Transportation expenses are the ordinary and necessary expenses of getting
from one workplace to another in the course of your work when you are not
traveling away from home. Expenses for transportation while traveling away
from home may be deductible as travel expenses found below. Generally,
transportation expenses are all of the expenses associated with local
transportation for business purposes (excluding commuting), while travel
expenses are all of the expenses associated with travel (including meals and
lodging) while away from home overnight for business purposes.
COMMUTING EXPENSES
Commuting between home and one's place of employment is a personal, nondeductible
expense. It does not matter if you do work in your car on the way to
work and even if the pastor is required to make more than one round trip
between home and work in one day, it is still commuting expenses. Examples
from "Church and Clergy Tax Guide".
Trips between church and a second "business" location:
The pastor leaves the church to visit someone in the local hospital. These
trips from the church to a second business location are business related
expenses which may be reimbursed by the church.
Trips between a second "business" location and home:
The pastor travels from church to a hospital to make a call and then goes
directly home from the hospital. The miles from the church to the hospital
are business related but the miles from the hospital to the pastor's home
are non-deductible commuting expenses.
Trips between home and a temporary business location:
The pastor is requested to perform a funeral or wedding in another city.
The IRS ruled in 1990 that these trips are legitimate business activities
rather than commuting.
Trips between home and a hospital:
When a pastor travels from home to a hospital the expenses are generally
non-deductible commuting expenses; however, under Rev. Rul. 90-23 if
the visits to the hospital are irregular, such visits are deductible. The trip
from the hospital to the church is deductible in both cases.
COMPUTATION OF AUTOMOBILE EXPENSES
A tax payer has two choices of computing automobile expenses: (1) the mileage
method, or (2) the actual operating costs, which includes depreciation, gas, oil,
repairs., licenses, and insurance. Records must be kept and details of the
automobile's personal and business use. Only the percentage allocated to
business transportation and travel is allowed as a deduction. The complex rules
for the computation of depreciation apply. See attached forms.
METHOD 1 - STANDARD MILEAGE METHOD
Use of this method is the simpler method. For 2000, the IRS deduction is
based on .325 cents per mile for all business miles, plus parking fees and
tolls. If you elect to use this method of computing your transportation
expenses, the amount of your automobile expenses is treated as
substantiated, provided you show the time, place, and business purpose
of your travel.
METHOD 2 - ACTUAL COST METHOD
You may compute your transportation expenses by using your actual
costs incurred in operating a car for business purposes. There is much
more work involved. If you use your car both for business and personal
purposes, you must divide your expenses between business and personal
use. The purchase cost of a car is allocated over the useful life of the
vehicle, and an annual depreciation deduction may be claimed each year.
It is suggested that professional advise be obtained to use this method.
LEASING A CAR
If you lease a car you may deduct the part of your lease payments that are for
the use of the car in your work. You cannot deduct any part of the lease
payments that are for commuting or for other personal use of the car. You must
spread any advance payments over the entire lease period. You may not deduct
any payments you make to buy a car even if the payments are called lease
payments. You may have to include in your gross income an amount called an
"inclusion" amount if you leased a car in 1994 that had a fair market value
exceeding $14,700 (see luxury car limits).
EMPLOYER-PROVIDED CARS
If a church purchases an automobile and adopts a resolution restricting the use
of the car to church-related activities, then the church's minister reports no
income or deductions. There are no accounting, reimbursements, allowances, or
record keeping requirements. This assumes that the car is used exclusively for
church-related purposes. There are five stringent conditions that must be
satisfied and the church must prove to the IRS that they have been met. If the
church allowed its minister to commute in a church-owned vehicle, the preceding
advantages would not be available. However, a church-owned vehicle exclusively
used for business purposes, except for commuting, could receive many of the
benefits associated with the business use of a church-owned vehicle. The
minister's personal use of the car is a taxable non-cash fringe benefit and the
church must determine the actual value of this fringe benefit so that it can be
included in the minister's income and reported on his/her W-2 or 1099 form.
TRAVEL EXPENSES
DEFINITION OF TRAVEL EXPENSES
Travel expenses include transportation expenses and meals and lodging while
away from home in the pursuit of a trade or business. Meals cannot be lavish or
extravagant under the circumstances. Transportation expenses, as discussed
above, are deductible even though the taxpayer is not away from home. A
deduction for travel expenses is available only if the taxpayer is away from
his/her tax home. Travel expenses also include reasonable laundry and incidental
expenses.
AWAY FROM HOME REQUIREMENT
A crucial test for the deductibility of travel expenses is whether or not the
employee is away from home overnight. "Overnight" need not be a twenty-four
period, but it must be a period substantially longer than an ordinary day's work
and must require rest, sleep, or relief from work. A one day business trip is not
travel, and meals and lodging for such a trip are not deductible. Examples:
• Reverend Doright conducts a funeral service for a member of his
congregation and travels to another city. He leaves at 7:00 a.m. and
returns home at 6:00 p.m. His expenses are not travel expenses.
• Reverend Doright conducts a funeral service for a member of his
congregation and travels to another city. He leaves at 7:00 a.m. and
returns home at 11:00 a.m. on the following day. Since this trip was
overnight, the car, meals and lodging expenses are travel expenses.
PER DEIM UNDER ACCOUNTABLE PLANS
Instead of providing a straight reimbursement for substantiated out-of-pocket
travel expenses, an employer may provide a per diem allowance to cover meals,
lodgings, and incidental expenses on business trips away from home. (Rev.
Procedure 89-67 and 93-50). The rules are complex and the employer and
employee must be aware of many rules.
RESTRICTIONS ON DOMESTIC TRAVEL EXPENSES (INCLUDING CRUISE SHIPS)
Business - For travel expenses to be fully deductible, the business trip must be
entirely related to the taxpayer's trade or business.
Pleasure (personal) - If your trip was primarily personal, you may not deduct any
travel expenses even if you have some business activity at your destination.
Your may deduct expenses related to the conduct of business.
Combined Business and Pleasure Travel - If the business/pleasure trip is from
one point in the US to another point in the US, the transportation expenses are
deductible only if the trip is primarily for business. If the trip is primarily for
pleasure, no transportation expenses can be taken as a deduction. Meals,
lodgings, and other expenses must be allocated between business and personal
days.