 2022, Jack will use his unad-
justed basis of $3,840 to figure his depreciation
deduction.
Deductions in years after the recovery pe-
riod. If the depreciation deductions for your car
are reduced under the passenger automobile
limits (discussed earlier), you will have unrecov-
ered 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 recov-
ery 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), alternative motor vehi-
cle credit, electric vehicle credit, gas guzzler
tax, and depreciation (including any special de-
preciation allowance, discussed earlier, unless
you elect not to claim it) and section 179 deduc-
tions 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 recovery period is 6 calendar years. A part
year's depreciation is allowed in the first calen-
dar year, a full year's depreciation is allowed in
each of the next 4 calendar years, and a part
year's depreciation is allowed in the 6th calen-
dar year.
Under MACRS, your recovery period is the
same whether you use declining balance or
straight line depreciation. 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 maximum
amount you can deduct each year is deter-
mined by the date you placed the car in service
and your business-use percentage. For exam-
ple, no deduction is allowed for a year you use
your car 100% for personal purposes.
Example. In April 2015, Bob bought and
placed in service a car he used exclusively in
his business. The car cost $31,500. Bob didn’t
claim a section 179 deduction or the special de-
preciation allowance for the car. He continued
to use the car 100% in his business throughout
the recovery period (2015 through 2020). For
those years, Bob used the MACRS Deprecia-
tion Chart (200% DB method), the Maximum
Depreciation Deduction for Cars Placed in
Service Prior to 2018 table and the Maximum
Depreciation Deduction for Passenger Automo-
biles (Including Trucks and Vans) acquired be-
fore September 28, 2017, and placed in service
during 2018–2021 table, earlier, for the applica-
ble tax year to figure his depreciation deduc-
tions during the recovery period. Bob's depreci-
ation deductions were subject to the
depreciation limits so he will have unrecovered
basis at the end of the recovery period as
shown in the following table.
MACRS Deprec.
Year % Amount Limit Allowed
2015 20.00 $6,300 $3,160 $3,160
2016 32.00 10,080 5,100 5,100
2017 19.20 6,048 3,050 3,050
2018 11.52 3,629 1,875 1,875
2019 11.52 3,629 1,875 1,875
2020 5.76 1,814 1,875 1,814
Total $31,500 $16,874
For the correct limit, see the Maximum De-
preciation Deduction for Cars Placed in Service
Prior to 2018 table and the Maximum Deprecia-
tion Deduction for Passenger Automobiles (In-
cluding Trucks and Vans) acquired before Sep-
tember 28, 2017, and placed in service during
2018–2021 table under Depreciation Limits,
earlier, for the maximum amount of depreciation
allowed each year.
At the end of 2020, Bob had an unrecovered
basis in the car of $14,626 ($31,500 – $16,874).
If Bob continued to use the car 100% for busi-
ness in 2021 and later years, he can claim a de-
preciation deduction equal to the lesser of
$1,875 or his remaining unrecovered basis.
If Bob's business use of the car was less
than 100% during any year, his depreciation de-
duction would be less than the maximum
amount allowable for that year. However, in de-
termining his unrecovered basis in the car, he
would still reduce his original basis by the maxi-
mum amount allowable as if the business use
had been 100%. For example, if Bob had used
his car 60% for business instead of 100%, his
allowable depreciation deductions would have
been $10,124 ($16,874 × 60% (0.60)), but he
still would have to reduce his basis by $16,874
to determine his unrecovered basis.
Car Used 50% or Less
for Business
If you use your car 50% or less for qualified
business use (defined earlier under Deprecia-
tion Deduction) either in the year the car is
placed in service or in a later year, special rules
apply. The rules that apply in these two situa-
tions are explained in the following paragraphs.
(For this purpose, “car” was defined earlier un-
der Actual Car Expenses 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 business use, the following
rules apply.
• You can’t take the section 179 deduction.
• You can’t take the special depreciation al-
lowance.
• You must figure depreciation using the
straight line method over a 5-year recovery
period. You must continue to use the
straight line method even if your percent-
age 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 2021, Dan bought and
placed in service a car for $17,500. He used it
40% for his consulting business. Because he
didn’t use the car more than 50% for business,
Dan can’t take any section 179 deduction or
special depreciation allowance, and he must
use the straight line method over a 5-year re-
covery period to recover the cost of his car.
Dan deducts $700 in 2021. This is the lesser
of:
1. $700 (($17,500 cost × 40% (0.40) busi-
ness use) × 10% (0.10) recovery percent-
age (from column (c) of Table 4-1)), or
2. $1,264 ($3,160 maximum limit × 40%
(0.40) business 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 addi-
tion, for the year your business use drops to
50% or less, you must recapture (include in
your gross income) any excess depreciation
(discussed later). You also increase the adjus-
ted basis of your car by the same amount.
Example. In June 2018, you purchased a
car for exclusive use in your business. You met
the more-than-50%-use test for the first 3 years
of the recovery period (2018 through 2020) but
failed to meet it in the fourth year (2021). You
determine your depreciation for 2021 using
20% (from column (c) of Table 4-1). You will
also have to determine and include in your
gross income any excess depreciation, dis-
cussed 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 fig-
ure and report the excess depreciation in your
gross income.
Excess depreciation is:
1. The amount of the depreciation deduc-
tions allowable for the car (including any
section 179 deduction 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 deduc-
tions that would have been allowable for
those years if you hadn’t used the car
more than 50% in qualified business use
Chapter 4 Transportation Page 21
for the year you placed it in service. This
means the amount of depreciation figured
using the straight line method.
Example. In September 2017, you bought
a car for $20,500 and placed it in service. You
didn’t claim the section 179 deduction or the
special depreciation allowance. You used the
car exclusively in qualified business use for
2017, 2018, 2019, and 2020. For those years,
you used the appropriate MACRS Depreciation
Chart to figure depreciation deductions totaling
$13,185 ($3,160 for 2017, $5,100 for 2018,
$3,050 for 2019, and $1,875 for 2020) under
the 200% DB method.
During 2021, you used the car 30% for busi-
ness 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 2021, and include in gross income for 2021
your excess depreciation determined as fol-
lows.
Total depreciation claimed:
(MACRS 200% DB method) . . . . . . $13,185
Minus total depreciation allowable:
(Straight line method)
2017—10% of $20,500 . . . . $2,050
(Limit: $3,160)
2018—20% of $20,500 . . . . 4,100
(Limit: $5,100)
2019—20% of $20,500 . . . . 3,050
(Limit: $3,050)
2020—20% of $20,500 . . . . 1,875 –11,075
(Limit: $1,875)
Excess depreciation . . . . . $2,110
For the correct limit, see the Maximum De-
preciation Deduction for Cars Placed in Service
Prior to 2018 table and the Maximum Deprecia-
tion Deduction for Passenger Automobiles (In-
cluding Trucks and Vans) acquired before Sep-
tember 28, 2017, and placed in service during
2018-2021 table under Depreciation Limits, ear-
lier, for the maximum amount of depreciation al-
lowed each year.
In 2021, using Form 4797, you figure and re-
port the $2,110 excess depreciation you must
include in your gross income. Your adjusted
basis in the car is also increased by $2,110.
Your 2021 depreciation is $1,230 ($20,500 (un-
adjusted 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,
2017)). However, your depreciation deduction
is limited to $563 ($1,875 x 30% (0.30) busi-
ness use).
Leasing a Car
If you lease a car, truck, or van that you use in
your business, you can use the standard mile-
age rate or actual expenses to figure your de-
ductible expense. This section explains how to
figure actual expenses for a leased car, truck,
or van.
Deductible payments. If you choose to use
actual expenses, you can deduct the part of
each lease payment that is for the use of the ve-
hicle 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
Table 4-1. 2021 MACRS Depreciation Chart
(Use To Figure Depreciation for 2021)
If you claim actual expenses for your car, use the chart below to find the depreciation method
and percentage to use for your 2021 return for cars placed in service in 2021.
First, using the left column, find the date you first placed the car in service in 2021. 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 2021, 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 2021. (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 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 2021 and a new van (basis of $20,000) in October 2021, both used 100% in your business. You use the percentage for Jan. 1–
Sept. 30, 2021, 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, 2021 200 DB 5.0% 150 DB 3.75% SL 2.5%
Jan. 1–Sept. 30, 2021 200 DB 20.0 150 DB 15.0 SL 10.0
Oct. 1–Dec. 31, 2020 200 DB 38.0 150 DB 28.88 SL 20.0
Jan. 1–Sept. 30, 2020 200 DB 32.0 150 DB 25.5 SL 20.0
Oct. 1–Dec. 31, 2019 200 DB 22.8 150 DB 20.21 SL 20.0
Jan. 1–Sept. 30, 2019 200 DB 19.2 150 DB 17.85 SL 20.0
Oct. 1–Dec. 31, 2018 200 DB 13.68 150 DB 16.4 SL 20.0
Jan. 1–Sept. 30, 2018 200 DB 11.52 150 DB 16.66 SL 20.0
Oct. 1–Dec. 31, 2017 200 DB 10.94 150 DB 16.41 SL 20.0
Jan. 1–Sept. 30, 2017 200 DB 11.52 150 DB 16.66 SL 20.0
Oct. 1–Dec. 31, 2016 200 DB 9.58 150 DB 14.35 SL 17.5
Jan. 1–Sept. 30, 2016 200 DB 5.76 150 DB 8.33 SL 10.0
Prior to 20162
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.
Page 22 Chapter 4 Transportation
any payments you make to buy a car, truck, or
van even if the payments are called “lease pay-
ments.”
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 business 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 de-
duction for your lease payment. (This reduction
has an effect similar to the limit on the deprecia-
tion 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 percentage of business and in-
vestment 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.
For tax years beginning 2021, all vehicles
are subject to a single inclusion amount thresh-
old for passenger automobiles leased and put
into service in 2021. You may have an inclusion
amount for a passenger automobile if:
Passenger Automobiles
(Including Trucks and Vans)
Year Lease Began Fair Market Value
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 ta-
bles below. You may have an inclusion amount
for a passenger automobile 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 hav-
ing 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 year 2017 are listed in Appen-
dix A-1 for cars and in Appendix B-1 for trucks
and vans. For tax years 2018–2021, the inclu-
sion amounts are listed in Appendices C-1
through C-4 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, see the revenue proce-
dure(s) identified in the footnote of the es 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 inclusion amount, do the fol-
lowing.
a. Find the line that includes the fair mar-
ket 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 percentage of business and invest-
ment use for the tax year. This is your in-
clusion amount.
Example. On January 17, 2021, 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 $56,500 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 C-4 to ar-
rive at the following inclusion amounts for each
year of the lease. For the last tax year of the
lease, 2024, you use the amount for the preced-
ing year.
Tax
year
Dollar
amount Proration
Business
use
Inclusion
amount
2021 $2 348/365 75% $1
2022 4 365/365 75% 3
2023 6 365/365 75% 5
2024 6 16/366 75% 0
Note. 2024 is a leap year and includes an
extra calendar day, February 29, 2024.
For each year of the lease that you deduct
lease payments, you must reduce your deduc-
tion by the inclusion amount figured for that
year.
Leased car changed from business to per-
sonal use. If you lease a car for business use
and, in a later year, change it to personal use,
follow the rules explained earlier under Figuring
the inclusion amount. For the tax year in which
you stop using the car for business, use the dol-
lar 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, 2020, Will leased
a car with a fair market value of $54,500 for 3
years. He used the car exclusively in his own
data processing business. On November 5,
2021, Will closed his business and went to work
for a company where he isn’t required to use a
car for business. Using Appendix C-3, Will fig-
ured his inclusion amount for 2020 and 2021 as
shown in the following table and reduced his
deductions for lease payments by those
amounts.
Tax
year
Dollar
amount Proration
Business
use
Inclusion
amount
2020 $10 138/366 100% $4
2021 10 309/365 100% 8
Leased car changed from personal to busi-
ness 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 inclu-
sion amount using the rules explained earlier
under Figuring the inclusion amount. Use the
fair market value on the date of conversion.
Example. In March 2019, Janice leased a
truck for 4 years for personal use. On June 1,
2021, she started working as a self-employed
advertising consultant and started using the
leased truck for business purposes. Her re-
cords show that her business use for June 1
through December 31 was 60%. To figure her
inclusion amount for 2021, Janice obtained an
appraisal from an independent car leasing com-
pany that showed the fair market value of her
2019 truck on June 1, 2021, was $57,650. Us-
ing Appendix C-4, Janice figured her inclusion
amount for 2021 as shown in the following ta-
ble.
Tax
year
Dollar
amount Proration
Business
use
Inclusion
amount
2021 $2 214/365 60% $1
Reporting inclusion amounts. For informa-
tion on reporting 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 In-
structions for Schedule F (Form 1040).
Chapter 4 Transportation Page 23
Disposition of a Car
If you dispose of your car, you may have a taxa-
ble gain or a deductible loss. The portion of any
gain that is due to depreciation (including any
section 179 deduction, clean-fuel vehicle de-
duction (for vehicles placed in service before
January 1, 2006), and special depreciation al-
lowance) that you claimed on the car will be
treated as ordinary income. However, you may
not have to recognize a gain or loss if you dis-
pose of the car because of a casualty or theft.
This section gives some general information
about dispositions of cars. For information on
how to report the disposition of your car, see
Pub. 544.
Note. Like-kind exchanges completed after
December 31, 2017, are generally limited to ex-
changes of real property not held primarily for
sale.
Casualty or theft. For a casualty or theft, a
gain results when you receive insurance or
other reimbursement that is more than your ad-
justed 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 period of time, you don’t recognize
any gain. Your basis in the replacement prop-
erty is its cost minus any gain that isn’t recog-
nized. 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 chapter 1 of
Pub. 544.) In a trade-in situation, your basis in
the new property is generally your adjusted ba-
sis in the old property plus any additional
amount you pay. (See Unadjusted basis, ear-
lier.)
Depreciation adjustment when you used
the standard mileage rate. If you used the
standard mileage rate for the business use of
your car, depreciation was included in that rate.
The rate of depreciation that was allowed in the
standard mileage rate is shown in the Rate of
Depreciation 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 be-
low zero) through the use of the standard mile-
age rate, and you continue to use your car for
business, no adjustment (reduction) to the
standard mileage rate is necessary. Use the full
standard mileage rate (56 cents (0.56) per mile
for 2021) for business miles driven.
These rates don’t apply for any year in
which the actual expenses method was
used.TIP
Rate of Depreciation Allowed in
Standard Mileage Rate
Year(s) Depreciation .
Rate per Mile
2021 $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 2016, you bought and placed
in service a car for exclusive use in your busi-
ness. The car cost $25,500. From 2016 through
2021, you used the standard mileage rate to fig-
ure your car expense deduction. You drove
your car 14,100 miles in 2016, 16,300 miles in
2017, 15,600 miles in 2018, 16,700 miles in
2019, 15,100 miles in 2020, and 14,900 miles in
2021. The depreciation portion of your car ex-
pense deduction is figured as follows.
Year Miles x Rate Depreciation
2016 14,100 × $0.24 $3,384
2017 16,300 × 0.25 4,075
2018 15,600 × 0.25 3,900
2019 16,700 × 0.26 4,342
2020 15,100 × 0.27 4,077
2021 14,900 × 0.26 3,874
Total depreciation $23,652
At the end of 2021, your adjusted basis in the
car is $1,848 ($25,500 − $23,652).
Depreciation deduction for the year of dis-
position. If you deduct actual car expenses
and you dispose of your car before the end of
its recovery period, you are allowed a reduced
depreciation deduction for the year of disposi-
tion.
To figure the reduced depreciation deduc-
tion for a car disposed of in 2021, first deter-
mine the depreciation deduction for the full year
using Table 4-1.
If you used a Date Placed in Service line for
Jan. 1–Sept. 30, you can deduct one-half of the
depreciation amount figured for the full year.
Figure your depreciation deduction for the full
year using the rules explained in this chapter
and deduct 50% of that amount with your other
actual car expenses.
If you used a Date Placed in Service line for
Oct. 1–Dec. 31, you can deduct a percentage of
the depreciation amount figured for the full year.
The percentage you use is determined by the
month you disposed of the car. Figure your de-
preciation deduction for the full year using the
rules explained in this chapter and multiply the
result by the percentage from the following ta-
ble for the month that you disposed of the car.
Month Percentage
Jan., Feb., March . . . . . . . . . . . . . 12.5%
April, May, June . . . . . . . . . . . . . . . 37.5%
July, Aug., Sept. . . . . . . . . . . . . . . 62.5%
Oct., Nov., Dec. . . . . . . . . . . . . . . . 87.5%
Don’t use this table if you are a fiscal
year filer. See Sale or Other Disposi-
tion Before the Recovery Period Ends
in chapter 4 of Pub. 946.
5.
Recordkeeping
If you deduct travel, gift, or transportation ex-
penses, you must be able to prove (substanti-
ate) certain elements of expense. This chapter
discusses the records you need to keep to
prove these expenses.
If you keep timely and accurate re-
cords, you will have support to show
the IRS if your tax return is ever exam-
ined. You will also have proof of expenses that
your employer may require if you are reim-
bursed under an accountable plan. These plans
are discussed in chapter 6 under Reimburse-
ments.
How To Prove Expenses
Table 5-1 is a summary of records you need to
prove each expense discussed in this publica-
tion. 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 ap-
proximate or estimate.
You should keep adequate records to prove
your expenses or have sufficient evidence that
will support your own statement. You must gen-
erally prepare a written record for it to be con-
sidered adequate. This is because written evi-
dence is more reliable than oral evidence alone.
However, if you prepare a record on a com-
puter, it is considered an adequate record.
What Are Adequate
Records?
You should keep the proof you need in an ac-
count book, diary, log, statement of expense,
trip sheets, or similar record. You should also
keep documentary evidence that, together withCAUTION
!RECORDSCAUTION
!
Page 24 Chapter 5 Recordkeeping
your record, will support each element of an ex-
pense.
Documentary evidence. You must generally
have documentary evidence, such as receipts,
canceled checks, or bills, to support your ex-
penses.
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 employer under an ac-
countable plan, and you use a per diem al-
lowance 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 evi-
dence will ordinarily 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 expenses for business travel if it has all
of the following information.
• The name and location of the hotel.
• The dates you stayed there.
• 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 beverages, the receipt must show that this
is the case.
Canceled check. A canceled check, to-
gether with a bill from the payee, ordinarily es-
tablishes the cost. However, a canceled check
by itself doesn’t prove a business expense with-
out other evidence to show that it was for a
business purpose.
Duplicate information. You don‘t have to re-
cord information in your account book or other
record that duplicates information shown on a
receipt as long as your records and receipts
complement each other in an orderly manner.
You don’t have to record amounts your em-
ployer pays directly for any ticket or other travel
item. However, if you charge these items to
your employer, through a credit card or other-
wise, 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 sup-
port it with sufficient documentary evidence. A
timely kept record has more value than a state-
ment prepared later when there is generally a
lack of accurate recall.
You don’t need to write down the elements
of every expense on the day of the expense. If
you maintain a log on a weekly basis that ac-
counts for use during the week, the log is con-
sidered a timely kept record.
If you give your employer, client, or cus-
tomer an expense account statement, it can
also be considered a timely kept record. This is
true if you copy it from your account book, diary,
log, statement of expense, trip sheets, or similar
record.
Proving business purpose. You must gener-
ally provide a written statement of the business
purpose of an expense. However, the degree of
proof varies according to the circumstances in
each case. If the business purpose of an ex-
pense is clear from the surrounding circumstan-
ces, then you don’t need to give a written ex-
planation.
Example. If you are a sales representative
who calls on customers on an established sales
route, you don’t have to give a written explana-
tion of the business purpose for traveling that
route. You can satisfy the requirements by re-
cording 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 dur-
ing the tax year. You could also establish the
date of each trip with a receipt, record of deliv-
ery, or other documentary evidence.
Confidential information. You don’t need to
put confidential information relating to an ele-
ment of a deductible expense (such as the
place, business purpose, or business relation-
ship) in your account book, diary, or other re-
cord. However, you do have to record the infor-
mation elsewhere 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 contain-
ing specific information about the element,
and
• Other supporting evidence that is sufficient
to establish the element.
If the element is the description of a gift, or
the cost, time, place, or date of an expense, the
supporting evidence must be either direct evi-
dence or documentary evidence. Direct evi-
dence can be written statements or the oral tes-
timony of your guests or other witnesses setting
forth detailed information about the element.
Documentary evidence can be receipts, paid
bills, or similar evidence.
If the element is either the business relation-
ship of your guests or the business purpose of
the amount spent, the supporting evidence can
be circumstantial rather than direct. For exam-
ple, the nature of your work, such as making de-
liveries, provides circumstantial evidence of the
use of your car for business purposes. Invoices
of deliveries establish 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 business or investment use
for the entire year. You must demonstrate by
other evidence that the periods for which an ad-
equate record is kept are representative of the
use throughout the tax year.
Example. You use your car to visit the offi-
ces of clients, meet with suppliers and other
subcontractors, and pick up and deliver items to
clients. There is no other business use of the
car, but you and your family use the car for per-
sonal 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
representative of the use of the car each month
and are sufficient evidence to support the per-
centage of business use for the year.
Exceptional circumstances. You can satisfy
the substantiation requirements with other evi-
dence 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 com-
pletely satisfies the requirements ex-
plained earlier under What Are Adequate
Records.
• You are unable to obtain evidence for an
element that completely satisfies the two
rules listed earlier under What if I Have In-
complete Records.
• You have presented other evidence for the
element that is the best proof possible un-
der the circumstances.
Destroyed records. If you can’t produce a re-
ceipt because 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 casu-
alties.
Separating and Combining
Expenses
This section explains when expenses must be
kept separate and when expenses can be com-
bined.
Separating expenses. Each separate pay-
ment is generally considered a separate ex-
pense. 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 tick-
ets are two separate expenses. You must re-
cord 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. Nonenter-
tainment meals should be in a separate cate-
gory. You can include tips for meal-related serv-
ices with the costs of the meals.
Expenses of a similar nature occurring dur-
ing the course of a single event are considered
a single expense.
Car expenses. You can account for sev-
eral uses of your car that can be considered
Chapter 5 Recordkeeping Page 25
part of a single use, such as a round trip or un-
interrupted 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 locations on a route that begins and
ends at your employer's business premises and
that includes a stop at the business 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 gen-
eral description of the recipients.
Allocating total cost. If you can prove the to-
tal cost of travel or entertainment but you can’t
prove how much it cost for each person who
participated in the event, you may have to allo-
cate the total cost among you and your guests
on a pro rata basis. To do so, you must estab-
lish 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 re-
cords, 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 Business 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
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
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
Page 26 Chapter 5 Recordkeeping
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chapter 5 Recordkeeping Page 27
employers and are reimbursed for their expen-
ses generally don’t have to keep copies of this
information. However, you may have to prove
your expenses if any of the following conditions
apply.
• You claim deductions for expenses that
are more than reimbursements.
• Your expenses are reimbursed under a
nonaccountable plan.
• Your employer doesn’t use adequate ac-
counting procedures to verify expense ac-
counts.
• You are related to your employer as de-
fined under Per Diem and Car Allowances
in chapter 6.
Reimbursements, adequate accounting, and
nonaccountable plans are discussed in chap-
ter 6.
Examples of Records
Table 5-2 and Table 5-3 are examples of work-
sheets that can be used for tracking business
expenses.
6.
How To Report
This chapter explains where and how to report
the expenses discussed in this publication. It
discusses reimbursements and how to treat
them under accountable and nonaccountable
plans. It also explains rules for independent
contractors and clients, fee-basis officials, cer-
tain performing artists, Armed Forces reserv-
ists, and certain disabled employees. The chap-
ter 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 report the expenses discussed in this
publication.
Self-employed. You must report your income
and expenses on Schedule C (Form 1040) if
you are a sole proprietor, 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 Sched-
ule 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-entertain-
ment-related meals (actual cost or stand-
ard meal allowance) on line 24b;
• Report your gift expenses and transporta-
tion expenses, other than car expenses,
on line 27a; and
• Report your car expenses on line 9. Com-
plete Part IV of the form unless you have to
file Form 4562 for depreciation or amorti-
zation.
If you file Schedule F (Form 1040), do the
following.
• Report your car expenses on line 10. At-
tach Form 4562 and provide information
on the use of your car in Part V of Form
4562.
• Report all other business expenses dis-
cussed in this publication on line 32. You
can only include 50% of your non-enter-
tainment-related meals on that line. How-
ever, you can deduct 100% of your meal
expenses if the meals are food and bever-
ages provided by a restaurant, and paid or
incurred after December 31, 2020, and be-
fore January 1, 2023.
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 ear-
lier. Report your business expenses for your
work as an employee on Form 2106, as dis-
cussed next.
Form 2106 is used by only Armed
Forces reservists, qualified performing
artists, fee-basis state or local govern-
ment officials, and employees with impair-
ment-related work expenses. Due to the sus-
pension of miscellaneous itemized deductions
subject to the 2% floor under section 67(a), em-
ployees who do not fit into one of the listed cat-
egories may not use Form 2106.
Employees. If you are an employee, you must
generally complete Form 2106 to deduct your
travel and transportation expenses.
• You are an employee deducting expenses
attributable to your job.
• You weren’t reimbursed by your employer
for your expenses (amounts included in
box 1 of your Form W-2 aren’t considered
reimbursements).
• If you claim car expenses, you use the
standard mileage 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 reimburse-
ments (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 in-
surance salespersons, certain agent or com-
mission drivers, traveling salespersons, and
certain homeworkers.CAUTION
!
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 unclaimed reimburse-
ment applies.
Reimbursement for personal expenses. If
your employer reimburses you for nondeducti-
ble personal expenses, such as for vacation
trips, your employer must report the reimburse-
ment 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 transportation expenses related to in-
come-producing property, report your deducti-
ble 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.
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 dur-
ing the year. You can’t use the standard mile-
age rate.
Form 2106 is only used by Armed
Forces reservists, qualified performing
artists, fee-basis state or local govern-
ment officials, and employees with impair-
ment-related work expenses. Due to the sus-
pension of miscellaneous itemized deductions
subject to the 2% floor under section 67(a), em-
ployees who do not fit into one of the listed cat-
egories 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 personal purposes
(100% income inclusion). Your employer must
separately state the amount if 100% of the an-
nual lease value was included in your income. If
you are unsure of the amount included on your
Form W-2, ask your employer.
Full value included in your income. You
may be able to deduct the value of the business
use of an employer-provided car if your em-
ployer reported 100% of the value of the car in
your income. On your 2021 Form W-2, the
amount of the value will be included in box 1,
Wages, tips, other compensation; and box 14.
To claim your expenses, complete Form
2106, Part II, Sections A and C. Enter your ac-
tual expenses on line 23 of Section C and in-
clude the entire value of the employer-provided
car on line 25. Complete the rest of the form.CAUTION
!CAUTION
!
Page 28 Chapter 6 How To Report
Form 2106 is only used by Armed
Forces reservists, qualified performing
artists, fee-basis state or local govern-
ment officials, and employees with impair-
ment-related work expenses. Due to the sus-
pension of miscellaneous itemized deductions
subject to the 2% floor under section 67(a), em-
ployees who do not fit into one of the listed cat-
egories may not use Form 2106.
Less than full value included in your in-
come. 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 includes the
value of your personal use of the car. Don’t en-
ter this value on your Form 2106 because it isn’t
deductible.
If you paid any actual costs (that your em-
ployer 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. En-
ter your actual costs on line 23 of Section C and
leave line 25 blank. Complete the rest of the
form.
Form 2106 is only used by Armed
Forces reservists, qualified performing
artists, fee-basis state or local govern-
ment officials, and employees with impair-
ment-related work expenses. Due to the sus-
pension of miscellaneous itemized deductions
subject to the 2% floor under section 67(a), em-
ployees who do not fit into one of the listed cat-
egories may not use Form 2106.
Reimbursements
This section explains what to do when you re-
ceive an advance or are reimbursed for any of
the employee business expenses discussed in
this publication.
If you received an advance, allowance, or
reimbursement for your expenses, how you re-
port this amount and your expenses depends
on whether your employer reimbursed you un-
der an accountable plan or a nonaccountable
plan.
This section explains the two types of plans,
how per diem and car allowances simplify prov-
ing the amount of your expenses, and the tax
treatment of your reimbursements and expen-
ses. It also covers rules for independent con-
tractors.
No reimbursement. You aren’t reimbursed or
given an allowance for your expenses if you are
paid a salary or commission with the under-
standing that you will pay your own expenses.
In this situation, you have no reimbursement or
allowance arrangement, and you don’t have to
read this section on reimbursements. Instead,
see Completing Form 2106, later, for informa-
tion on completing your tax return.CAUTION
!CAUTION
!
Form 2106 is only used by Armed
Forces reservists, qualified performing
artists, fee-basis state or local govern-
ment officials, and employees with impair-
ment-related work expenses. Due to the sus-
pension of miscellaneous itemized deductions
subject to the 2% floor under section 67(a), em-
ployees who do not fit into one of the listed cat-
egories may not use Form 2106.
Reimbursement, allowance, or advance. A
reimbursement or other expense allowance ar-
rangement is a system or plan that an employer
uses to pay, substantiate, and recover the ex-
penses, advances, reimbursements, and
amounts charged to the employer for employee
business expenses. Arrangements include per
diem and car allowances.
A per diem allowance is a fixed amount of
daily reimbursement 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 Stand-
ard Meal Allowance.) A car allowance is an
amount your employer gives you for the busi-
ness use of your car.
Your employer should tell you what method
of reimbursement is used and what records you
must provide.
Employers. If you are an employer and you re-
imburse employee business expenses, how
you treat this reimbursement on your employ-
ee's Form W-2 depends in part on whether you
have an accountable plan. Reimbursements
treated as paid under an accountable plan, as
explained next, aren’t reported as pay. Reim-
bursements treated as paid under nonaccount-
able plans, as explained later, are reported as
pay. See Pub. 15 (Circular E), Employer's Tax
Guide, for information on employee pay.
Accountable Plans
To be an accountable plan, your employer's re-
imbursement or allowance arrangement must
include all of the following rules.
1. Your expenses must have a business con-
nection—that is, you must have paid or in-
curred deductible expenses while per-
forming services as an employee of your
employer.
2. You must adequately account to your em-
ployer for these expenses within a reason-
able period of time.
3. You must return any excess reimburse-
ment or allowance within a reasonable pe-
riod of time.
Adequate accounting and returning excess
reimbursements are discussed later.
An excess reimbursement or allowance is
any amount you are paid that is more than the
business-related expenses that you adequately
accounted for to your employer.
Reasonable period of time. The definition
of reasonable period of time depends on the
facts and circumstances of your situation. How-
ever, regardless of the facts and circumstances
of your situation, actions that take place within
the times specified in the following list will beCAUTION
!
treated as taking place within a reasonable pe-
riod 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 in-
curred.
• 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 re-
turn 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 reimburse-
ments in your income in box 1 of your Form
W-2. If your expenses equal your reimburse-
ments, you don’t complete Form 2106. You
have no deduction since your expenses and re-
imbursements are equal.
If your employer included reimburse-
ments 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 accounta-
ble plan, some of your expenses 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 nonaccountable plan (discussed later).
Failure to return excess reimburse-
ments. If you are reimbursed under an ac-
countable plan, but you fail to return, within a
reasonable time, any amounts in excess of the
substantiated amounts, the amounts paid in ex-
cess of the substantiated expenses are treated
as paid under a nonaccountable plan. See Rea-
sonable period of time, earlier, and Returning
Excess Reimbursements, later.
Reimbursement of nondeductible ex-
penses. You may be reimbursed under your
employer's accountable plan for expenses rela-
ted to that employer's business, some of which
would be allowable as employee business ex-
pense deductions and some of which would
not. The reimbursements you receive for the
nondeductible expenses 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 arrangement that re-
imburses you for the nondeductible meals when
you work late at the office is treated as paid un-
der a nonaccountable plan.TIP
Chapter 6 How To Report Page 29
The employer makes the decision
whether to reimburse employees under
an accountable plan or a nonaccounta-
ble plan. If you are an employee who receives
payments under a nonaccountable plan, you
can’t convert these amounts to payments under
an accountable plan by voluntarily accounting
to your employer for the expenses and voluntar-
ily returning excess reimbursements to the em-
ployer.
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 statement of expense,
an account book, a diary, or a similar record in
which you entered each expense at or near the
time you had it, along with documentary evi-
dence (such as receipts) of your travel, mile-
age, 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 account-
ing requirement under certain conditions. See
Per Diem and Car Allowances, later.
You must account for all amounts you re-
ceived from your employer during the year as
advances, reimbursements, or allowances. This
includes amounts you charged to your em-
ployer by credit card or other method. You must
give your employer the same type of records
and supporting information that you would have
to give to the IRS if the IRS questioned a de-
duction on your return. You must pay back the
amount of any reimbursement or other expense
allowance for which you don’t adequately ac-
count or that is more than the amount for which
you accounted.
Per Diem and Car Allowances
If your employer reimburses you for your expen-
ses using a per diem or a car allowance, you
can generally use the allowance as proof for the
amount of your expenses. A per diem or car al-
lowance satisfies the adequate accounting re-
quirements for the amount of your expenses
only if all the following conditions apply.
• Your employer reasonably limits payments
of your expenses 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).
• You prove the time (dates), place, and
business purpose 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 de-
fined next). If you are related to your em-
ployer, you must be able to prove your ex-
penses to the IRS even if you have already
adequately accounted to your employer
and returned any excess reimbursement.
If the IRS finds that an employer's travel allow-
ance practices are not based on reasonably ac-
curate estimates of travel costs (including rec-
ognition of cost differences in different areas for
per diem amounts), you won’t be considered toTIP
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, ances-
tor, or lineal descendant;
2. Your employer is a corporation in which
you own, directly or indirectly, more than
10% in value of the outstanding stock; or
3. Certain relationships (such as grantor, fi-
duciary, or beneficiary) exist between you,
a trust, and your employer.
You may be considered to indirectly own stock,
for purposes of (2) if you have an interest in a
corporation, partnership, 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 fig-
ured 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 area where you stop for
sleep or rest.
Regular federal per diem rate. The regu-
lar federal per diem rate is the highest amount
that the federal government will pay to its em-
ployees 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 differ-
ent locations. 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 from January 1–September 30,
2021, the rate for most small localities in the
United States is $55 per day and from October
1–December 31, 2021, is $59 per day. Most
major cities and many other localities qualify 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 employer does one of the following.
• Provides you with lodging (furnishes it in
kind).
• Reimburses you, based on your receipts,
for the actual 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,TIP
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 elimi-
nates 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 Sep-
tember of 2021 is $292 (including $71 for M&IE)
for certain high-cost locations. All other areas
have a per diem amount of $198 (including $60
for M&IE). For more information, see Notice
2020-71, which can be found at IRS.gov/irb/
2020-40_IRB#NOT-2020-71.
Effective October 1, 2021, the per diem
rate for certain high-cost locations in-
creased to $296 (including $74 for
M&IE). The rate for all other locations increased
to $202 (including $64 for M&IE). Employers
who didn’t use the high-low method during the
first 9 months of 2021 can’t begin to use it be-
fore 2022. For more information, see Notice
2021-52, which can be found at IRS.gov/irb/
2021-38_IRB#NOT-2021-52, and Revenue
Procedure 2019-48 at IRS.gov/irb/
2019-51_IRB#RP-2019-48.
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 al-
lowance using any method you consis-
tently 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 than
the federal rate. This is true even though a
federal employee would be limited to a re-
imbursement of M&IE for only 11/2 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 de-
ductible car expenses. For 2021, the standard
mileage rate for the cost of operating your car
for business use is 56 cents (0.56) per mile.
Fixed and variable rate (FAVR). This is
an allowance your employer may use to reim-
burse 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 yourCAUTION
!
Page 30 Chapter 6 How To Report
fixed costs (such as depreciation (or lease pay-
ments), insurance, etc.). If your employer choo-
ses to use this method, your employer will re-
quest the necessary records from you.
Reporting your expenses with a per diem or
car allowance. If your reimbursement is in the
form of an allowance received under an ac-
countable plan, the following facts affect your
reporting.
• The federal rate.
• Whether the allowance or your actual ex-
penses were more than the federal rate.
The following discussions explain where to re-
port your expenses depending upon how the
amount of your allowance compares to the fed-
eral rate.
Allowance less than or equal to the fed-
eral 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 al-
lowance on your return if your expenses are
equal to or less than the allowance.
However, if your actual expenses are more
than your allowance, 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 reservists, qualified performing
artists, fee-basis state or local govern-
ment officials, and employees with impair-
ment-related work expenses. Due to the sus-
pension of miscellaneous itemized deductions
subject to the 2% floor under section 67(a), em-
ployees who do not fit into one of the listed cat-
egories may not use Form 2106.
Example 1. In April, Jeremy, a member of a
reserve component of the Armed Forces, takes
a 2-day business trip to Denver. The federal
rate for Denver is $275 ($199 lodging + $76
M&IE) per day. As required by his employer's
accountable plan, he accounts for the time
(dates), place, and business purpose of the trip.
His employer reimburses him $275 a day ($550
total) for living expenses. Jeremy's living expen-
ses in Denver aren’t more than $275 a day.
Jeremy's employer doesn’t include any of
the reimbursement on his Form W-2 and
Jeremy doesn’t deduct the expenses on his re-
turn.
Example 2. In June, Matt, a fee-basis local
government official, takes a 2-day business trip
to Boston. Matt's employer uses the high-low
method to reimburse employees. Since Boston
is a high-cost area, Matt is given an advance of
$292 (including $71 for M&IE) a day ($584 total)
for his lodging and M&IE. Matt's actual expen-
ses totaled $800.
Since Matt's $800 of expenses are more
than his $584 advance, he includes the excess
expenses when he itemizes his deductions.
Matt completes Form 2106 (showing all of his
expenses and reimbursements). He must also
allocate his reimbursement between his meals
and other expenses as discussed later under
Completing Form 2106.CAUTION
!
Example 3. Nicole, a fee-basis state gov-
ernment official, drives 10,000 miles in 2021 for
business. Under her employer's accountable
plan, she accounts for the time (dates), place,
and business purpose of each trip. Her em-
ployer pays her a mileage allowance of 40
cents (0.40) a mile.
Since Nicole's $5,600 expense figured un-
der the standard mileage rate (10,000 miles x
56 cents (0.56)) is more than her $4,000 reim-
bursement (10,000 miles × 40 cents (0.40)),
she itemizes her deductions to claim the excess
expense. Nicole completes Form 2106 (show-
ing all her expenses and reimbursements) and
enters $1,600 ($5,600 − $4,000) as an itemized
deduction.
Allowance more than the federal rate. If
your allowance is more than the federal rate,
your employer must include the allowance
amount up to the federal rate under code L in
box 12 of your Form W-2. This amount isn’t tax-
able. However, the excess allowance will be in-
cluded in box 1 of your Form W-2. You must re-
port 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 under code L in
box 12 of your Form W-2) and all your expen-
ses. You should be able to prove these
amounts to the IRS.
Form 2106 is only used by Armed
Forces reservists, qualified performing
artists, fee-basis state or local govern-
ment officials, and employees with impair-
ment-related work expenses. Due to the sus-
pension of miscellaneous itemized deductions
subject to the 2% floor under section 67(a), em-
ployees who do not fit into one of the listed cat-
egories may not use Form 2106.
Example 1. Laura, a performing artist, lives
and works in Austin. In July, her employer sent
her to Albuquerque for 4 days on business.
Laura's employer paid the hotel directly for her
lodging and reimbursed Laura $80 a day ($320
total) for M&IE. Laura's actual meal expenses
weren’t more than the federal rate for Albuquer-
que, which is $71 per day.
Her employer included the $36 that was
more than the federal rate (($80 − $71) × 4) in
box 1 of Laura's Form W-2. Her employer
shows $284 ($71 a day × 4) under code L in
box 12 of her Form W-2. This amount isn’t inclu-
ded in Laura's income. Laura doesn’t have to
complete Form 2106; however, she must in-
clude the $36 in her gross income as wages (by
reporting the total amount shown in box 1 of her
Form W-2).
Example 2. Joe, a performing artist, also
lives in Austin and works for the same employer
as Laura. In May, the employer sent Joe to San
Diego for 4 days and paid the hotel directly for
Joe's hotel bill. The employer reimbursed JoeCAUTION
!
Reporting Travel, Nonentertainment Meal, Gift,
and Car Expenses and Reimbursements
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.
Table 6-1.
Chapter 6 How To Report Page 31
$75 a day for his M&IE. The federal rate for San
Diego is $71 a day.
Joe can prove that his actual non-entertain-
ment-related meal expenses totaled $380. His
employer's accountable plan won’t pay more
than $75 a day for travel to San Diego, so Joe
doesn’t give his employer the records that
prove that he actually spent $380. However, he
does account for the time (dates), place, and
business purpose of the trip. This is Joe's only
business trip this year.
Joe was reimbursed $300 ($75 × 4 days),
which is $16 more than the federal rate of $284
($71 × 4 days). The employer includes the $16
as income on Joe's Form W-2 in box 1. The em-
ployer also enters $284 under code L in box 12
of Joe's Form W-2.
Joe completes Form 2106 to figure his de-
ductible expenses. He enters the total of his ac-
tual expenses for the year ($380) on Form
2106. He also enters the reimbursements that
weren’t included in his income ($284). His total
deductible expense, before the 50% limit, is
$96. Since his meals consisted of food and bev-
erages that were provided by a restaurant and
paid or incurred after 2020 and before 2023, he
can deduct 100% of his meal expenses. He will
include the $96 as an itemized deduction.
Example 3. Debbie, a fee-basis state gov-
ernment official, drives 10,000 miles in 2021 for
business. Under her employer's accountable
plan, she gets reimbursed 60 cents (0.60) a
mile, which is more than the standard mileage
rate. Her total reimbursement is $6,000.
Debbie's employer must include the reim-
bursement amount up to the standard mileage
rate, $5,600 (10,000 × 56 cents (0.56)), under
code L in box 12 of her Form W-2. That amount
isn’t taxable. Her employer must also include
$400 ($6,000 − $5,600) in box 1 of her Form
W-2. This is the reimbursement that is more
than the standard mileage rate.
If Debbie's expenses are equal to or less
than the standard mileage rate, she wouldn’t
complete Form 2106. If her expenses are more
than the standard mileage rate, she would com-
plete Form 2106 and report her total expenses
and reimbursement (shown under code L in
box 12 of her Form W-2). She would then claim
the excess expenses as an itemized deduction.
Returning Excess
Reimbursements
Under an accountable plan, you are required to
return any excess reimbursement or other ex-
pense allowances for your business expenses
to the person paying the reimbursement or al-
lowance. Excess reimbursement means any
amount for which you didn’t adequately account
within a reasonable period of time. For exam-
ple, 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 ex-
penses, 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 employer provides you with an expense
allowance before you actually have the ex-
pense, and the allowance is reasonably expec-
ted to be no more than your expense. Under an
accountable plan, you are required to ade-
quately account to your employer for this ad-
vance and to return any excess within a reason-
able 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 un-
der a nonaccountable plan (discussed later).
Unproven amounts. If you don’t prove that
you actually 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 ad-
vance within a reasonable period of time. If you
don’t do this, the unproven amount will be con-
sidered paid under a nonaccountable plan (dis-
cussed 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 be-
tween the two rates for the period you can
prove business-related travel expenses. How-
ever, the difference will be reported as wages
on your Form W-2. This excess amount is con-
sidered paid under a nonaccountable plan (dis-
cussed later).
Example. Your employer sends you on a
5-day business trip to Phoenix in March 2021
and gives you a $400 ($80 × 5 days) advance
to cover your M&IE. The federal per diem for
M&IE for Phoenix is $56. Your trip lasts only 3
days. Under your employer's accountable plan,
you must return the $160 ($80 × 2 days) ad-
vance for the 2 days you didn’t travel. For the 3
days you did travel, you don’t have to return the
$72 difference between the allowance you re-
ceived and the federal rate for Phoenix (($80 −
$56) × 3 days). However, the $72 will be repor-
ted on your Form W-2 as wages.
Nonaccountable Plans
A nonaccountable plan is a reimbursement or
expense allowance arrangement that doesn’t
meet one or more of the three rules listed earlier
under Accountable Plans.
In addition, even if your employer has an ac-
countable plan, the following payments will be
treated as being paid under a nonaccountable
plan.
• Excess reimbursements you fail to return
to your employer.
• Reimbursement of nondeductible expen-
ses related to your employer's business.
See Reimbursement of nondeductible ex-
penses, 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 ex-
penses.
If you aren’t sure if the reimbursement or ex-
pense allowance arrangement is an accounta-
ble or nonaccountable plan, ask your employer.
Reporting your expenses under a nonac-
countable plan. Your employer will combine
the amount of any reimbursement or other ex-
pense allowance paid to you under a nonac-
countable 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 deductions to deduct your expenses for
travel, transportation, or non-entertainment-re-
lated meals. Your meal and entertainment ex-
penses will be subject to the 50% Limit dis-
cussed in chapter 2. However, you can deduct
100% of business meals if the meals are food
and beverages provided by a restaurant, and
paid or incurred after 2020 and before 2023.
Form 2106 is only used by Armed
Forces reservists, qualified performing
artists, fee-basis state or local govern-
ment officials, and employees with impair-
ment-related work expenses. Due to the sus-
pension of miscellaneous itemized deductions
subject to the 2% floor under section 67(a), em-
ployees who do not fit into one of the listed cat-
egories may not use Form 2106.
Example 1. Kim's employer gives her
$1,000 a month ($12,000 total for the year) for
her business expenses. Kim doesn’t have to
provide any proof of her expenses to her em-
ployer, and Kim can keep any funds that she
doesn’t spend.
Kim, a performing artist, is being reimbursed
under a nonaccountable plan. Her employer will
include the $12,000 on Kim's Form W-2 as if it
were wages. If Kim wants to deduct her busi-
ness expenses, she must complete Form 2106
and itemize her deductions.
Example 2. Kevin is paid $2,000 a month
by his employer. On days that he travels away
from home on business, his employer designa-
tes $50 a day of his salary as paid to reimburse
his travel expenses. Because his employer
would pay Kevin his monthly salary whether or
not he was traveling away from home, the ar-
rangement is a nonaccountable plan. No part of
the $50 a day designated by his employer is
treated as paid under an accountable plan.
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 expenses dis-
cussed in this publication, and they affect both
independent contractors and their clients or
customers.
You are considered an independent con-
tractor if you are self-employed and you per-
form services for a customer or client.
Accounting to Your Client
If you received a reimbursement or an allow-
ance for travel, or gift expenses that you incur-
red on behalf of a client, you should provide an
adequate accounting of these expenses to your
client. If you don’t account to your client forCAUTION
!
Page 32 Chapter 6 How To Report
these expenses, you must include any reim-
bursements 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
reimbursement for meal and entertainment ex-
penses 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 re-
cordkeeping rules in chapter 5.
How to report. For information on how to
report expenses on your tax return, see
Self-employed at the beginning 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 reim-
bursements or allowances you give, in the
course of your business, to an independent
contractor for travel or gift expenses incurred on
your behalf. However, you must keep records if:
• You reimburse the contractor for entertain-
ment expenses incurred on your behalf,
and
• The contractor adequately accounts to you
for these expenses.
Contractor adequately accounts. If the con-
tractor adequately accounts to you for non-en-
tertainment-related meal expenses, you (the cli-
ent or customer) must keep records
documenting each element of the expense, as
explained in chapter 5. Use your records as
proof for a deduction on your tax return. If
non-entertainment-related meal expenses are
accounted for separately, you are subject to the
50% limit on meals. However, you can deduct
100% of business meals if the meals are food
and beverages provided by a restaurant, and
paid or incurred after 2020 and before 2023. If
the contractor adequately accounts to you for
reimbursed amounts, you don’t have to report
the amounts on an information return.
Contractor doesn’t adequately account. If
the contractor doesn’t adequately account to
you for allowances or reimbursements of
non-entertainment-related meal expenses, 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 payment for services if they are
ordinary and necessary business expenses.
However, you must file Form 1099-MISC to re-
port amounts paid to the independent contrac-
tor 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 locali-
ties that are treated under the high-low substan-
tiation method as high-cost localities for all or
part of the year. Notice 2020-71, available at
IRS.gov/irb/2020-40_IRB#NOT-2020-71, lists
the high-cost localities that are eligible for $292
($71 meals and incidental expenses (M&IE))
per diem, effective October 1, 2020. For travel
on or after October 1, 2020, all other localities
within the continental United States (CONUS)
are eligible for $198 ($60 M&IE) per diem under
the high-low method.
Notice 2021-52, available at IRS.gov/irb/
2021-38_IRB#NOT-2021-52, lists the high-cost
localities that are eligible for $296 ($74 M&IE)
per diem, effective October 1, 2021. For travel
on or after October 1, 2021, the per diem for all
other localities increased to $202 ($64 M&IE).
Temporary 100% deduction of the full meal
portion of a per diem rate or allowance. A
100% deduction is allowed for certain business
meals paid or incurred after 2020 and before
2023. A special rule allows this 100% deduction
for the full meal portion of a per diem rate or al-
lowance. See 50% Limit in chapter 2 and
IRS.gov/Newsroom/IRS-Provides-Guidance-
on-Per-Diem-Rates-and-the-Temporary-100-
Percent-Deduction-for-Food-or-Beverages-
From-Restaurants for additional information.
Regular federal per diem rate method. Reg-
ular federal per diem rates are published by the
General Services Administration (GSA). Both
tables include the separate rate for M&IE for
each locality. The rates listed for FY2021 at
GSA.gov/travel/plan-book/per-diem-rates are
effective October 1, 2020, and those listed for
FY2022 are effective October 1, 2021. The
standard rate for all locations within CONUS not
specifically listed for FY2021 is $151 ($96 for
lodging and $55 for M&IE). For FY2022, this
rate increases to $155 ($96 for lodging and $59
for M&IE).
Transition Rules
The transition period covers the last 3 months
of the calendar year, from the time that new
rates are effective (generally, October 1)
through December 31. During this period, 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 sub-
stantiation method, when new rates become ef-
fective (generally, October 1) you can either
continue with the rates you used for the first part
of the year or change to the new rates. How-
ever, 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 published 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 remain in effect through Sep-
tember 30 of the following year. Employees be-
ing 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 Septem-
ber. Go to GSA.gov/travel/plan-book/per-diem-
rates.
Per diem rates for localities listed for
FY2022 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 artists, fee-basis state or
local government officials, and employees with
impairment-related work expenses. Due to the
suspension of miscellaneous itemized deduc-
tions 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 employ-
ees 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. Report your expenses on
Schedule C (Form 1040) or Schedule F
(Form 1040). See the instructions for the form
that you must file.
Car expenses. If you used a car to perform
your job as an employee, you may be able to
deduct certain car expenses. These are gener-
ally 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 deduction for the business use of a car, youCAUTION
!CAUTION
!
Chapter 6 How To Report Page 33
must answer certain questions and provide in-
formation about the use of the car. The informa-
tion relates to the following items.
• Date placed in service.
• Mileage (total, business, commuting, and
other personal 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 de-
duction based on the standard mileage rate in-
stead of your actual expenses, you must com-
plete Form 2106, Part II, Section 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 business use of the car. See Standard Mile-
age Rate in chapter 4 for information on using
this rate.
Actual expenses. If you claim a deduction
based on actual car expenses, you must com-
plete Form 2106, Part II, Section C. In addition,
unless you lease your car, you must complete
Section D to show your depreciation deduction
and any section 179 deduction you claim.
If you are still using a car that is fully depre-
ciated, continue to complete Section C. Since
you have no depreciation deduction, enter zero
on line 28. In this case, don’t complete Sec-
tion D.
Car rentals. If you claim car rental expen-
ses 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 fol-
lows.
1. Figure the inclusion amount without taking
into account your business-use percent-
age 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 expenses (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 trans-
portation expenses that didn’t involve overnight
travel on Form 2106, line 2, column A. Also in-
clude on this line business expenses you have
for parking fees and tolls. Don’t include expen-
ses of operating your car or expenses of com-
muting between your home and work.
Employee business expenses other than
nonentertainment meals. Show your other
employee business expenses on Form 2106,
lines 3 and 4, column A. Don’t include expen-
ses for nonentertainment meals on those lines.
Line 4 is for expenses such as gifts, educational
expenses (tuition and books), of-
fice-in-the-home expenses, and trade and pro-
fessional publications.
If line 4 expenses are the only ones
you are claiming, you received no reim-
bursements (or the reimbursements
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 non-
entertainment business-related meals on Form
2106, line 5, column B. Include meals while
away from your tax home overnight and other
business meals. See the Meals Deduction From
Restaurants Worksheet in the 2021 Instructions
for Form 2106 for reporting information.
“Hours of service” limits. If you are sub-
ject to the Department of Transportation's
“hours of service” limits (as explained earlier un-
der Individuals subject to “hours of service” lim-
its 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) reim-
bursed you that weren’t reported to you in box 1
of your Form W-2. This includes any amount re-
ported under code L in box 12 of Form W-2.
Allocating your reimbursement. If you
were reimbursed under an accountable plan
and want to deduct excess expenses that
weren’t reimbursed, you may have to allocate
your reimbursement. This is necessary when
your employer pays your reimbursement in the
following manner.
• Pays you a single amount that covers
non-entertainment-related meals and/or
entertainment, as well as other business
expenses.
• Doesn’t clearly identify how much is for de-
ductible 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. Rob's employer paid him an ex-
pense allowance of $12,000 this year under an
accountable plan. The $12,000 payment con-
sisted of $5,000 for airfare and $7,000 for
non-entertainment-related meals, and car ex-
penses. The employer didn’t clearly show how
much of the $7,000 was for the cost of deducti-
ble non-entertainment-related meals. Rob ac-
tually spent $14,000 during the year ($5,500 for
airfare, $4,500 for non-entertainment-related
meals, and $4,000 for car expenses).
Since the airfare allowance was clearly iden-
tified, Rob knows that $5,000 of the payment
goes in column A, line 7, of Form 2106. To allo-
cate the remaining $7,000, Rob uses the work-
sheet from the Instructions for Form 2106. His
completed worksheet follows.TIP
Reimbursement Allocation Work-
sheet
(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, Rob enters $8,297
($5,000 airfare and $3,297 of the $7,000) in col-
umn 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 per-
forming artist, an Armed Forces reservist, or a
disabled employee with impairment-related
work expenses, see Special Rules, later.
Limits on employee business expenses.
Your employee business expenses may be
subject to either of the limits described next.
They are figured in the following order on the
specified form.
1. Limit on meals and entertainment.
Certain non-entertainment-related meal expen-
ses are subject to a 50% limit. However, you
can deduct 100% of business meals if the
meals are food and beverages provided by a
restaurant and paid or incurred after 2020 and
before 2023. Generally, entertainment expen-
ses are nondeductible if paid or incurred after
December 2017. If you are an employee, you
figure this limit on line 9 of Form 2106. See the
Meals Deduction From Restaurants Worksheet
in the 2021 Instructions for Form 2106 for re-
porting information. (See 50% Limit in chap-
ter 2.)
2. Limit on total itemized deductions.
Limitations on itemized deductions are suspen-
ded for tax years beginning after 2017 and be-
fore 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 employees with impair-
ment-related work expenses. For tax years be-
ginning after 2017, they are the only taxpayers
who can use Form 2106.
Page 34 Chapter 6 How To Report
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 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
deduction. 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 Al-
lowances, 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 Uni-
ted 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 reserve 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 em-
ployee business expenses on Form 2106.
Fee-basis officials are persons who are em-
ployed by a state or local government and who
are paid in whole or in part on a fee basis. They
can deduct their business expenses in perform-
ing 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 performing arts as an employee for
at least two employers.
2. You receive at least $200 each from any
two of these employers.
3. Your related performing-arts business ex-
penses are more than 10% of your gross
income from the performance of those
services.
4. Your adjusted gross income isn’t more
than $16,000 before deducting these busi-
ness 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 return, you must
figure requirements (1), (2), and (3) separately
for both you and your spouse. However, re-
quirement (4) applies to your and your spouse's
combined adjusted gross income.
Where to report. If you meet all of the above
requirements, you should first complete Form
2106. Then you include your performing-arts-re-
lated 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 require-
ments, you don’t qualify to deduct your expen-
ses as an adjustment to gross income.
Impairment-Related Work
Expenses of Disabled Employees
If you are an employee with a physical or men-
tal disability, your impairment-related work ex-
penses aren’t subject to the 2%-of-adjus-
ted-gross-income limit that applies to most
other employee business expenses. After you
complete Form 2106, enter your impairment-re-
lated work expenses from Form 2106, line 10,
on Schedule A (Form 1040), line 16, and iden-
tify the type and amount of this expense 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 necessary for you
to be able to work.
You are disabled if you have:
• A physical or mental disability (for exam-
ple, blindness or deafness) that function-
ally limits your being employed; or
• A physical or mental impairment (for exam-
ple, a sight or hearing impairment) that
substantially limits one or more of your ma-
jor life activities, such as performing man-
ual tasks, walking, speaking, breathing,
learning, or working.
You can deduct impairment-related expen-
ses as business expenses if they are:
• Necessary for you to do your work satis-
factorily;
• For goods and services not required or
used, other than incidentally, in your per-
sonal activities; and
• Not specifically covered under other in-
come 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 regular 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 ex-
penses.
Example 2. You are deaf. You must use a
sign language interpreter during meetings while
you are at work. The interpreter's services are
used only for your work. You can deduct your
expenses for the interpreter as business expen-
ses.
How To Get Tax Help
If you have questions about a tax issue; need
help preparing your tax return; or want to down-
load free publications, forms, or instructions, go
to IRS.gov and find resources that can help you
right away.
Preparing and filing your tax return. After
receiving all your wage and earnings state-
ments (Form 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 several options to
choose from to prepare and file your tax return.
You can prepare the tax return yourself, see if
you qualify for free tax preparation, or hire a tax
professional to prepare your return.
For 2021, if you received an Economic
Impact Payment (EIP), refer to your
Notice 1444-C, Your 2021 Economic
Impact Payment. If you received Advance Child
Tax Credit payments, refer to your Letter 6419.
Free options for tax preparation. Go to
IRS.gov to see your options for preparing and
filing your return online or in your local commun-
ity, if you qualify, which include the following.
• Free File. This program lets you prepare
and file your federal individual income tax
return for free using brand-name tax-prep-
aration-and-filing software or Free File filla-
ble 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 Assis-
tance (VITA) program offers free tax help
to people with low-to-moderate incomes,
persons with disabilities, and limited-Eng-
lish-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 preparation.
• TCE. The Tax Counseling for the Elderly
(TCE) program offers free tax help for all
taxpayers, particularly those who are 60
years of age and older. TCE volunteers
specialize in answering questions about
pensions and retirement-related issues
unique to seniors. Go to IRS.gov/TCE,
download the free IRS2Go app, or call
888-227-7669 for information on free tax
return preparation.
• MilTax. Members of the U.S. Armed
Forces and qualified veterans may use Mil-
Tax, a free tax service offered by the De-
partment of Defense through Military One-
Source.CAUTION
!
Publication 463 (2021) Page 35
For more information go to,
MilitaryOneSource (MilitaryOneSource.mil/
Tax).
Using online tools to help prepare your re-
turn. 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 everyone to
pay the correct amount of tax during the
year. The tool is a convenient, online way
to check and tailor your withholding. It’s
more user-friendly for taxpayers, including
retirees and self-employed individuals. The
features include the following.
– Easy to understand language.
– The ability to switch between screens,
correct previous entries, and skip
screens that don’t apply.
– Tips and links to help you determine if
you qualify for tax credits and deduc-
tions.
– A progress tracker.
– A self-employment tax feature.
– Automatic calculation of taxable social
security benefits.
• The First Time Homebuyer Credit Account
Look-up (IRS.gov/HomeBuyer) tool pro-
vides 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 ques-
tions. On IRS.gov, get answers to your
tax questions anytime, anywhere.
• 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 As-
sistant, a tool that will ask you questions
and, based on your input, provide answers
on a number of tax law topics.
• Go to IRS.gov/Forms: Find forms, instruc-
tions, and publications. You will find details
on 2021 tax changes and hundreds of in-
teractive links to help you find answers to
your questions.
• You may also be able to access tax law in-
formation in your electronic filing software.
Need someone to prepare your tax return?
There are various types of tax return preparers,
including tax preparers, enrolled agents, certi-
fied public accountants (CPAs), attorneys, and
many others who don’t have professional cre-
dentials. If you choose to have someone pre-
pare your tax return, choose that preparer
wisely. A paid tax preparer is:
• Primarily responsible for the overall sub-
stantive accuracy of your return,
• Required to sign the return, and
• Required to include their preparer tax iden-
tification number (PTIN).
Although the tax preparer always signs the
return, you're ultimately responsible for provid-
ing all the information required for the preparer
to accurately prepare your 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.
Advance child tax credit payments. From
July through December 2021, advance pay-
ments were sent automatically to taxpayers with
qualifying children who met certain criteria. The
advance child tax credit payments were early
payments of up to 50% of the estimated child
tax credit that taxpayers may properly claim on
their 2021 returns. Go to IRS.gov/AdvCTC for
more information about these payments and
how they can affect your taxes.
Coronavirus. Go to IRS.gov/Coronavirus for
links to information on the impact of the corona-
virus, as well as tax relief available for individu-
als and families, small and large businesses,
and tax-exempt organizations.
Employers can register to use Business
Services Online. The Social Security Adminis-
tration (SSA) offers online service at SSA.gov/
employer for fast, free, and secure online 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, products, and
services. At the IRS, privacy and security are
our highest priority. We use these tools to share
public information with you. Don’t post your so-
cial security number (SSN) or other confidential
information on social media sites. Always pro-
tect your identity when using any social net-
working site.
The following IRS YouTube channels pro-
vide short, informative videos on various tax-re-
lated 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 pre-
sentations 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 lan-
guage.
Free Over-the-Phone Interpreter (OPI) Serv-
ice. The IRS is committed to serving our multi-
lingual customers by offering OPI services. The
OPI service is a federally funded program and
is available at Taxpayer Assistance Centers
(TACs), other IRS offices, and every VITA/TCE
return site. OPI service is accessible in more
than 350 languages.
Accessibility Helpline available for taxpay-
ers with disabilities. Taxpayers who need in-
formation about accessibility services can call
833-690-0598. The Accessibility Helpline can
answer questions related to current and future
accessibility products and services available in
alternative media formats (for example, braille,
large print, audio, etc.).
Getting tax forms and publications. Go to
IRS.gov/Forms to view, download, or print all of
the forms, instructions, 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. You can also download and
view popular tax publications and instructions
(including the Instructions for Form 1040) on
mobile devices as eBooks at IRS.gov/eBooks.
Note. 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 in-
tended.
Access your online account (individual tax-
payers only). Go to IRS.gov/Account to se-
curely access information about your federal tax
account.
• View the amount you owe and a break-
down by tax year.
• See payment plan details or apply for a
new payment plan.
• Make a payment or view 5 years of pay-
ment history and any pending or sched-
uled payments.
• Access your tax records, including key
data from your most recent tax return, your
EIP amounts, and transcripts.
• View digital copies of select notices from
the IRS.
• Approve or reject authorization requests
from tax professionals.
• View your address on file or manage your
communication preferences.
Tax Pro Account. This tool lets your tax pro-
fessional submit an authorization request to ac-
cess your individual taxpayer IRS online
account. For more information, go to IRS.gov/
TaxProAccount.
Using direct deposit. The fastest way to re-
ceive a tax refund is to file electronically and
choose direct deposit, which securely and elec-
tronically transfers your refund directly into your
financial account. Direct deposit also avoid the
possibility that your check could be lost, stolen,
or returned undeliverable to the IRS. Eight in 10
taxpayers use direct deposit to receive their re-
fund. 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.
Getting a transcript of your return. The
quickest way to get a copy of your tax transcript
is to go to IRS.gov/Transcripts. Click on either
"Get Transcript Online" or "Get Transcript by
Mail" to order a copy of your transcript. If you
prefer, you can order your transcript by calling
800-908-9946.
Page 36 Publication 463 (2021)
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 af-
fected if your SSN is used to file a fraudu-
lent return or to claim a refund or credit.
• The IRS doesn’t initiate contact with tax-
payers by email, text messages, telephone
calls, or social media channels to request
personal or financial information. This in-
cludes requests for personal identification
numbers (PINs), passwords, or similar in-
formation for credit cards, banks, or other
financial accounts.
• Go to IRS.gov/IdentityTheft, the IRS Iden-
tity Theft Central webpage, for information
on identity theft and data security protec-
tion for taxpayers, tax professionals, 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 eli-
gible taxpayers to help prevent the misuse
of their SSNs on fraudulent federal income
tax returns. When you have an IP PIN, it
prevents someone else from filing a tax re-
turn 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 device to check your refund status.
• Call the automated refund hotline at
800-829-1954.
Note. The IRS can’t issue refunds before
mid-February 2022 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. 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 account at no
cost to you.
• Debit or Credit Card: Choose an approved
payment processor to pay online, by
phone, and by mobile device.
• Electronic Funds Withdrawal: Schedule a
payment when filing your federal taxes us-
ing tax return preparation 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 address listed on the notice or in-
structions.
• Cash: You may be able to pay your taxes
with cash at a participating retail store.
• Same-Day Wire: You may be able to do
same-day wire from your financial institu-
tion. Contact your financial institution for
availability, cost, and cut-off times.
Note. The IRS uses the latest encryption
technology to ensure that the electronic pay-
ments 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 or-
der.
What if I can’t pay now? Go to IRS.gov/
Payments for more information about your op-
tions.
• Apply for an online payment agreement
(IRS.gov/OPA) to meet your tax obligation
in monthly installments if you can’t pay
your taxes in full today. Once you complete
the online process, you will receive imme-
diate notification of whether your agree-
ment 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 Compro-
mise program, go to IRS.gov/OIC.
Filing an amended return. You can now file
Form 1040-X electronically with tax filing soft-
ware to amend 2019 or 2020 Forms 1040 and
1040-SR. To do so, you must have e-filed your
original 2019 or 2020 return. Amended returns
for all prior years must be mailed. Go to
IRS.gov/Form1040X for information and up-
dates.
Checking the status of your amended re-
turn. Go to IRS.gov/WMAR to track the status
of Form 1040-X amended returns.
Note. It can take up to 3 weeks from the
date you filed your amended return for it to
show up in our system, and processing it can
take up to 16 weeks.
Understanding an IRS notice or letter. Go to
IRS.gov/Notices to find additional information
about responding to an IRS notice or letter.
You can use Schedule LEP, Request for
Change in Language Preference, to state a
preference to receive notices, letters, or other
written communications from the IRS in an al-
ternative language, when these are available.
Once your Schedule LEP is processed, the IRS
will determine your translation needs and pro-
vide you translations when available. If you
have a disability requiring notices in an accessi-
ble format, see Form 9000.
Contacting your local IRS office. Keep in
mind, many questions can be answered on
IRS.gov without visiting an IRS Taxpayer Assis-
tance Center (TAC). Go to IRS.gov/LetUsHelp
for the topics people ask about most. If you still
need help, IRS 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 advance that you can get the
service you need without long wait times. Be-
fore you visit, go to IRS.gov/TACLocator to find
the nearest TAC, check hours, available serv-
ices, and appointment options. Or, on the
IRS2Go app, under the Stay Connected tab,
choose the Contact Us option and click on “Lo-
cal 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. Their job is to ensure that every taxpayer
is treated fairly and that you know and under-
stand 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 every-
thing 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. Your local advo-
cate’s number is in your local directory and at
TaxpayerAdvocate.IRS.gov/Contact-Us. You
can also call them 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 them at IRS.gov/
SAMS.
TAS for Tax Professionals
TAS can provide a variety of information for tax
professionals, including tax law updates and
guidance, TAS programs, and ways to let TAS
know about systemic problems you’ve seen in
your practice.
Low Income Taxpayer
Clinics (LITCs)
LITCs are independent from the IRS. LITCs
represent individuals whose income is below a
certain level and need to resolve tax problems
with the IRS, such as audits, appeals, and tax
Publication 463 (2021) Page 37
collection disputes. In addition, clinics can pro-
vide information about taxpayer rights and re-
sponsibilities in different languages for individu-
als who speak English as a second language.
Services are offered for free or a small fee for
eligible taxpayers. To find an LITC near you, go
to TaxpayerAdvocate.IRS.gov/about-us/Low-
Income-Taxpayer-Clinics-LITC or see IRS Pub.
4134, Low Income Taxpayer Clinic List.
Page 38 Publication 463 (2021)
Appendices
Appendix A-1 shows the lease in-
clusion amounts that you may
need to report if you first leased a
car (other than a truck or van) in
years prior to 2018 for 30 days or
more. The tables are numbered.
Appendix B-1 shows the lease
inclusion amounts that you may
need to report if you first leased a
truck or van in years prior to 2018.
Appendices C-1 through C-4
show the lease inclusion amounts
that you may need to report if you
first leased a passenger automo-
bile (including a truck and van) in
2018 through 2021 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 chapter 4.)
Publication 463 (2021) Page 39
Appendix A-1. Inclusion Amounts for Cars (Other Than Trucks and Vans) First Leased in 2017
Fair Market Value Tax Year of Lease1
Over Not Over 1st 2nd 3rd 4th 5th and Later
$19,000 $19,500 $6 $14 $20 $23 $27
19,500 20,000 7 16 23 27 31
20,000 20,500 8 18 26 30 35
20,500 21,000 9 20 28 35 39
21,000 21,500 10 21 32 38 44
21,500 22,000 11 23 35 42 47
22,000 23,000 12 27 39 47 53
23,000 24,000 14 31 45 54 62
24,000 25,000 16 34 52 61 70
25,000 26,000 18 38 58 68 78
26,000 27,000 19 43 63 75 87
27,000 28,000 21 47 69 82 95
28,000 29,000 23 51 75 89 103
29,000 30,000 25 55 80 97 112
30,000 31,000 27 58 87 104 120
31,000 32,000 29 62 93 111 128
32,000 33,000 30 67 99 118 136
33,000 34,000 32 71 104 126 144
34,000 35,000 34 75 110 133 152
35,000 36,000 36 79 116 140 160
36,000 37,000 38 82 123 147 169
37,000 38,000 40 86 129 154 177
38,000 39,000 41 91 134 161 186
39,000 40,000 43 95 140 168 194
40,000 41,000 45 99 146 175 202
41,000 42,000 47 103 152 182 210
42,000 43,000 49 106 159 189 218
43,000 44,000 50 111 164 197 226
44,000 45,000 52 115 170 204 234
45,000 46,000 54 119 176 211 243
46,000 47,000 56 123 182 218 251
47,000 48,000 58 127 187 225 260
48,000 49,000 60 130 194 232 268
49,000 50,000 61 135 200 239 276
50,000 51,000 63 139 206 246 284
51,000 52,000 65 143 211 254 292
52,000 53,000 67 147 217 261 301
53,000 54,000 69 151 223 268 309
54,000 55,000 70 155 229 275 318
55,000 56,000 72 159 235 282 326
56,000 57,000 74 163 241 289 334
57,000 58,000 76 167 247 296 342
58,000 59,000 78 171 253 303 350
59,000 60,000 80 174 260 310 359
60,000 62,000 82 181 268 321 371
62,000 64,000 86 189 280 335 387
64,000 66,000 90 197 292 349 404
66,000 68,000 93 205 304 364 420
68,000 70,000 97 213 315 379 436
70,000 72,000 101 221 327 393 453
72,000 74,000 104 229 339 407 470
74,000 76,000 108 237 351 421 486
76,000 78,000 111 245 363 436 502
78,000 80,000 115 253 375 450 518
80,000 85,000 122 267 396 474 548
85,000 90,000 131 287 425 511 588
90,000 95,000 140 307 455 546 630
95,000 100,0002 149 327 485 581 671
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. 2017-29 (2017-14 I.R.B. 1065), available at IRS.gov/irb/2017-14_IRB#RP-2017-29.
Page 40 Publication 463 (2021)
Appendix B-1. Inclusion Amounts for Trucks and Vans First Leased in 2017
Fair Market Value Tax Year of Lease1
Over Not Over 1st 2nd 3rd 4th 5th and Later
$19,500 $20,000 $4 $8 $11 $13 $16
20,000 20,500 4 10 14 17 20
20,500 21,000 5 12 17 21 23
21,000 21,500 6 14 20 24 28
21,500 22,000 7 16 23 28 32
22,000 23,000 9 19 27 33 38
23,000 24,000 10 23 34 40 46
24,000 25,000 12 27 39 48 54
25,000 26,000 14 31 45 55 62
26,000 27,000 16 35 51 62 71
27,000 28,000 18 39 57 69 79
28,000 29,000 19 43 63 76 88
29,000 30,000 21 47 69 83 96
30,000 31,000 23 51 75 90 104
31,000 32,000 25 55 81 97 112
32,000 33,000 27 59 87 104 120
33,000 34,000 29 63 93 111 129
34,000 35,000 30 67 99 119 136
35,000 36,000 32 71 105 126 145
36,000 37,000 34 75 111 133 153
37,000 38,000 36 79 117 140 161
38,000 39,000 38 83 122 148 169
39,000 40,000 40 87 128 155 177
40,000 41,000 41 91 135 161 186
41,000 42,000 43 95 141 168 194
42,000 43,000 45 99 146 176 203
43,000 44,000 47 103 152 183 211
44,000 45,000 49 107 158 190 219
45,000 46,000 50 111 165 196 228
46,000 47,000 52 115 170 204 236
47,000 48,000 54 119 176 211 244
48,000 49,000 56 123 182 218 252
49,000 50,000 58 127 188 225 261
50,000 51,000 60 131 194 232 269
51,000 52,000 61 135 200 240 277
52,000 53,000 63 139 206 247 285
53,000 54,000 65 143 212 254 293
54,000 55,000 67 147 218 261 301
55,000 56,000 69 151 224 268 309
56,000 57,000 70 155 230 275 318
57,000 58,000 72 159 236 282 326
58,000 59,000 74 163 242 289 335
59,000 60,000 76 167 248 296 343
60,000 62,000 79 173 256 308 355
62,000 64,000 82 181 269 321 372
64,000 66,000 86 189 280 336 388
66,000 68,000 90 197 292 350 404
68,000 70,000 93 205 304 365 420
70,000 72,000 97 213 316 379 437
72,000 74,000 101 221 328 393 453
74,000 76,000 104 229 340 407 470
76,000 78,000 108 237 352 421 487
78,000 80,000 111 245 364 436 503
80,000 85,000 118 259 384 461 532
85,000 90,000 127 279 414 497 573
90,000 95,000 136 299 444 532 614
95,000 100,0002 145 319 474 567 656
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. 2017-29 (2017-14 I.R.B. 1065), available at IRS.gov/irb/2017-14_IRB#RP-2017-29.
Publication 463 (2021) Page 41
Appendix C-1. Inclusion Amounts for Passenger Automobiles First Leased in 2018
Fair Market Value Tax Year of Lease1
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
95,000 100,0002 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 IRS.gov/irb/2018-18_IRB#REV-PROC-2018-25.
Appendix C-2. Inclusion Amounts for Passenger Automobiles First Leased in 2019
Fair Market Value Tax Year of Lease1
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
95,000 100,0002 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 IRS.gov/irb/2019-24_IRB#REV-PROC-2019-26.
Page 42 Publication 463 (2021)
Appendix C-3. Inclusion Amounts for Passenger Automobiles First Leased in 2020
Fair Market Value Tax Year of Lease1
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
95,000 100,0002 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 IRS.gov/irb/2020-33_IRB#REV-PROC-2020-37.
Appendix C-4. Inclusion Amounts for Passenger Automobiles First Leased in 2021
Fair Market Value Tax Year of Lease1
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
95,000 100,0002 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 IRS.gov/irb/2021-34_IRB#REV-PROC-2021-31.
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
Publication 463 (2021) Page 43
"Hours of service" limits 12
Form 2106 34
50% limit on meals 5
A
Accountable plans 29–32
Accounting to employer 29
Adequate accounting 30
Independent contractors 33
Adequate records 24
Advertising:
Car display 14
Expenses 12
Signs, display racks, or other
promotional material to be
used on recipient's business
premises 13
Airline clubs 10
Allocating costs 5, 26
Allowance (See Reimbursements)
Armed forces:
Assigned overseas 3
Assistance (See Tax help)
Athletic clubs 10
B
Basis of car 17
(See also Depreciation of car)
Bona fide business purpose 5
Business travel 6
Outside U.S. 7
Business use of car 15
More-than-50%-use test. 18
Qualified business use 18
C
Canceled checks:
As evidence of business
expenses 25
Car, defined 16
Car, truck, or van rentals 22, 23
Car expenses 14–23
Actual expenses 15
Allowances for 30–32
Business and personal use 15
Combining expenses 25
Disposition of car 24
Fixed and variable rate (FAVR)
allowance 30
Form 2106 33
Leasing a car, truck, or
van 22, 23
Mileage rate (See Standard
mileage rate)
Taxes paid on car 15
Traffic tickets 15
Car pools 14
Car rentals 23
Form 2106 34
Casualty and theft losses:
Cars 15
Depreciation 24
Club dues 10
Commuting expenses 14
Conventions 9
Country clubs 10
Cruise ships 9
D
Daily business mileage and
expense log (Table 6-2) 26
Depreciation of car 15
(See also Section 179 deductions)
Depreciation of Car:
Adjustment for using standard
mileage rate 24
Basis:
Sales taxes 15
Unrecovered basis 21
Casualty or theft, effect 24
Deduction 15, 24
Excess depreciation 21
Modified Accelerated Cost
Recovery System
(MACRS) 19
Section 179 deduction 20
Trade-in, effect 18, 24
Trucks and vans 20
Disabled employees:
Impairment-related work
expenses 35
Documentary evidence 25
E
Employer-provided vehicles 15
Reporting requirements 28
Entertainment expenses 13
50% limit:
Determination of
applicability (Figure
A) 11
Entertainment, defined 10
Form 2106 34
Estimates of expenses 24
Exceptions to the 50% Limit 12
Excess
reimbursements (See Reimbu
rsements)
F
Fair market value of car 23
Farmers:
Form 1040, Schedule F 28
Federal crime investigations or
prosecutions:
Federal employees engaged
in 4
Federal rate for per diem 6, 30
Fee-basis officials 35
Fees you pay 14
Fixed and variable rate (FAVR)
allowance 30
Form 1040, Schedule C 28
Form 1040, Schedule F 28
Form 2106 17, 28, 32, 33
Form 4562 28
Form 4797 21
Form W-2:
Employer-provided
vehicles 28
Reimbursement of personal
expenses 28
Statutory employees 28
G
Gifts 10, 13
$25 limit 13
Combining for recordkeeping
purposes 26
Reporting requirements 28
Golf clubs 10
H
Hauling tools 14
High-low method:
Introduction 33
Transition rules 33
High-low rate method 30
Home office 14
Hotel clubs 10
I
Identity theft 37
Impairment-related work
expenses 35
Incidental expenses:
Defined 6
Gifts 13
No meals, incidentals only 6
Income-producing property 28
Incomplete records 25
Indefinite job assignment 4
Independent contractors 32
Interest on car loans 15
Itinerants 3
L
Leasing a car, truck, or van 22,
Luxury water travel 9
M
MACRS (Modified Accelerated
Cost Recovery System) 19
2021 chart (Table 4-1) 22
Main place of business or
work 3
Married taxpayers:
Performing artists 35
Meal expenses 5
50% limit 11
Determination of
applicability (Figure
A) 11
Exceptions 12
Actual cost method 5
Form 2106 34
Major cities with higher
allowances 6
Standard meal allowance 5, 6,
Meals and Entertainment
expenses 10
Mileage rate (See Standard
mileage rate)
Military (See Armed forces)
Missing children, photographs
of 2
Modified Accelerated Cost
Recovery System
(MACRS) 19
2021 chart (Table 4-1) 22
N
Nonaccountable plans 32
O
Office in the home 14
Officials paid on fee basis 35
Overseas travel:
Conventions 9
Meal allowance 6
Part of trip outside U.S. 7
P
Parking fees 14, 15
Per diem allowances 30–32
Defined 29
Federal rate for 30
Per diem rates:
High-cost localities 33
High-low method 33
Regular federal method 33
Standard rate for unlisted
localities 33
Transition rules 33
Performing artists 35
Personal property taxes 15
Personal trips 7
Outside U.S. 8
Placed in service, cars 17
Probationary work period 4
Proving business purpose 25
Publications (See Tax help)
Public transportation:
Outside of U.S. travel 7
R
Recordkeeping
requirements 24–28
Adequate records 24
Daily business mileage and
expense log (Table 6-2) 26
Destroyed records 25
How to prove expenses
(Table 5-1) 26
Incomplete records 25
Reimbursed expenses 26
Sampling to prove
expenses 25
Separating and combining
expenses 25, 26
Three-year period of
retention 26
Weekly travel expense and
entertainment record
(Table 6-3) 27
Regular federal method:
Introduction 33
Transition rules 33
Reimbursements 29–33
Accountable plans 29
Excess 32
Form 2106 34
Nonaccountable plans 32
Nondeductible expenses 29
Page 44 Publication 463 (2021)
Reimbursements (Cont.)
Personal expenses 28
Recordkeeping 26
Reporting (Table 6-1) 31
Unclaimed 28
Reporting requirements 28
Per diem or car allowance 31
Reimbursements 29–33
Reservists:
Transportation expenses 14
Traveling more than 100 miles
from home 35
Returning excess
reimbursements 32
S
Section 179 deduction:
Amended return 17
Deduction 16
Limits 16
Self-employed persons 12
Reporting requirements 28
Spouse, expenses for 5
Standard meal allowance 5, 6,
Standard mileage rate 2, 14, 30
Depreciation adjustment for
using 24
Form 2106 34
Statutory employees 28
T
Tables and figures 26
50% limit determination (Figure
A) 11
Maximum depreciation
deduction for cars placed in
service prior to 2018
table 20
Maximum depreciation
deduction for Passenger
Automobiles (Including
Trucks and Vans) acquired
after September 27, 2017,
and placed in service during
2018 or later 20
Maximum depreciation
deduction for Passenger
Automobiles (Including
Trucks and Vans) acquired
before September 28, 2017,
and placed in service during
2018–2021 20
Modified Accelerated Cost
Recovery System (MACRS)
2021 chart (Table 4-1) 22
Proving expenses
(Table 5-1) 26
Reporting reimbursements
(Table 6-1) 31
Transportation expenses,
determination of
deductibility (Figure B) 13
Travel expenses, determination
of deductibility
(Table 1-1) 5
Weekly travel expense and
entertainment record
(Table 6-3) 27
Tax help 35
Tax home, determination of 3
Temporary job assignments 4
Temporary work location 13
Tickets:
Traffic violations 15
Tools:
Hauling tools 14
Trade-in of car 18, 24
Traffic tickets 15
Transients 3
Transition rules 33
Example:
High-low method 33
High-low method 33
Regular federal method 33
Transportation expenses 13–24
Car expenses 14–23
Deductible (Figure B) 13
five or more cars 15
Form 2106 34
Transportation workers 6, 12
Travel advance 29, 32
(See also Reimbursements)
Travel expenses 3–10
Another individual
accompanying taxpayer 5
Away from home 3, 4
Deductible 4, 10
Summary of (Table 1-1) 5
Defined 3
Going home on days off 4
In U.S. 6
Lodging 6
Luxury water travel 9
Outside U.S. 7
Travel to family home 4
Trucks and vans:
Depreciation 20
Transportation workers 12
Transportation workers'
expenses 6
Two places of work 14
U
Unclaimed reimbursements 28
Unions:
Trips from union hall to place of
work 14
Unrecovered basis of car 21
V
Volunteers 2
W
Weekly travel expense and
entertainment record
(Table 6-3) 27
Publication 463 (2021) Page 45