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:

• IRS.gov (English) 

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• IRS.gov/Vietnamese (Tiếng Việt) 

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 allowance. See Exception to the 50% Limit for 

Meals in chapter 2 for more information.

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. 

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 depreciation for vehicles acquired before September 

28, 2017, is no longer allowed if placed in service after 2019. The first-year limit on depreciation, special depreciation allowance, 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 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 property placed in service during the tax year exceeds $2,620,000. Section 179 deduction is explained in chapter 4.

Also, the maximum section 179 expense deduction for sport utility vehicles placed in service 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). Photographs 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 necessary expense is one that is helpful and appropriate for your business. An expense doesn’t have 

to be required to be considered necessary.

This publication explains:

• What expenses are deductible,

• How to report them on your return,

• What records you need to prove your expenses, and

• How to treat any expense reimbursements 

you may receive.

Who should use this publication. You 

should read this publication if you are an employee or a sole proprietor who has business-related travel, non-entertainment-related 

meals, gift, or transportation expenses.

Users of employer-provided vehicles. If 

an employer-provided vehicle was available for 

your use, you received a fringe benefit. Generally, your employer must include the value of 

the use or availability of the vehicle in your income. However, there are exceptions if the use 

of the vehicle qualifies as a working condition 

fringe benefit (such as the use of a qualified 

nonpersonal use vehicle).

A working condition fringe benefit is any 

property or service provided to you by your employer, the cost of which would be allowable as 

an employee business 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 expenses that your employer didn’t provide or reimburse you for (such as when you pay for gas 

and maintenance for a car your employer provides), see Vehicle Provided by Your Employer 

in chapter 6.

Who doesn’t need to use this publication. 

Partnerships, corporations, trusts, and employers 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 deducting travel, meals, and entertainment expenses.

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 reimbursements on your return. If you would like more information on reimbursements and accounting to 

your employer, see chapter 6.

If you meet these conditions and your 

employer included reimbursements on 

your Form W-2 in error, ask your employer for a corrected Form W-2.

Volunteers. If you perform services as a 

volunteer worker for a qualified charity, you may 

be able to deduct some of your costs as a charitable contribution. See Out-of-Pocket Expenses 

in Giving Services in Pub. 526, Charitable Contributions, for information on the expenses you 

can deduct.

Comments and suggestions. We welcome 

your 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 publications. 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 Interactive Tax Assistant page at IRS.gov/ 

Help/ITA where you can find topics by using the 

search feature or viewing the categories listed.

Getting tax forms, instructions, and publications. Go to IRS.gov/Forms to download 

current and prior-year forms, instructions, and 

publications.

Ordering tax forms, instructions, and 

publications. Go to IRS.gov/OrderForms to 

order current forms, instructions, and publications; call 800-829-3676 to order prior-year 

forms and instructions. The IRS will process 

your order for forms and publications as soon 

as possible. Don’t resubmit requests you’ve already sent us. You can get forms and publications faster online.

Useful Items

You may want to see:

Publication

535 Business Expenses

946 How To Depreciate Property

Form (and Instructions)

Schedule A (Form 1040) Itemized 

Deductions

TIP

 535

 946

 Schedule A (Form 1040)

Page 2 Publication 463 (2021)
Profit or Loss 

From Business

Profit or Loss 

From Farming

Employee Business Expenses

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 convention 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 necessary expense is one that is helpful and appropriate for your business. An expense doesn’t 

have to be required to be considered necessary.

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 demands of your work while away from 

home.

This rest requirement isn’t satisfied by merely 

napping in your car. You don’t have to be away 

from your tax home for a whole day or from 

dusk to dawn as long as your relief from duty is 

long enough to get necessary sleep or rest.

Example 1. You are a railroad conductor. 

You leave your home terminal on a regularly 

scheduled round-trip run between two cities 

and return home 16 hours later. During the run, 

you have 6 hours off at your turnaround point 

where you eat two meals and rent a hotel room 

 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 turnaround 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 permanent duty assignment overseas, you aren’t traveling away from home. You can’t deduct your 

expenses for meals and lodging. You can’t deduct these expenses even if you have to maintain a home in the United States for your family 

members who aren’t allowed to accompany you 

overseas. If you are transferred from one permanent duty station to another, you may have 

deductible moving expenses, which are explained 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 location 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 includes the entire city or general area in which 

your business or work is located.

If you have more than one regular place of 

business, your tax home is your main place of 

business. See Main place of business or work, 

later.

If you don’t have a regular or a main place of 

business because of the nature of your work, 

then your tax home may be the place where you 

regularly live. See No main place of business or 

work, later.

If you don’t have a regular or main place of 

business or post of duty and there is no place 

where you regularly live, you are considered an 

itinerant (a transient) and your tax home is 

wherever you work. As an itinerant, you can’t 

claim a travel expense deduction because you 

are never considered to be traveling away from 

home.

Main place of business or work. If you have 

more than one place of work, consider the following when 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 business or work, use the following three factors to 

determine where your tax home is.

1. You perform part of your business in the 

area of your main home and use that 

home for lodging while doing business in 

the area.

2. You have living expenses at your main 

home that you duplicate because your 

business requires you to be away from 

that home.

3. You haven’t abandoned the area in which 

both your historical place of lodging and 

your claimed main home are located; you 

have a member or members of your family 

living at your main home; or you often use 

that home for lodging.

If you satisfy all three factors, your tax home 

is the home where you regularly live. If you satisfy only two 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 Boston in an apartment you rent. You have worked 

for your employer in Boston for a number of 

years. Your employer enrolls you in a 12-month 

executive training program. You don’t expect to 

return to work in Boston after you complete your 

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) because you had duplicate living expenses. You 

also satisfy factor (3) because you didn’t abandon your apartment in Boston as your main 

home, you kept your community contacts, and 

you frequently returned to live in your apartment. Therefore, you have a tax home in Boston.

Example 2. You are an outside salesperson with a sales territory covering several 

states. Your employer's main office is in Newark, but you don’t conduct any business there. 

Your work assignments are temporary, and you 

have no way of knowing where your future assignments 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 sister for the use of the room.

Chapter 1 Travel Page 3
You don’t satisfy any of the three factors listed earlier. You are an itinerant and have no tax 

home.

Tax Home Different From 

Family Home

If you (and your family) don’t live at your tax 

home (defined earlier), you can’t deduct the 

cost of traveling between your tax home and 

your family home. You also can’t 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 employed by a trucking firm that has its terminal in 

Phoenix. At the end of your long runs, you return to your home terminal in Phoenix and 

spend one night there before returning home. 

You can’t deduct any expenses you have for 

meals and lodging in Phoenix or the cost of 

traveling from Phoenix to Tucson. This is because Phoenix is your tax home.

Example 2. Your family home is in Pittsburgh, where you work 12 weeks a year. The 

rest of the year you work for the same employer 

in Baltimore. In Baltimore, you eat in restaurants 

and sleep in a rooming house. Your salary is 

the same whether you are in Pittsburgh or Baltimore.

Because you spend most of your working 

time and earn most of your salary in Baltimore, 

that city is your tax home. You can’t deduct any 

expenses you have for meals and lodging 

there. However, when you return to work in 

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 assignment. 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 otherwise qualify for deduction. Generally, a temporary 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 indefinite, the location of the assignment or job becomes your new tax home and you can’t deduct 

your travel expenses while there. An assignment or job in a single location is considered indefinite if it is realistically expected to last for 

more than 1 year, whether or not it actually lasts 

for more than 1 year.

If your assignment is indefinite, you must include in your income any amounts you receive 

from your employer for living expenses, even if 

they are called “travel allowances” and you account to your employer for them. You may be 

able to deduct the cost of relocating to your new 

tax home as a moving expense. See Pub. 521 

for more information.

For tax years beginning after December 2017 and before January 2026, the 

deduction of certain moving expenses 

is suspended for nonmilitary taxpayers. In order 

to deduct certain moving expenses, you must 

be an active member of the military and moving 

due to a permanent change of duty station.

Exception for federal crime investigations 

or prosecutions. If you are a federal employee participating in a federal crime investigation or prosecution, you aren’t subject to the 

1-year rule. This means you may be able to deduct travel expenses even if you are away from 

your tax home for more than 1 year provided 

you meet the other requirements for deductibility.

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 support services for the investigation or prosecution 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 otherwise. An assignment or job that is initially temporary may become indefinite due to changed 

circumstances. A series of assignments to the 

same location, all for short periods but that together cover a long period, may be considered 

an indefinite 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 construction project in Fresno. Your job was scheduled 

to end in 8 months. The job actually lasted 10 

months.

You realistically expected the job in Fresno 

to last 8 months. The job actually did last less 

than 1 year. The job is temporary and your tax 

home is still in Los Angeles.

Example 2. The facts are the same as in 

Example 1, except that you realistically expected the work in Fresno to last 18 months. The 

job was actually completed in 10 months.

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 expenses 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 expected the work in Fresno to last 9 months. After 8 

months, however, you were asked to remain for 

7 more months (for a total actual stay of 15 

months).

Initially, you realistically expected the job in 

Fresno to last for only 9 months. However, due 

to changed circumstances occurring after 8 

months, it was no longer realistic for you to expect that the job in Fresno would last for 1 year 

or less. You can deduct only your travel expenses for the first 8 months. You can’t deduct any 

travel expenses you had after that time because 

Fresno became your tax home when the job became indefinite.

Going home on days off. If you go back to 

your tax home from a temporary assignment on 

your days off, you aren’t considered away from 

home while you are in your hometown. You 

can’t deduct the cost of your meals and lodging 

there. However, you can deduct your travel expenses, including meals and lodging, while 

traveling between your temporary place of work 

and your tax home. You can claim these expenses up to the amount it would have cost you to 

stay at your temporary place of work.

If you keep your hotel room during your visit 

home, you can deduct the cost of your hotel 

room. In addition, you can deduct your expenses of returning home up to the amount you 

would have spent for meals had you stayed at 

your temporary place of work.

Probationary work period. If you take a job 

that requires you to move, with the understanding that you will keep the job if your work is satisfactory during a probationary period, the job is 

indefinite. You can’t deduct any of your expenses for meals and lodging during the probationary period.

What Travel Expenses 

Are Deductible?

Once you have determined that you are traveling away from your tax home, you can determine what travel expenses are deductible.

You can deduct ordinary and necessary expenses you have when you travel away from 

home on business. The type of expense you 

can deduct depends on the facts and your circumstances.

Table 1-1 summarizes travel expenses you 

may be able to deduct. You may have other deductible travel expenses that aren’t covered 

there, depending on the facts and your circumstances.

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 advances you receive from your employer. You can 

use a log, diary, notebook, or any other written 

record to keep track of your expenses. The 

types of expenses you need to record, along 

with supporting documentation, are described 

in Table 5-1 (see chapter 5).

Separating costs. If you have one expense 

that includes the costs of non-entertainment-related meals, entertainment, and other services 

(such as lodging or transportation), you must allocate that expense between the cost of 

non-entertainment-related meals, and entertainment and the cost of other services. You must 

have a reasonable basis for making this allocation. For example, you must allocate your expenses if a hotel includes one or more meals in 

its room charge.

Travel expenses for another individual. If a 

spouse, dependent, or other individual goes 

with you (or your 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 expenses 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 associate 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 reasonably expect to actively conduct business. A 

business associate can be a current or prospective (likely to become) customer, client, 

supplier, employee, agent, partner, or professional advisor.

Bona fide business purpose. A bona fide 

business purpose exists if you can prove a real 

business purpose for the individual's presence. 

Incidental services, such as typing notes or assisting in entertaining customers, aren’t enough 

to make the expenses deductible.

Example. Jerry drives to Chicago on business and takes his wife Linda with him. Linda 

isn’t Jerry's employee. Linda occasionally types 

notes, performs similar services, and accompanies Jerry to luncheons and dinners. The performance 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 Chicago, 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 necessary for you to stop for substantial sleep or rest 

to properly perform your duties while traveling 

away from home on business. Meal and entertainment expenses are discussed in chapter 2.

Lavish or extravagant. You can't deduct expenses for meals that are lavish or extravagant. 

An expense isn't considered lavish or extravagant if it is reasonable based on the facts and 

circumstances. Meal expenses won't be disallowed 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-PerDiem-Rates-and-the-Temporary-100-PercentDeduction-for-Food-or-Beverages-FromRestaurants 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 accountable and nonaccountable plans.

Actual Cost

You can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50% deduction limit. If you use this method, you must keep 

records of your actual cost.

Standard Meal Allowance

Generally, you can use the “standard meal allowance” method as an alternative to the actual 

cost method. It allows you to use a set amount 

for your daily meals and incidental expenses 

(M&IE), instead of keeping records of your actual costs. The set amount varies depending on 

where and when you travel. In this publication, 

“standard meal allowance” refers to the federal 

rate for M&IE, 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 expenses” means fees and tips given to porters, 

baggage carriers, hotel staff, and staff on ships.

Incidental expenses don’t include expenses 

for laundry, cleaning and pressing of clothing, 

lodging taxes, costs of telegrams or telephone 

calls, transportation between 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 billings.

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 allowance. This method is subject to the proration 

rules for partial days. See Travel for days you 

depart and return, later, in this chapter.

Note. The incidental-expenses-only 

method isn’t subject to the 50% limit discussed 

below.

Federal employees should refer to the 

Federal Travel Regulations at GSA.gov 

for changes affecting claims for reimbursement.

50% limit may apply. If you use the standard 

meal allowance method for non-entertainment-related meal expenses and you aren’t reimbursed or you are reimbursed under a nonaccountable 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 allowance. Your allowable lodging expense deduction is your actual cost.

Who can use the standard meal allowance.

You can use the standard meal allowance 

whether you are an 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 medical or charitable purposes.

Amount of standard meal allowance. The 

standard meal allowance is the federal M&IE 

CAUTION

!

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 (organized by state) at GSA.gov/travel/planbook/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 government'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 return for the year. See Transition Rules, later.

Standard meal allowance for areas outside the continental United States. The 

standard meal allowance rates above don’t apply to travel in Alaska, Hawaii, or any other location outside the continental United States. The 

Department of Defense establishes per diem 

rates for Alaska, Hawaii, Puerto Rico, American 

Samoa, Guam, Midway, the Northern Mariana 

Islands, the U.S. Virgin Islands, Wake Island, 

and other non-foreign areas outside the continental United States. The Department of State 

establishes per diem rates for all other foreign 

areas.

You can access per diem rates for 

non-foreign areas outside the continental United States at 

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 allowance 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 determine 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 regular standard meal allowance rates) for all trips 

you take that year.

Travel for days you depart and return. For 

both the day you depart for and the day you return from a business trip, you must prorate the 

standard meal allowance (figure a reduced 

amount for each day). You can do so by one of 

two methods.

• Method 1: You can claim 3/4 of the standard meal allowance.

• Method 2: You can prorate using any 

method that you consistently apply and 

that is in accordance with reasonable business practice.

Example. Jen is employed in New Orleans 

as a convention planner. In March, her employer 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. After 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 Friday (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 practice. 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 expenses depends on how much of your trip was 

business related and on how much of your trip 

occurred within the United States. See Part of 

Trip Outside the 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 business travel totals 900 miles round trip. On your 

way home, you stop in Mobile to visit your parents. You spend $2,165 for the 9 days you are 

away from home for travel, non-entertainment-related meals, lodging, and other travel 

expenses. If you hadn’t stopped in Mobile, you 

would have been gone only 6 days, and your total cost would have been $1,633.50. You can 

deduct $1,633.50 for your trip, including the 

Page 6 Chapter 1 Travel
cost of round-trip transportation to and from 

New Orleans. The deduction for your non-entertainment-related meals is subject to the 50% 

limit on meals mentioned earlier.

Trip Primarily for

Personal Reasons

If your trip was primarily for personal reasons, 

such as a vacation, the entire cost of the trip is a 

nondeductible 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 incidental business activities during a trip, such as 

viewing videotapes or attending lectures dealing with general subjects, won’t change what is 

really a vacation into a business trip.

Part of Trip Outside

the United States

If part of your trip is outside the United States, 

use the rules described later in this chapter under Travel Outside the United States for that 

part of the trip. For the part of your trip that is inside the United States, use the rules for travel in 

the United States. Travel outside the United 

States doesn’t include travel from one point in 

the United States to another point in the United 

States. The following discussion can help you 

determine whether your trip was entirely within 

the United States.

Public transportation. If you travel by public 

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 Outside 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. Because there are no scheduled stops between 

Puerto Rico and New York, all of the return trip 

is outside the United States.

Private car. Travel by private car in the United 

States is travel between points in the United 

States, even though you are on your way to a 

destination outside the United States.

Example. You travel by car from Denver to 

Mexico City and return. Your travel from Denver 

to the border and from the border back to Denver is travel in the United States, and the rules 

in this section apply. The rules below under 

Travel Outside the United States apply to your 

trip from the border to Mexico City and back to 

the border.

Travel Outside

the United States

If any part of your business travel is outside the 

United States, some of your deductions for the 

cost of getting to and from your destination may 

be limited. For this purpose, the United States 

includes the 50 states and the District of Columbia.

How much of your travel expenses you can 

deduct depends in part upon how much of your 

trip outside the United States was business related.

Travel Entirely for Business or

Considered Entirely for Business

You can deduct all your travel expenses of getting to and from your business destination if 

your trip is entirely for business or considered 

entirely for business.

Travel entirely for business. If you travel outside the United States and you spend the entire 

time on business activities, you can deduct all 

of your travel expenses.

Travel considered entirely for business. 

Even if you didn’t spend your entire time on 

business activities, your trip is considered entirely for business if you meet at least one of the 

following four exceptions.

Exception 1—No substantial control. 

Your trip is considered entirely for business if 

you didn’t have substantial control over arranging the trip. The fact that you control the timing 

of your trip doesn’t, by itself, mean that you 

have substantial control over arranging your 

trip.

You don’t have substantial control over your 

trip if you:

• Are an employee who was reimbursed or 

paid a travel expense allowance, and

• Aren’t related to your employer, or

• Aren’t a managing executive.

“Related to your employer” is defined later in 

chapter 6 under Per Diem and Car Allowances.

A “managing executive” is an employee who 

has the authority and responsibility, without being subject to the veto of another, to decide on 

the need for the business travel.

A self-employed person generally has substantial control over arranging business trips.

Exception 2—Outside United States no 

more than a week. Your trip is considered entirely for business if you were outside the United 

States for a week or less, combining business 

and nonbusiness activities. One week means 7 

consecutive days. In counting the days, don’t 

count the day you leave the United States, but 

do count the day you return to the United 

States.

Example. You traveled to Brussels primarily for 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 outside the United States for more than a week. 

This is because the day you depart doesn’t 

count as a day outside the United States.

You can deduct your cost of the round-trip 

flight between Denver and Brussels. You can 

also deduct the cost of your stay in Brussels for 

Thursday and Friday while you conducted business. However, you can’t deduct the cost of 

your stay in Brussels from Saturday through 

Tuesday because those days were spent on 

nonbusiness activities.

Exception 3—Less than 25% of time on 

personal activities. Your trip is considered 

entirely for business if:

• You were outside the United States for 

more than a week, and

• You spent less than 25% of the total time 

you were outside the United States on 

nonbusiness activities.

For this purpose, count both the day your trip 

began and the day it ended.

Example. You flew from Seattle to Tokyo, 

where you spent 14 days on business and 5 

days on personal matters. You then flew back 

to Seattle. You spent 1 day flying in each direction.

Because only 5/21 (less than 25%) of your total time abroad was for nonbusiness activities, 

you can deduct as travel expenses what it 

would have cost you to make the trip if you 

hadn’t engaged in any nonbusiness activity. 

The amount you can deduct is the cost of the 

round-trip plane fare and 16 days of non-entertainment-related meals (subject to the 50% 

Limit), lodging, and other related expenses.

Exception 4—Vacation not a major consideration. Your trip is considered entirely for 

business if you can establish that a personal vacation 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 activities 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 cases, you can deduct the total cost of getting to 

and from your destination.

Travel allocation rules. If your trip outside the 

United States was primarily for business, you 

must allocate your travel time on a day-to-day 

basis between business days and nonbusiness 

days. The days you depart from and return to 

the United States are both counted as days outside 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 business, and certain weekends and holidays.

Transportation day. Count as a business 

day any day you spend traveling to or from a 

business destination. However, if because of a 

nonbusiness activity you don’t travel by a direct 

route, your business days are the days it would 

take you to travel a reasonably direct route to 

your business destination. Extra days for side 

trips or nonbusiness activities can’t be counted 

as business days.

Presence required. Count as a business 

day any day your presence is required at a particular place for a 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 business 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 between business days. But if they follow your 

business meetings or activity and you remain at 

your business destination for nonbusiness or 

personal reasons, don’t count them as business 

days.

Example 1. Your tax home is New York 

City. You travel to Quebec, where you have a 

business appointment on Friday. You have another 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 until 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 business destination, or on the way back to the United States from your business destination, you 

must allocate part of your travel expenses to the 

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 conference that began on May 5. The conference 

ended at noon on May 14. That evening, you 

flew to Dublin where you visited with friends until the afternoon of May 21, when you flew directly home to New York. The primary purpose 

for the trip was to attend the conference.

If you hadn’t stopped in Dublin, you would 

have arrived home the evening of May 14. You 

don’t meet any of the exceptions that would allow you to consider your travel entirely for business. May 4 through May 14 (11 days) are business days and May 15 through May 21 (7 days) 

are nonbusiness days.

You can deduct the cost of your non-entertainment-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 between New York and Dublin.

You paid $750 to fly from New York to Paris, 

$400 to fly from Paris to Dublin, and $700 to fly 

from Dublin back to New York. Round-trip airfare from New York to Dublin would have been 

$1,250.

You figure the deductible part of your air 

travel 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 nonbusiness activities at, near, or beyond your business destination are deductible.

Example. Assume that the dates are the 

same as in the previous example but that instead of going to Dublin for your vacation, you 

fly to Venice, Italy, for a vacation.

You can’t deduct any part of the cost of your 

trip from Paris to Venice and return to Paris. In 

addition, you can’t deduct 7/18 of the airfare and 

other expenses from New York to Paris and 

back to New York.

You can deduct 11/18 of the round-trip plane 

fare and other travel expenses from New York 

to Paris, plus your non-entertainment-related 

meals (subject to the 50% Limit), lodging, and 

any other business expenses you had in Paris. 

(Assume these expenses total $4,939.) If the 

round-trip plane fare and other travel-related 

expenses (such as food during the trip) are 

$1,750, you can deduct travel costs of $1,069 

(

11/18 × $1,750), plus the full $4,939 for the expenses you had in Paris.

Other methods. You can use another method 

of 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 entire cost of the trip is a nondeductible personal 

expense. However, if you spend some time attending brief professional seminars or a continuing 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 program consists of trips to various foreign countries where academic exercises and conferences are set up to acquaint individuals in most 

occupations with selected facilities in several 

regions of the world. However, none of the conferences are directed toward specific occupations or professions. It is up to each participant 

to seek out specialists and organizational settings appropriate to his or her occupational interests.

Three-hour sessions are held each day over 

a 5-day period at each of the selected overseas 

facilities where participants can meet with individual practitioners. These sessions are composed of a variety of activities including workshops, mini-lectures, roleplaying, skill 

development, and exercises. Professional conference directors schedule and conduct the 

sessions. Participants can choose those sessions they wish to attend.

You can participate in this program because 

you are a member of the alumni association. 

You and your family take one of the trips. You 

spend about 2 hours at each of the planned 

sessions. The rest of the time you go touring 

and sightseeing with your family. The trip lasts 

less than 1 week.

Your travel expenses for the trip aren’t deductible since the trip was primarily a vacation. 

However, registration fees and any other incidental expenses you have for the five planned 

sessions you attended that are directly 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 employees for daily living expenses when they travel 

away from home within the United States for 

business purposes.)

Daily limit on luxury water travel. The highest federal per diem rate allowed and the daily 

limit for luxury water travel in 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, England, 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-entertainment-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, Caroline'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 reimbursed for any of her travel expenses. Caroline 

figures her deductible travel expenses as follows.

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 entertainment charges aren’t separately stated or 

aren’t clearly identifiable, you don’t have to allocate any portion of the total charge to meals or 

entertainment.

Exceptions

The daily limit on luxury water travel (discussed 

earlier) doesn’t apply to expenses you have to 

attend a convention, seminar, or meeting on 

board a cruise ship. See Cruise Ships, later, under Conventions.

Conventions

You can deduct your travel expenses when you 

attend a convention if you can show that your 

attendance benefits your trade or business. You 

can’t deduct the travel 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 expenses.

Your appointment or election as a delegate doesn’t, in itself, determine 

whether you can deduct travel expenses. You can deduct your travel expenses only 

if your attendance is connected to your own 

trade or business.

Convention agenda. The convention agenda 

or program generally shows the purpose of the 

convention. You can show your attendance at 

the convention benefits your trade or business 

by comparing the agenda with the 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 position that it shows your attendance was for business purposes.

CAUTION

!

Conventions Held Outside

the North American Area

You can’t deduct expenses for attending a convention, seminar, or similar meeting held 

outside the North 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 outside the North American area as within the 

North American area. See Reasonableness test, later.

If the meeting meets these requirements, you 

must also satisfy the rules for deducting expenses for business trips in general, discussed earlier under Travel Outside the 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. islands, 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 information.

Reasonableness test. The following factors 

are taken into account to determine if it was as 

reasonable to hold the meeting outside the 

North American area as within the North American area.

• The purpose of the meeting and the activities taking place at the meeting.

• The purposes and activities of the sponsoring organizations or groups.

• The homes of the active members of the 

sponsoring organizations and the places at 

which other meetings of the sponsoring organizations or groups have been or will be 

held.

• Other relevant factors you may present.

Cruise Ships

You can deduct up to $2,000 per year of your 

expenses of attending conventions, seminars, 

or similar meetings held 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 directly related to the active conduct of your 

trade or business.

2. The cruise ship is a vessel registered in 

the United States.

3. All of the cruise ship's ports of call are in 

the United States or in possessions of the 

United States.

4. You attach to your return a written statement signed by you that includes information about:

a. The total days of the trip (not including 

the days of transportation to and from 

the cruise ship port),

b. The number of hours each day that 

you devoted to scheduled business 

activities, and

c. A program of the scheduled business 

activities of the meeting.

5. You attach to your return a written statement signed by an officer of the organization or group sponsoring the meeting that 

includes:

a. A schedule of the business activities 

of each day of the meeting, and

b. The number of hours you attended 

the scheduled business activities.

2.

Meals and 

Entertainment

You can no longer take a deduction for any expense related to activities generally considered 

entertainment, amusement, or recreation. You 

can continue to deduct 50% of the cost of business meals if you (or your employee) are 

present and the food or beverages aren't considered 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-PerDiem-Rates-and-the-Temporary-100-PercentDeduction-for-Food-or-Beverages-FromRestaurants for additional information.

If food or beverages are provided during or at an entertainment event, and 

the food and beverages were purchased 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, amusement, or recreation. Examples include 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 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 families.

Deduction may depend on your type of 

business. Your kind of business may determine if a particular activity is considered entertainment. For example, if you are a dress designer and have a fashion show to introduce 

your new designs to store buyers, the show 

generally isn’t considered entertainment. This is 

because fashion shows are typical in your business. But, if you are an appliance distributor 

and hold a fashion show for the spouses of your 

retailers, the show is generally considered entertainment.

Separating costs. If you have one expense 

that includes the costs of entertainment and 

other services (such as lodging or transportation), you must allocate that expense between 

the cost of entertainment and the cost of other 

services. You must have a reasonable basis for 

making this allocation. For example, you must 

allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your 

room charge.

Exceptions to the Rules

In general, entertainment expenses are nondeductible. However, there are a few exceptions 

to the general rule, including:

• Entertainment treated as compensation on 

your originally filed tax returns (and treated 

as wages to your employees);

• Recreational expenses for employees 

such as a holiday party or a summer picnic;

• Expenses related to attending business 

meetings or conventions of certain exempt 

organizations such as business leagues, 

chambers of commerce, professional associations, etc.; and

• Entertainment sold to customers. For example, if you run a nightclub, your expenses for the entertainment you furnish to 

your customers, such as a floor show, 

aren’t subject to the nondeductible rules.

Examples of Nondeductible 

Entertainment

Entertainment events. Generally, you can't 

deduct any expense for an entertainment event. 

This includes 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 entertainment facility. This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection.

An entertainment facility is any property you 

own, rent, or use for entertainment. Examples 

include a yacht, 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 membership in any club organized for business, 

pleasure, recreation, or other social purposes.

This rule applies to any membership organization if one of its principal purposes is either:

• To conduct entertainment activities for 

members or their guests; or

• To provide members or their guests with 

access to entertainment facilities, discussed later.

The purposes and activities of a club, not its 

name, will determine whether or not you can 

deduct the dues. You can’t deduct dues paid to:

• Country clubs,

• Golf and athletic clubs,

• Airline clubs,

• Hotel clubs, and

• Clubs operated to provide meals under circumstances generally considered to be 

conducive to business discussions.

Gift or entertainment. Any item that might be 

considered either a gift or entertainment will 

generally be considered entertainment. However, 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 beverages provided by a restaurant, and paid or incurred 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 during entertainment events are not considered entertainment if purchased separately from the 

entertainment, or if the cost of the food and beverages is stated separately from the cost of the 

entertainment on one or more bills, invoices, or 

receipts. However, the entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.

Other rules for meals and entertainment expenses. Any allowed expense must be ordinary and necessary. An ordinary expense is 

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 considered necessary. Expenses must not be lavish or extravagant. An expense isn't considered 

lavish or extravagant if it is reasonable based 

on the facts and circumstances.

Examples. For each example, assume that the 

food and beverage expenses are ordinary and 

necessary expenses under section 162(a) paid 

or incurred during the tax year in carrying on a 

trade or business and are not lavish or extravagant 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 business 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 defined in Regulations section 1.274-11(b)(1)(i) 

and, thus, the cost of the game tickets is an entertainment expense and is not deductible by A. 

The cost of the hot dogs and drinks, which are 

purchased separately from the game tickets, is 

not an entertainment expense and is not subject to the section 274(a)(1) disallowance. 

Therefore, A may deduct 50% of the expenses 

associated with the hot dogs and drinks purchased at the game.

Example 2. Taxpayer C invites D, a business contact, to a basketball game. C purchases tickets for C and D to attend the game in a 

suite, where they have access to food and beverages. The cost of the basketball game tickets, 

as stated on the invoice, includes the food and 

beverages. The basketball game is entertainment as defined in Regulations section 

1.274-11(b)(1)(i) and, thus, the cost of the 

game tickets is an entertainment expense and 

is not deductible by C. The cost of the food and 

beverages, which are not purchased separately 

from the game 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) disallowance. Therefore, C may not deduct any of the 

expenses associated with the basketball game.

Example 3. Assume the same facts as in 

Example 2, except that the invoice for the basketball game tickets 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 beverages, which is stated separately on the invoice 

for the game tickets, is not an entertainment expense and is not subject to the section 274(a)

(1) disallowance. Therefore, C may deduct 50% 

of the expenses associated with the food and 

beverages provided at the game.

50% Limit

In general, you can deduct only 50% of your 

business-related meal expenses, unless an exception 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-PerDiem-Rates-and-the-Temporary-100-PercentDeduction-for-Food-or-Beverages-FromRestaurants for additional information. (If you 

are subject to the Department of Transportation's “hours of service” limits, you can deduct 

80% of your business-related meal expenses. 

See Individuals subject to “hours of service” limits, later.)

The 50% limit applies to employees or their 

employers, and to self-employed persons (including independent contractors) or their clients, 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 otherwise 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 deductible educational expenses.

When to apply the 50% limit. The 50% limit 

will apply after determining the amount that 

would otherwise qualify for a deduction. You 

first have to determine the amount of meal expenses that would be deductible under the 

other rules discussed in this publication.

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

No Yes

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 nondeductible.

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 allowed 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 exceptions.

1—Expenses treated as compensation. 

In general, expenses for goods, services, and 

facilities, to the extent the expenses are treated 

by the taxpayer, with respect to entertainment, 

amusement, or recreation, as 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. Accountable 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 independent 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 expenses to your customer or client. (See 

chapter 5.)

In this case, your client or customer is subject to the 50% limit on the expenses.

Example. You are a self-employed attorney 

who adequately accounts for meal expenses to 

a client who reimburses you for these expenses. You aren’t subject to the limitation on meal 

expenses. If the client can deduct the expenses, the client is subject to the 50% limit.

If you (as an independent contractor) have 

expenses for meals related to providing services for a client but don’t adequately account for 

and seek reimbursement from the client for 

those expenses, you are subject to the 50% 

limit on non-entertainment-related meals and 

the entertainment-related meal expenses are 

nondeductible to you.

4—Recreational expenses for employees. You aren't subject to the 50% limit for expenses for recreational, social, or similar activities (including facilities) such as a holiday party 

or a summer picnic.

5—Advertising expenses. You aren’t 

subject to the 50% limit if you provide meals to 

the general public as a means of advertising or 

promoting goodwill in the community. For example, neither the expense of sponsoring a television or radio show nor the expense of distributing free food and beverages to the general 

public is subject to the 50% limit.

6—Sale of meals. You aren’t subject to the 

50% limit if you actually sell meals to the public. 

For example, if you run a restaurant, your expense for the food you furnish to your customers isn’t subject to the 50% limit.

Individuals subject to “hours of service” 

limits. You can deduct a higher percentage of 

your meal expenses while traveling away from 

your tax home if the meals take place during or 

incident to any period subject to the 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 regulations.

• Interstate truck operators and bus drivers 

who are under Department of Transportation regulations.

• Certain railroad employees (such as engineers, conductors, train crews, dispatchers, 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 beverages provided by a restaurant, and paid or incurred 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 rst job to your second

job, you can only deduct the transportation expenses of going directly from your rst

job to your second job. You can’t deduct your transportation expenses between

your home and a second job on a day off from your main job.

Page 12 Chapter 2 Meals and Entertainment
IRS.gov/Newsroom/IRS-Provides-Guidanceon-Per-Diem-Rates-and-the-Temporary-100-

Percent-Deduction-for-Food-or-BeveragesFrom-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 personal use or benefit of a particular person or a 

limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who receive 

the gift.

If you give a gift to a member of a customer's family, the gift is generally considered to be 

an indirect gift to the customer. This rule doesn’t 

apply if you have a bona fide, independent business connection with that family member and 

the gift isn’t intended for the customer's eventual use.

If you and your spouse both give gifts, both 

of you are treated as one taxpayer. It doesn’t 

matter whether you have separate businesses, 

are separately employed, or whether each of 

you has an independent connection with the recipient. If a partnership gives gifts, the partnership and the partners are treated as one taxpayer.

Example. Bob Jones sells products to Local 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 Company's executives took the gift baskets home for 

their families' use. Bob and Jan have no independent business relationship with any of the 

executives' other family members. They can deduct a total of $75 ($25 limit × 3) for the gift baskets.

Incidental costs. Incidental costs, such as engraving on jewelry, or packaging, insuring, and 

mailing, are generally not included in determining the cost of a gift for purposes of the $25 

limit.

A cost is incidental only if it doesn’t add substantial value to the gift. For example, the cost 

of gift wrapping is an incidental cost. However, 

the purchase of an ornamental basket for packaging fruit isn’t an incidental cost if the value of 

the basket is substantial compared to the value 

of the fruit.

Exceptions. The following items aren’t considered gifts for purposes of the $25 limit.

1. An item that costs $4 or less and:

a. Has your name clearly and permanently imprinted on the gift, and

b. Is one of a number of identical items 

you widely distribute. Examples include pens, desk sets, and plastic 

bags and cases.

2. Signs, display racks, or other promotional 

material to be used on the business premises of the recipient.

Gift or entertainment. Any item that might be 

considered either a gift or entertainment will 

generally be considered entertainment. However, 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 reimbursement applies. This type of deduction is considered a miscellaneous deduction that is no longer 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 deduct 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 expenses 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 overnight, 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 places 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 business 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 regardless 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 reimbursement applies. This type of deduction is considered a miscellaneous deduction that is no longer allowable due to the suspension of 

miscellaneous itemized deductions subject to 

the 2% floor under section 67(a).

Illustration of transportation expenses. Figure 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 deciding 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 location in the same trade or business, you can 

deduct the expenses of the daily round-trip 

transportation between your home and the temporary location, regardless of distance.

If your employment at a work location is realistically 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 realistically expected to last for more than 1 year or 

if there is no realistic expectation that the employment will last for 1 year or less, the employment isn’t temporary, regardless of whether it 

actually lasts for more than 1 year.

If employment at a work location initially is 

realistically expected to last for 1 year or less, 

but at some later date the employment is realistically expected to last more than 1 year, that 

employment will be treated as temporary (unless 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 expenses, as discussed in chapter 1.

No regular place of work. If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct 

daily transportation costs between home and a 

CAUTION

!

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 nondeductible commuting expenses.

Two places of work. If you work at two places 

in 1 day, whether or not for the same employer, 

you can deduct the expense of getting from one 

workplace to the other. 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 directly from the first location to the second.

Transportation expenses you have in going 

between home and a part-time job on a day off 

from your main job are commuting expenses. 

You can’t deduct them.

Armed Forces reservists. A meeting of an 

Armed Forces reserve unit is a second place of 

business if the meeting is held on a day on 

which you work at your regular job. You can deduct the expense of getting from one 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 metropolitan area but not at any specific location and 

the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses.

If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel 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 Traveling More Than 100 Miles From Home under 

Special Rules in chapter 6.

Commuting expenses. You can’t deduct the 

costs of taking a bus, trolley, subway, or taxi, or 

of driving a car between your home and your 

main or regular place of work. These costs are 

personal commuting expenses. You can’t deduct commuting expenses no matter how far 

your home is from your regular place of work. 

You can’t deduct 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 associates 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 expenses.

Parking fees. Fees you pay to park your 

car at your place of business are nondeductible 

commuting expenses. You can, however, deduct business-related parking fees when visiting a customer or client.

Advertising display on car. Putting display material that advertises your business on 

your car doesn’t change the use of your car 

from personal use to business use. If you use 

this car for commuting or other personal uses, 

you still can’t deduct your expenses for those 

uses.

Car pools. You can’t deduct the cost of using your car in a nonprofit car pool. Don’t include payments you receive from the passengers 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 expenses (using the rules in this publication).

Hauling tools or instruments. Hauling 

tools or instruments in your car while commuting to and from work doesn’t make your car expenses deductible. However, you can deduct 

any additional costs you have for hauling tools 

or instruments (such as for renting a trailer you 

tow with your car).

Union members' trips from a union hall.

If you get your work assignments at a union hall 

and then go to your place of work, the costs of 

getting from the union hall to your place of work 

are nondeductible commuting expenses. Although you need the union to get your work assignments, 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 transportation 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 business is in your home. You can deduct the cost 

of round-trip transportation between your qualifying home office and your client's or customer's place of business.

Example 3. You have no regular office, and 

you don’t have an office in your home. In this 

case, the location of your first business contact 

inside the metropolitan area is considered your 

office. Transportation expenses between your 

home and this first contact are nondeductible 

commuting expenses. Transportation expenses 

between your last business contact and your 

home are also nondeductible commuting expenses. While you can’t deduct the costs of 

these trips, you can deduct the costs of going 

from one client or customer to another.

Car Expenses

If you use your car for business purposes, you 

may be able to deduct car expenses. You can 

generally use one of the two following methods 

to figure your deductible 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 allowed to be claimed as an unreimbursed employee travel expense as a miscellaneous itemized 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. Deductions for expenses that are deductible in determining adjusted gross income are not suspended. For example, Armed Forces reservists, 

qualified performing artists, and fee-basis state 

or local government officials are allowed to deduct unreimbursed employee travel expenses 

as an adjustment to total income on Schedule 1 

(Form 1040), line 12.

If you use actual expenses to figure your deduction for a car you lease, there are rules that 

affect the amount of your lease payments you 

can deduct. See Leasing a Car, later.

In this publication, “car” includes a van, 

pickup, or panel truck. For the definition of “car” 

for depreciation purposes, see Car defined under Actual Car Expenses, later.

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 deduct depreciation, lease payments, maintenance 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 information on reimbursements.

Choosing the standard mileage rate. If you 

want to use the standard mileage rate for a car 

you own, you must choose to use it in the first 

year the car is available for use in your 

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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 before December 31, 1997, the standard mileage 

rate must be used for the entire portion of the 

lease period (including renewals) that is after 

1997.

You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. You can’t revoke the 

choice. However, in later years, you can switch 

from the standard mileage rate to the actual expenses method. If you change to the actual expenses 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 included in the standard mileage rate, see Exception under Methods of depreciation, later.

Standard mileage rate not allowed. You 

can’t use the standard mileage rate if you:

• Use five or more cars at the same time 

(such as in fleet operations);

• Claimed a depreciation deduction for the 

car using any method other than straight 

line, for example, Modified Accelerated 

Cost Recovery System (MACRS) (as discussed later under Depreciation Deduction);

• Claimed a section 179 deduction (discussed later) on the car;

• Claimed the special depreciation allowance on the car; or

• Claimed actual car expenses after 1997 for 

a car you leased.

Note. You can elect to use the standard 

mileage rate if you used a car for hire (such as a 

taxi) unless the standard mileage rate is otherwise not allowed, as discussed above.

Five or more cars. If you own or lease five 

or more cars that are used for business at the 

same time, you can’t use the standard mileage 

rate for the business use of any car. However, 

you may be able to deduct your actual expenses for operating each of the cars in your business. See Actual Car Expenses, later, for information on how to figure your deduction.

You aren’t using five or more cars for business at the same time if you alternate using 

(use at different times) the cars for business.

The following examples illustrate the rules 

for when you can and can’t use the standard 

mileage rate for five or more cars.

Example 1. Marcia, a salesperson, owns 

three cars and two vans that she alternates using for calling on her customers. She can use 

the standard mileage rate for the business mileage 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 business. 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 standard 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 business. 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 vehicles 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 deduct any interest paid on a car loan. This applies even if you use the car 100% for business 

as an employee.

However, if you are self-employed and use 

your car in your business, you can deduct that 

part of the interest 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 purchase your car, you may be able to deduct the interest. See Pub. 936, Home 

Mortgage Interest Deduction, for more information.

Personal property taxes. If you itemize your 

deductions on Schedule A (Form 1040), you 

can deduct on line 5c state and local personal 

property taxes on motor vehicles. You can take 

this deduction even if you use the standard 

mileage rate or if you don’t use the car for business.

If you are self-employed and use your car in 

your 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. (Parking fees you pay to park your car at your place 

of work are nondeductible commuting expenses.)

Sale, trade-in, or other disposition. If you 

sell, trade in, or otherwise dispose of your car, 

you may have a gain or loss on the transaction 

or an adjustment to the basis of your new car. 

See Disposition of a Car, later.

Actual Car Expenses

If you don’t use the standard mileage rate, you 

may be able to deduct your actual car expenses.

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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 business and personal use. You can divide your expense based on the miles driven for each purpose.

Example. You are a contractor and drive 

your car 20,000 miles during the year: 12,000 

miles for business use and 8,000 miles for personal use. You can claim only 60% (12,000 ÷ 

20,000) of the cost of operating your car as a 

business expense.

Employer-provided vehicle. If you use a vehicle provided by your employer for business 

purposes, you can deduct your actual unreimbursed car expenses. You can’t use the standard 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, earlier, under Standard Mileage Rate.

Taxes paid on your car. If you are an employee, you can deduct personal property taxes 

paid on your car if you itemize deductions. Enter the amount paid on Schedule A (Form 

1040), line 5c.

Sales taxes. Generally, sales taxes on 

your car are part of your car's basis and are recovered through depreciation, discussed later.

Fines and collateral. You can’t deduct fines 

you pay or collateral you forfeit for traffic violations.

Casualty and theft losses. If your car is damaged, destroyed, or stolen, you may be able to 

deduct part of the loss not covered by insurance. See Pub. 547, Casualties, Disasters, and 

Thefts, for information on deducting a loss on 

your car.

Depreciation and section 179 deductions.

Generally, the cost of a car, plus sales tax and 

improvements, is a capital expense. Because 

the benefits last longer than 1 year, you generally can’t deduct a capital expense. However, 

you can recover this cost through the section 

179 deduction (the deduction allowed by 

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Chapter 4 Transportation Page 15
section 179 of the Internal Revenue Code), special 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 depreciation deductions are discussed later.

Generally, there are limits on these deductions. Special rules apply if you use your car 

50% or less in your work or business.

You can claim a section 179 deduction and 

use a depreciation method other than straight 

line only if you don’t use the standard mileage 

rate to figure your business-related car expenses 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 vehicle weight (for trucks and vans, gross vehicle 

weight) must not be more than 6,000 pounds. A 

car includes any part, component, or other item 

physically attached to it or usually included in 

the purchase price.

A car doesn’t include:

• An ambulance, hearse, or combination 

ambulance-hearse used directly in a business;

• A vehicle used directly in the business of 

transporting persons or property for pay or 

hire; or

• A truck or van that is a qualified nonpersonal use 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 minimal amount for personal purposes, such as by 

installation of permanent shelving and painting 

the vehicle to display advertising or the company's name. Delivery trucks with seating only for 

the driver, or only for the driver plus a folding 

jump seat, are qualified nonpersonal use vehicles.

More information. See Depreciation Deduction, later, for more information on how to 

depreciate your vehicle.

Section 179 Deduction

You can elect to recover all or part of the cost of 

a car that is qualifying section 179 property, up 

to a limit, by deducting it in the year you place 

the property in service. This is the section 179 

deduction. If you elect the section 179 deduction, you must reduce your depreciable basis in 

the car by the amount of the section 179 deduction.

There is a limit on the total section 179 

deduction, special depreciation allowance, and depreciation deduction for 

cars, trucks, and vans that may reduce or eliminate any benefit from claiming the section 179 

deduction. See Depreciation Limits, later.

You can claim the section 179 deduction 

only in the year you place the car in service. For 

this purpose, a car is placed in service when it 

is ready and available for a specifically assigned use in a trade or business. Even if you 

aren’t using the property, it is in service when it 

is ready and available for its specifically assigned use.

A car first used for personal purposes can’t 

qualify for the deduction in a later year when its 

use changes to 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 business, multiply the cost of the property by the 

percentage of business use. The result is the 

cost of the property that can qualify for the section 179 deduction.

Example. Peter purchased a new car in 

April 2021 for $24,500 and used it 60% for business. 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 section 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 deduction, 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.

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The total amount you can deduct under section 179 each year after you apply the limits listed above cannot be more than the taxable income from the active conduct of any trade or 

business during the year.

If you are married and file a joint return, you 

and your spouse are treated as one taxpayer in 

determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service.

If you and your spouse file separate returns, 

you are treated as one taxpayer for the dollar 

limit. You must allocate the dollar limit (after any 

reduction) between you.

For more information on the above section 

179 deduction limits, see Pub. 946, How To Depreciate 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 utility 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 passengers over public streets, roads, or highways 

that isn’t subject to any of the passenger automobile limits explained under Depreciation Limits, later, and that is rated at more than 6,000 

pounds gross vehicle weight and not more than 

14,000 pounds gross vehicle weight. However, 

the $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 accessible directly from the passenger compartment; or

• That has an integral enclosure, fully enclosing the driver compartment and load 

carrying device, doesn’t have seating rearward of the driver's seat, and has no body 

section protruding more than 30 inches 

ahead of the leading edge of the windshield.

Limit on total section 179 deduction, 

special depreciation allowance, and depreciation deduction. The additional first-year 

limit on depreciation for vehicles acquired before September 28, 2017, is no longer allowed if 

placed in service after 2019. The first-year limit 

on depreciation, special depreciation allowance, 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 allowance 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, Peter 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 depreciation allowance, and depreciation deductions is limited to $10,920 ($18,200 limit x 60% 

Page 16 Chapter 4 Transportation
(0.60) business use) because the car was acquired 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 resulting amount is the basis in your car you use 

to figure your depreciation deduction.

When to elect. If you want to take the section 

179 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, Employee Business Expenses, to make the election and report the section 179 deduction. All 

others use Form 4562, Depreciation and Amortization, to make an election.

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 deductions 

subject to the 2% floor under section 67(a), employees who do not fit into one of the listed categories may not use Form 2106.

File the appropriate form with either of the 

following.

• Your original tax return filed for the year the 

property was placed in service (whether or 

not you file it timely).

• An amended return filed within the time 

prescribed by law. An election made on an 

amended return must specify the item of 

section 179 property to which the election 

applies and the part of the cost of each 

such item to be taken into account. The 

amended return must also include any resulting adjustments to taxable income.

You must keep records that show the 

specific identification of each piece of 

qualifying section 179 property. These 

records must show how you acquired the property, the person you acquired it from, and when 

you placed it in service.

Revoking an election. An election (or any 

specification made in the election) to take a 

section 179 deduction for 2021 can only be revoked 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 business use of the car is 50% or less in a later tax 

year during the recovery period, you have to reCAUTION

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CAUTION

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capture (include in income) in that later year 

any excess depreciation. Any section 179 deduction claimed on the car is included in figuring the excess depreciation. For 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 depreciation deduction for recapture purposes. You 

treat any gain on the disposition of the property 

as ordinary income up to the amount of the section 179 deduction and any allowable depreciation (unless you establish the amount actually 

allowed). For information on the disposition of a 

car, see Disposition of a Car, later. For more information on recapture of a section 179 deduction, see Pub. 946.

Special Depreciation Allowance

You may be able to claim the special depreciation 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 deduction, but before figuring your regular depreciation 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 vehicle only if the vehicle meets the used property 

requirements. For more information on the used 

property requirements, see section 168(k)(2)(E)

(ii). To qualify for the allowance, more than 50% 

of the use of the car must be in a qualified business use (as defined under Depreciation Deduction, later).

Combined depreciation. The additional 

first-year limit on depreciation for vehicles acquired before September 28, 2017, is no longer 

allowed if placed in service after 2019. Your 

combined section 179 depreciation, special depreciation allowance, and regular MACRS depreciation 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 September 28, 2017.

• You acquired the car new or used.

• You placed the car in service in your trade 

or business before January 1, 2027.

• You used the car more than 50% in a qualified business use during the tax year.

Election not to claim the special depreciation 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 property placed in service during the year.

To make this election, attach a statement to 

your timely filed return (including extensions) indicating the class of property (5-year for cars) 

for which you are making the election and that 

you are electing not to claim the special depreciation allowance for qualified property in that 

class of property.

Unless you elect not to claim the special 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 deduction for a car you own and use in your business, 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 depreciation is generally its cost. This includes any 

amount you borrow or pay in cash, other property, or services.

Generally, you figure depreciation on your 

car, truck, or van using your unadjusted basis 

(see Unadjusted basis, later). However, in 

some situations, you will use your adjusted basis (your basis reduced by depreciation allowed 

or allowable in earlier years). For one of these 

situations, see Exception under Methods of depreciation, later.

If you change the use of a car from personal 

to 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. Additional 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 activity, 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 income.

For purposes of figuring depreciation, if you 

first start using the car only for personal use and 

later convert it to business use, you place the 

car in service on the date of conversion.

Car placed in service and disposed of in 

the same year. If you place a car in service 

and dispose of it in the same tax year, you can’t 

claim any depreciation deduction for that car.

Methods of depreciation. Generally, you figure depreciation on cars using the Modified Accelerated Cost Recovery (MACRS) discussed 

later in this chapter.

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Chapter 4 Transportation Page 17
Exception. If you used the standard mileage 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 depreciation 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 Unadjusted basis. You must use your adjusted basis 

in your car to figure your depreciation deduction. For additional information on the straight 

line method of depreciation, see Pub. 946.

More-than-50%-use test. Generally, you must 

use your car more than 50% for qualified business use (defined next) during the year to use 

MACRS. You must meet this 

more-than-50%-use test each year of the recovery period (6 years under MACRS) for your car.

If your business use is 50% or less, you 

must use the straight line method to depreciate 

your car. This is 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 income (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 depreciation deduction for the tax year.

Use of your car by another person. Don’t 

treat any use of your car by another person as 

use in your trade or business unless that use 

meets one of the following 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 various purposes. You do this on the basis of mileage. Figure the percentage of qualified business use by dividing the number of miles you 

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drive your car for business purposes during the 

year by the total number of miles you drive the 

car during the year for any purpose.

Change from personal to business use. If 

you change the use of a car from 100% personal use to business use during the tax year, 

you may not have mileage records for the time 

before the change to business use. In this case, 

you figure the percentage of business use for 

the year as follows.

1. Determine the percentage of business use 

for the 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 business use percentage of 80% (12,000 ÷ 15,000) 

for that period. Your business use for the year is 

40% (80% (0.80) × 6/12).

Limits. The amount you can claim for section 

179, special depreciation allowance, and depreciation deductions may be limited. The maximum 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 basis for depreciation) to figure your depreciation 

using the MACRS depreciation chart, explained 

later under Modified Accelerated Cost Recovery System (MACRS). Your unadjusted basis 

for figuring depreciation is your original basis increased 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 substantial improvements you make to your car, 

such as adding air conditioning or a new engine. 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 (include in your income) any excess depreciation. See Car Used 50% or Less for Business, later, for more information.

If you acquired the car by gift or inheritance, 

see Pub. 551, Basis of Assets, for information 

on your basis in the car.

Improvements. A major improvement to a 

car is treated as a new item of 5-year recovery 

CAUTION

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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 deductions. Your car's depreciation deduction for 

the year (plus any section 179 deduction, special 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 transaction.

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 deduction 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 explained later, beginning at Effect of 

trade-in on basis.

2. If you don’t make the election described in 

(1), you must figure depreciation separately for the remaining basis of the old car 

and for any additional amount you paid for 

the new car. You must apply two depreciation limits (see Depreciation Limits, later). 

The limit that applies to the remaining basis 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 depreciation 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 exchanges 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 government officials, and employees with impairment-related work expenses. Due to the suspension of miscellaneous itemized deductions 

subject to the 2% floor under section 67(a), employees who do not fit into one of the listed categories may not use Form 2106.

CAUTION

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Page 18 Chapter 4 Transportation
Effect of trade-in on basis. The discussion 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 exchanges of real property not held primarily for 

sale. Regulations section 1.168(i)-6 doesn't reflect this change in law.

Traded car used only for business. If 

you trade in a car you used only in your business for another car that will be used only in 

your business, your original basis in the new car 

is your adjusted basis in the old car, plus any 

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 addition, 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 deduction, special depreciation allowance, or has 

other increases or decreases to his original basis, discussed under Unadjusted basis, earlier.

Traded car used partly in business. If 

you trade in a car you used partly in your business for a new car you will use in your business, 

you must make a “trade-in” 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 determine the gain or loss on the later disposition 

of the new car. See Pub. 544, Sales and Other 

Dispositions of Assets, for information on how 

to report the disposition of your car.)

To figure the unadjusted basis of your new 

car for depreciation, first add to your adjusted 

basis in the old car any additional amount you 

pay for the new car. Then subtract from that total 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 investment 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 System (MACRS). MACRS is the name given to 

the tax rules for getting back (recovering) 

through depreciation deductions the cost of 

property used in a trade or business or to produce 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 depreciate the cost of a car, truck, or van over a 

period of 6 calendar years. This is because your 

car is generally treated as placed in service in 

the middle of the year, and you claim depreciation for one-half of both the first year and the 

sixth year.

For more information on the qualifications 

for this shorter recovery period and the percentages to use in figuring the depreciation deduction, 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 provides an equal or greater deduction. This is because the chart has the switch to the straight 

line method built into its rates.

Before choosing a method, you may wish to 

consider the following facts.

• Using the straight line method provides 

equal yearly deductions throughout the recovery period.

• Using the declining balance methods provides greater deductions during the earlier 

recovery years with the deductions generally getting smaller each year.

MACRS depreciation chart. A 2021 MACRS 

Depreciation Chart and instructions are included in this chapter as Table 4-1. Using this table 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 Depreciation Chart.

You must use the Depreciation Tables in 

Pub. 946 rather than the 2021 MACRS Depreciation 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 conditions apply.

a. You placed some property in service 

from January through September.

b. You placed some property in service 

from October through December.

c. Your basis in the property you placed 

in service from October through 

December (excluding nonresidential 

TIP

CAUTION

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real property, residential rental property, and property placed in service 

and disposed of in the same year) 

was more than 40% of your total 

bases in all property you placed in 

service during the year.

Depreciation in future years. If you use 

the percentages from the chart, you generally 

must continue to use them for the entire recovery period of your car. However, you can’t continue to use the chart if your basis in your car is 

adjusted because of a casualty. In that case, for 

the year of the adjustment and the remaining recovery period, 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 chapter 4 of Pub. 946.

In future years, don’t use the chart in 

this edition of the publication. Instead, 

use the chart in the publication or the 

form instructions for those future years.

Disposition of car during recovery period. If you dispose of the car before the end of 

the recovery period, you are generally allowed a 

half year of depreciation in the year of disposition unless you purchased the car during the 

last quarter of a year. See Depreciation deduction for the year of disposition under Disposition 

of a Car, later, for information on how to figure 

the depreciation allowed in the year of disposition.

How to use the 2021 chart. To figure your 

depreciation deduction for 2021, find the percentage in the column of Table 4-1 based on 

the date that you first placed the car in service 

and the depreciation method that you are using. 

Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine 

the amount of your 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 February 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 deduction, the truck didn’t qualify for the special 

depreciation allowance, and he chose to use 

the 200% DB method to get the largest depreciation deduction in the early years.

Phil used the MACRS Depreciation Chart in 

2020 to find his percentage. The unadjusted basis 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 purposes 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 his 

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Chapter 4 Transportation Page 19
truck, $8,280 ($9,200 cost × 90% (0.90) business use), by 32% (0.32) to figure his 2021 depreciation 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 purposes of the limits. The maximum amount you 

can deduct each year depends on the date you 

acquired the passenger automobile and the 

year you place the passenger automobile in 

service. These limits are shown in the following 

tables for 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 automobile 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 depreciation limits aren’t reduced if you use a car for 

less than a full year. This means that you don’t 

reduce the limit when you either place a car in 

service or dispose of a car during the year. 

However, the depreciation limits are reduced if 

you don’t use the car exclusively for business 

and investment purposes. See Reduction for 

personal use next.

Reduction for personal use. The depreciation limits are reduced based on your percentage of personal use. If you use a car less than 

100% in your business or work, you must determine the depreciation deduction limit by multiplying the limit amount by the percentage of 

business and investment use during the tax 

year.

Section 179 deduction. The section 179 deduction is treated as a depreciation deduction. 

If you acquired a passenger automobile (including trucks and vans) after September 27, 2017, 

and placed it in service in 2021, use it only for 

business, and choose the section 179 deduction, 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 deduction 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 deduction for 2021. For 2022, Jack will use his unadjusted basis of $3,840 to figure his depreciation 

deduction.

Deductions in years after the recovery period. If the depreciation deductions for your car 

are reduced under the passenger automobile 

limits (discussed earlier), you will have unrecovered basis in your car at the end of the recovery 

period. If you continue to use your car for business, you can deduct that unrecovered basis 

(subject to depreciation limits) after the recovery period ends.

Unrecovered basis. This is your cost or 

other basis in the car reduced by any clean-fuel 

vehicle deduction (for vehicles placed in service 

before January 1, 2006), alternative motor vehicle credit, electric vehicle credit, gas guzzler 

tax, and depreciation (including any special depreciation allowance, discussed earlier, unless 

you elect not to claim it) and section 179 deductions that would have been allowable if you had 

used the car 100% for business and investment 

use.

The recovery period. For 5-year property, 

your recovery period is 6 calendar years. A part 

year's depreciation is allowed in the first calendar 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 calendar 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 determined by the date you placed the car in service 

and your business-use percentage. For example, 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 depreciation 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 Depreciation Chart (200% DB method), the Maximum 

Depreciation Deduction for Cars Placed in 

Service Prior to 2018 table and the Maximum 

Depreciation Deduction for Passenger Automobiles (Including Trucks and Vans) acquired before September 28, 2017, and placed in service 

during 2018–2021 table, earlier, for the applicable tax year to figure his depreciation deductions during the recovery period. Bob's depreciation 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 Depreciation Deduction for Cars Placed in Service 

Prior to 2018 table and the Maximum Depreciation Deduction for Passenger Automobiles (Including Trucks and Vans) acquired before September 28, 2017, and placed in service during 

2018–2021 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 business in 2021 and later years, he can claim a depreciation 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 deduction would be less than the maximum 

amount allowable for that year. However, in determining his unrecovered basis in the car, he 

would still reduce his original basis by the maximum 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 Depreciation 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 situations are explained in the following paragraphs. 

(For this purpose, “car” was defined earlier under 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 allowance.

• 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 percentage 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 recovery 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) business use) × 10% (0.10) recovery percentage (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 addition, 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 adjusted 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, discussed next.

Excess depreciation. You must include 

any excess depreciation in your gross income 

and add it to your car's adjusted basis for the 

first tax year in which you don’t use the car 

more than 50% in qualified business use. Use 

Form 4797, Sales of Business Property, to figure and report the excess depreciation in your 

gross income.

Excess depreciation is:

1. The amount of the depreciation deductions allowable for the car (including any 

section 179 deduction claimed and any 

special depreciation allowance claimed) 

for tax years in which you used the car 

more than 50% in qualified business use, 

minus

2. The amount of the depreciation deductions that would have been allowable for 

those years if you hadn’t used the car 

more than 50% in qualified business use 

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 business and 70% for personal purposes. Since you 

didn’t meet the more-than-50%-use test, you 

must switch from the 200% DB depreciation 

method to the straight line depreciation method 

for 2021, and include in gross income for 2021 

your excess depreciation determined as follows.

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 Depreciation Deduction for Cars Placed in Service 

Prior to 2018 table and the Maximum Depreciation Deduction for Passenger Automobiles (Including Trucks and Vans) acquired before September 28, 2017, and placed in service during 

2018-2021 table under Depreciation Limits, earlier, for the maximum amount of depreciation allowed each year.

In 2021, using Form 4797, you figure and report the $2,110 excess depreciation you must 

include in your gross income. Your adjusted 

basis in the car is also increased by $2,110. 

Your 2021 depreciation is $1,230 ($20,500 (unadjusted basis) × 30% (0.30) (business-use 

percentage) × 20% (0.20) (from column (c) of 

Table 4-1 on the line for Jan. 1–Sept. 30, 

2017)). However, your depreciation deduction 

is limited to $563 ($1,875 x 30% (0.30) business use).

Leasing a Car

If you lease a car, truck, or van that you use in 

your business, you can use the standard mileage rate or actual expenses to figure your deductible 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 vehicle in your business. You can’t deduct any 

part of a lease payment that is for personal use 

of the vehicle, such as commuting.

You must spread any advance payments 

over the entire lease period. You can’t deduct 

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 payments.”

If you lease a car, truck, or van for 30 days 

or more, you may have to reduce your lease 

payment deduction by an “inclusion amount,” 

explained next.

Inclusion Amounts

If you lease a car, truck, or van that you use in 

your 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 deduction for your lease payment. (This reduction 

has an effect similar to the limit on the depreciation deduction you would have on the vehicle if 

you owned it.)

The inclusion amount is a percentage of part 

of the fair market value of the leased vehicle 

multiplied by the percentage of business and investment use of the vehicle for the tax year. It is 

prorated for the number of days of the lease 

term in the tax year.

The inclusion amount applies to each tax 

year that you lease the vehicle if the fair market 

value (defined next) when the lease began was 

more than the amounts shown in the following 

tables.

For tax years beginning 2021, all vehicles 

are subject to a single inclusion amount threshold 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 tables 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 having to buy or sell, and both having reasonable 

knowledge of all the necessary facts. Sales of 

similar property around the same date may be 

helpful in figuring the fair market value of the 

property.

Figure the fair market value on the first day 

of the lease term. If the capitalized cost of a car 

is specified in the lease agreement, use that 

amount as the fair market value.

Figuring the inclusion amount. Inclusion 

amounts for tax year 2017 are listed in Appendix A-1 for cars and in Appendix B-1 for trucks 

and vans. For tax years 2018–2021, the inclusion 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 procedure(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 following.

a. Find the line that includes the fair market value of the car on the first day of 

the lease term.

b. Go across the line to the column for 

the tax year in which the car is used 

under the lease to find the dollar 

amount. For the last tax year of the 

lease, use the dollar amount for the 

preceding year.

2. Prorate the dollar amount from (1b) for the 

number of days of the lease term included 

in the tax year.

3. Multiply the prorated amount from (2) by 

the percentage of business and investment use for the tax year. This is your inclusion 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 arrive 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 preceding 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 deduction by the inclusion amount figured for that 

year.

Leased car changed from business to personal use. If you lease a car for business use 

and, in a later year, change it to personal use, 

follow the rules explained earlier under Figuring 

the inclusion amount. For the tax year in which 

you stop using the car for business, use the dollar amount for the previous tax year. Prorate the 

dollar amount for the number of days in the 

lease term that fall within the tax year.

Example. On August 16, 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 figured 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 business use. If you lease a car for personal use 

and, in a later year, change it to business use, 

you must determine the car's fair market value 

on the date of conversion. Then figure the inclusion amount using the rules explained earlier 

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 records 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 company that showed the fair market value of her 

2019 truck on June 1, 2021, was $57,650. Using Appendix C-4, Janice figured her inclusion 

amount for 2021 as shown in the following table.

Tax 

year

Dollar 

amount Proration

Business 

use

Inclusion 

amount

2021 $2 214/365 60% $1

Reporting inclusion amounts. For information 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 Instructions for Schedule F (Form 1040).

Chapter 4 Transportation Page 23
Disposition of a Car

If you dispose of your car, you may have a taxable gain or a deductible loss. The portion of any 

gain that is due to depreciation (including any 

section 179 deduction, clean-fuel vehicle deduction (for vehicles placed in service before 

January 1, 2006), and special depreciation allowance) 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 dispose 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 exchanges 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 adjusted basis in your car. If you then spend all of 

the proceeds to acquire replacement property 

(a new car or repairs to the old car) within a 

specified period of time, you don’t recognize 

any gain. Your basis in the replacement property is its cost minus any gain that isn’t recognized. See Pub. 547 for more information.

Trade-in. When you trade in an old car for a 

new one, the transaction is considered a 

like-kind exchange. Generally, no gain or loss is 

recognized. (For exceptions, see chapter 1 of 

Pub. 544.) In a trade-in situation, your basis in 

the new property is generally your adjusted basis in the old property plus any additional 

amount you pay. (See Unadjusted basis, earlier.)

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 below zero) through the use of the standard mileage 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 business. The car cost $25,500. From 2016 through 

2021, you used the standard mileage rate to figure 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 expense 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 disposition. 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 disposition.

To figure the reduced depreciation deduction for a car disposed of in 2021, first determine 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 depreciation deduction for the full year using the 

rules explained in this chapter and multiply the 

result by the percentage from the following table 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 Disposition Before the Recovery Period Ends 

in chapter 4 of Pub. 946.

5.

Recordkeeping

If you deduct travel, gift, or transportation expenses, you must be able to prove (substantiate) certain elements of expense. This chapter 

discusses the records you need to keep to 

prove these expenses.

If you keep timely and accurate records, you will have support to show 

the IRS if your tax return is ever examined. You will also have proof of expenses that 

your employer may require if you are reimbursed under an accountable plan. These plans 

are discussed in chapter 6 under Reimbursements.

How To Prove Expenses

Table 5-1 is a summary of records you need to 

prove each expense discussed in this publication. You must be able to prove the elements 

listed across the top portion of the chart. You 

prove them by having the information and receipts (where needed) for the expenses listed 

in the first column.

You can’t deduct amounts that you approximate or estimate.

You should keep adequate records to prove 

your expenses or have sufficient evidence that 

will support your own statement. You must generally prepare a written record for it to be considered adequate. This is because written evidence is more reliable than oral evidence alone. 

However, if you prepare a record on a computer, it is considered an adequate record.

What Are Adequate 

Records?

You should keep the proof you need in an account book, diary, log, statement of expense, 

trip sheets, or similar record. You should also 

keep documentary evidence that, together with 

CAUTION

!

RECORDS CAUTION

!

Page 24 Chapter 5 Recordkeeping
your record, will support each element of an expense.

Documentary evidence. You must generally 

have documentary evidence, such as receipts, 

canceled checks, or bills, to support your expenses.

Exception. Documentary evidence isn’t 

needed if any of the following conditions apply.

• You have meals or lodging expenses while 

traveling away from home for which you 

account to your employer under an accountable plan, and you use a per diem allowance method that includes meals 

and/or lodging. (Accountable plans and 

per diem allowances are discussed in 

chapter 6.)

• Your expense, other than lodging, is less 

than $75.

• You have a transportation expense for 

which a receipt isn’t readily available.

Adequate evidence. Documentary evidence will 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, together with a bill from the payee, ordinarily establishes the cost. However, a canceled check 

by itself doesn’t prove a business expense without other evidence to show that it was for a 

business purpose.

Duplicate information. You don‘t have to record 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 employer pays directly for any ticket or other travel 

item. However, if you charge these items to 

your employer, through a credit card or otherwise, you must keep a record of the amounts 

you spend.

Timely kept records. You should record the 

elements of an expense or of a business use at 

or near the time of the expense or use and support it with sufficient documentary evidence. A 

timely kept record has more value than a statement prepared later when there is generally a 

lack of accurate recall.

You don’t need to write down the elements 

of every expense on the day of the expense. If 

you maintain a log on a weekly basis that accounts for use during the week, the log is considered a timely kept record.

If you give your employer, client, or customer an 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 generally 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 expense is clear from the surrounding circumstances, then you don’t need to give a written explanation.

Example. If you are a sales representative 

who calls on customers on an established sales 

route, you don’t have to give a written explanation of the business purpose for traveling that 

route. You can satisfy the requirements by recording the length of the delivery route once, 

the date of each trip at or near the time of the 

trips, and the total miles you drove the car during the tax year. You could also establish the 

date of each trip with a receipt, record of delivery, or other documentary evidence.

Confidential information. You don’t need to 

put confidential information relating to an element of a deductible expense (such as the 

place, business purpose, or business relationship) in your account book, diary, or other record. However, you do have to record the information 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 containing 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 evidence or documentary evidence. Direct evidence can be written statements or the oral testimony 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 relationship of your guests or the business purpose of 

the amount spent, the supporting evidence can 

be circumstantial rather than direct. For example, the nature of your work, such as making deliveries, provides circumstantial evidence of the 

use of your car for business purposes. Invoices 

of deliveries 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 adequate record is kept are representative of the 

use throughout the tax year.

Example. You use your car to visit the offices 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 personal purposes. You keep adequate records 

during the first week of each month that show 

that 75% of the use of the car is for business. 

Invoices and bills show that your business use 

continues at the same rate during the later 

weeks of each month. Your weekly records are 

representative of the use of the car each month 

and are sufficient evidence to support the percentage of business use for the year.

Exceptional circumstances. You can satisfy 

the substantiation requirements with other evidence if, because of the nature of the situation 

in which an expense is made, you can’t get a 

receipt. This applies if all the following are true.

• You were unable to obtain evidence for an 

element of the expense or use that completely satisfies the requirements explained 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 Incomplete Records.

• You have presented other evidence for the 

element that is the best proof possible under the circumstances.

Destroyed records. If you can’t produce a receipt 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 casualties.

Separating and Combining 

Expenses

This section explains when expenses must be 

kept separate and when expenses can be combined.

Separating expenses. Each separate payment is generally considered a separate expense. For example, if you entertain a customer 

or client at dinner and then go to the theater, the 

dinner expense and the cost of the theater tickets are two separate expenses. You must record them separately in your records.

Combining items. You can make one daily 

entry in your record for reasonable categories of 

expenses. Examples are taxi fares, telephone 

calls, or other incidental travel costs. Nonentertainment meals should be in a separate category. You can include tips for meal-related services with the costs of the meals.

Expenses of a similar nature occurring during the course of a single event are considered 

a single expense.

Car expenses. You can account for several uses of your car that can be considered 

Chapter 5 Recordkeeping Page 25
part of a single use, such as a round trip or uninterrupted business use, with a single record. 

Minimal personal use, such as a stop for lunch 

on the way between two business stops, isn’t 

an interruption of business use.

Example. You make deliveries at several 

different 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 general description of the recipients.

Allocating total cost. If you can prove the total cost of travel or entertainment but you can’t 

prove how much it cost for each person who 

participated in the event, you may have to allocate the total cost among you and your guests 

on a pro rata basis. To do so, you must establish the number of persons who participated in 

the event.

If your return is examined. If your return is 

examined, you may have to provide additional 

information to the IRS. This information could 

be needed to clarify or to establish the accuracy 

or reliability of information contained in your records, statements, testimony, or documentary 

evidence before a deduction is allowed.

How Long To Keep

Records and Receipts

You must keep records as long as they may be 

needed for the administration of any provision 

of the Internal Revenue Code. Generally, this 

means you must keep records that support your 

deduction (or an item of income) for 3 years 

from the date you file the income tax return on 

which the deduction is claimed. A return filed 

early is considered filed on the due date. For a 

more complete explanation of how long to keep 

records, see Pub. 583, Starting a 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 expenses generally don’t have to keep copies of this 

information. However, you may have to prove 

your expenses if any of the following conditions 

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 accounting procedures to verify expense accounts.

• You are related to your employer as defined under Per Diem and Car Allowances 

in chapter 6.

Reimbursements, adequate accounting, and 

nonaccountable plans are discussed in chapter 6.

Examples of Records

Table 5-2 and Table 5-3 are examples of worksheets that can be used for tracking business 

expenses.

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, certain performing artists, Armed Forces reservists, and certain disabled employees. The chapter ends with illustrations of how to report travel, 

gift, and car expenses on Forms 2106.

Where To Report

This section provides general information on 

where to 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 Schedule C (Form 1040) or Form 4562.

If you file Schedule C (Form 1040):

• Report your travel expenses, except 

meals, on line 24a;

• Report your deductible non-entertainment-related meals (actual cost or standard meal allowance) on line 24b;

• Report your gift expenses and transportation expenses, other than car expenses, 

on line 27a; and

• Report your car expenses on line 9. Complete Part IV of the form unless you have to 

file Form 4562 for depreciation or amortization.

If you file Schedule F (Form 1040), do the 

following.

• Report your car expenses on line 10. Attach Form 4562 and provide information 

on the use of your car in Part V of Form 

4562.

• Report all other business expenses discussed in this publication on line 32. You 

can only include 50% of your non-entertainment-related meals on that line. 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 your form instructions for more information 

on how to complete your tax return.

Both self-employed and an employee. If you 

are both self-employed and an employee, you 

must keep separate records for each business 

activity. Report your business expenses for 

self-employment on Schedule C (Form 1040), 

or Schedule F (Form 1040), as discussed earlier. Report your business expenses for your 

work as an employee on Form 2106, as discussed next.

Form 2106 is used by only 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 deductions 

subject to the 2% floor under section 67(a), employees who do not fit into one of the listed categories may not use Form 2106.

Employees. If you are an employee, you must 

generally complete Form 2106 to deduct your 

travel and 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 reimbursements (or the reimbursements were all included 

in box 1 of your Form W-2), the only business 

expense you are claiming is for gifts, and the 

special rules discussed later don’t apply to you, 

don’t complete Form 2106.

Statutory employees. If you received a 

Form W-2 and the “Statutory employee” box in 

box 13 was checked, report your income and 

expenses related to that income on Schedule C 

(Form 1040). Don’t complete Form 2106.

Statutory employees include full-time life insurance salespersons, certain agent or commission drivers, 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 reimbursement applies.

Reimbursement for personal expenses. If 

your employer reimburses you for nondeductible personal expenses, such as for vacation 

trips, your employer must report the reimbursement as wage income in box 1 of your Form 

W-2. You can’t deduct personal expenses.

Income-producing property. If you have 

travel or transportation expenses related to income-producing property, report your deductible expenses on the form appropriate for that 

activity.

For example, if you have rental real estate 

income and expenses, report your expenses on 

Schedule E (Form 1040), Supplemental Income 

and Loss. See Pub. 527, Residential Rental 

Property, for more information on the rental of 

real estate.

Vehicle Provided by

Your Employer

If your employer provides you with a car, you 

may be able to deduct the actual expenses of 

operating that car for business purposes. The 

amount you can deduct depends on the amount 

that your employer included in your income and 

the business and personal miles you drove during the year. You can’t use the standard mileage rate.

Form 2106 is only used by Armed 

Forces 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 deductions 

subject to the 2% floor under section 67(a), employees who do not fit into one of the listed categories may not use Form 2106.

Value reported on Form W-2. Your employer 

can figure and report either the actual value of 

your personal use of the car or the value of the 

car as if you used it only for personal purposes 

(100% income inclusion). Your employer must 

separately state the amount if 100% of the annual lease value was included in your income. If 

you are unsure of the amount included on your 

Form W-2, ask your 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 employer 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 actual expenses on line 23 of Section C and include the entire value of the employer-provided 

car on line 25. Complete the rest of the form.

CAUTION

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CAUTION

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Page 28 Chapter 6 How To Report
Form 2106 is only 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 deductions 

subject to the 2% floor under section 67(a), employees who do not fit into one of the listed categories may not use Form 2106.

Less than full value included in your income. If less than the full annual lease value of 

the car was included on your Form W-2, this 

means that your Form W-2 only includes the 

value of your personal use of the car. Don’t enter this value on your Form 2106 because it isn’t 

deductible.

If you paid any actual costs (that your employer didn’t provide or reimburse you for) to 

operate the car, you can deduct the business 

portion of those costs. Examples of costs that 

you may have are gas, oil, and repairs. Complete Form 2106, Part II, Sections A and C. Enter 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 government officials, and employees with impairment-related work expenses. Due to the suspension of miscellaneous itemized deductions 

subject to the 2% floor under section 67(a), employees who do not fit into one of the listed categories may not use Form 2106.

Reimbursements

This section explains what to do when you receive 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 report this amount and your expenses depends 

on whether your employer reimbursed you under an accountable plan or a nonaccountable 

plan.

This section explains the two types of plans, 

how per diem and car allowances simplify proving the amount of your expenses, and the tax 

treatment of your reimbursements and expenses. It also covers rules for independent contractors.

No reimbursement. You aren’t reimbursed or 

given an allowance for your expenses if you are 

paid a salary or commission with the understanding that you will pay your own expenses. 

In this situation, you have no reimbursement or 

allowance arrangement, and you don’t have to 

read this section on reimbursements. Instead, 

see Completing Form 2106, later, for information on completing your tax return.

CAUTION

!

CAUTION

!

Form 2106 is only 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 deductions 

subject to the 2% floor under section 67(a), employees who do not fit into one of the listed categories may not use Form 2106.

Reimbursement, allowance, or advance. A 

reimbursement or other expense allowance arrangement is a system or plan that an employer 

uses to pay, substantiate, and recover the expenses, 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 Standard Meal Allowance.) A car allowance is an 

amount your employer gives you for the business use of your car.

Your employer should tell you what method 

of reimbursement is used and what records you 

must provide.

Employers. If you are an employer and you reimburse employee business expenses, how 

you treat this reimbursement on your employee'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. Reimbursements treated as paid under nonaccountable 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 reimbursement or allowance arrangement must 

include all of the following rules.

1. Your expenses must have a business connection—that is, you must have paid or incurred deductible expenses while performing services as an employee of your 

employer.

2. You must adequately account to your employer for these expenses within a reasonable period of time.

3. You must return any excess reimbursement or allowance within a reasonable period 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. However, regardless of the facts and circumstances 

of your situation, actions that take place within 

the times specified in the following list will be 

CAUTION

!

treated as taking place within a reasonable period of time.

• You receive an advance within 30 days of 

the time you have an expense.

• You adequately account for your expenses 

within 60 days after they were paid or incurred.

• You return any excess reimbursement 

within 120 days after the expense was paid 

or incurred.

• You are given a periodic statement (at 

least quarterly) that asks you to either return or adequately account for outstanding 

advances and you comply within 120 days 

of the statement.

Employee meets accountable plan rules. If 

you meet the three rules for accountable plans, 

your employer shouldn’t include any reimbursements in your income in box 1 of your Form 

W-2. If your expenses equal your reimbursements, you don’t complete Form 2106. You 

have no deduction since your expenses and reimbursements are equal.

If your employer included reimbursements in box 1 of your Form W-2 and 

you meet all the rules for accountable 

plans, ask your employer for a corrected Form 

W-2.

Accountable plan rules not met. Even 

though you are reimbursed under an accountable plan, some of your 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 reimbursements. If you are reimbursed under an accountable plan, but you fail to return, within a 

reasonable time, any amounts in excess of the 

substantiated amounts, the amounts paid in excess of the substantiated expenses are treated 

as paid under a nonaccountable plan. See Reasonable period of time, earlier, and Returning 

Excess Reimbursements, later.

Reimbursement of nondeductible expenses. You may be reimbursed under your 

employer's accountable plan for expenses related to that employer's business, some of which 

would be allowable as employee business expense deductions and some of which would 

not. The 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 reimburses you for the nondeductible meals when 

you work late at the office is treated as paid under 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 nonaccountable 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 voluntarily returning excess reimbursements to the employer.

Adequate Accounting

One of the rules for an accountable plan is that 

you must adequately account to your employer 

for your expenses. You adequately account by 

giving your employer a 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 evidence (such as receipts) of your travel, mileage, and other employee business expenses. 

(See Table 5-1 in chapter 5 for details you need 

to enter in your record and documents you 

need to prove certain expenses.) A per diem or 

car allowance satisfies the adequate accounting requirement under certain conditions. See 

Per Diem and Car Allowances, later.

You must account for all amounts you received from your employer during the year as 

advances, reimbursements, or allowances. This 

includes amounts you charged to your employer by credit card or other method. You must 

give your employer the same type of records 

and supporting information that you would have 

to give to the IRS if the IRS questioned a deduction on your return. You must pay back the 

amount of any reimbursement or other expense 

allowance for which you don’t adequately account or that is more than the amount for which 

you accounted.

Per Diem and Car Allowances

If your employer reimburses you for your expenses using a per diem or a car allowance, you 

can generally use the allowance as proof for the 

amount of your expenses. A per diem or car allowance satisfies the adequate accounting requirements for the amount of your expenses 

only if all the following conditions apply.

• Your employer reasonably limits payments 

of your 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 defined next). If you are related to your employer, you must be able to prove your expenses 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 allowance practices are not based on reasonably accurate estimates of travel costs (including recognition of cost differences in different areas for 

per diem amounts), you won’t be considered to 

TIP

have accounted to your employer. In this case, 

you must be able to prove your expenses to the 

IRS.

Related to employer. You are related to your 

employer if:

1. Your employer is your brother or sister, 

half brother or half sister, spouse, ancestor, or lineal descendant;

2. Your employer is a corporation in which 

you own, directly or indirectly, more than 

10% in value of the outstanding stock; or

3. Certain relationships (such as grantor, fiduciary, 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 figured using any one of the following methods.

1. For per diem amounts:

a. The regular federal per diem rate.

b. The standard meal allowance.

c. The high-low rate.

2. For car expenses:

a. The standard mileage rate.

b. A fixed and variable rate (FAVR).

For per diem amounts, use the rate in 

effect for the area where you stop for 

sleep or rest.

Regular federal per diem rate. The regular federal per diem rate is the highest amount 

that the federal government will pay to its employees for lodging and M&IE (or M&IE only) 

while they are traveling away from home in a 

particular area. The rates are different for different locations. Your employer should have these 

rates available. You can also find federal per 

diem rates at GSA.gov/travel/plan-book/perdiem-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 eliminates the need to keep a current list of the per 

diem rates for each city.

Under the high-low method, the per diem 

amount for travel during January through September of 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 increased 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 before 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 allowance using any method you consistently apply in accordance with reasonable 

business practice. For example, an employer 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 reimbursement 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 deductible 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 reimburse your car expenses. Under this method, 

your employer pays an allowance that includes 

a combination of payments covering fixed and 

variable costs, such as a cents-per-mile rate to 

cover your variable operating costs (such as 

gas, oil, etc.) plus a flat amount to cover your 

CAUTION

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Page 30 Chapter 6 How To Report
fixed costs (such as depreciation (or lease payments), insurance, etc.). If your employer chooses to use this method, your employer will request 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 accountable plan, the following facts affect your 

reporting.

• The federal rate.

• Whether the allowance or your actual expenses were more than the federal rate.

The following discussions explain where to report your expenses depending upon how the 

amount of your allowance compares to the federal rate.

Allowance less than or equal to the federal rate. If your allowance is less than or 

equal to the federal rate, the allowance won’t be 

included in box 1 of your Form W-2. You don’t 

need to report the related expenses or the allowance 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 government officials, and employees with impairment-related work expenses. Due to the suspension of miscellaneous itemized deductions 

subject to the 2% floor under section 67(a), employees who do not fit into one of the listed categories may not use Form 2106.

Example 1. In April, 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 expenses 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 return.

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 expenses 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 government 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 employer pays her a mileage allowance of 40 

cents (0.40) a mile.

Since Nicole's $5,600 expense figured under the standard mileage rate (10,000 miles x 

56 cents (0.56)) is more than her $4,000 reimbursement (10,000 miles × 40 cents (0.40)), 

she itemizes her deductions to claim the excess 

expense. Nicole completes Form 2106 (showing 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 taxable. However, the excess allowance will be included in box 1 of your Form W-2. You must report this part of your allowance as if it were 

wage income.

If your actual expenses are less than or 

equal to the federal rate, you don’t complete 

Form 2106 or claim any of your expenses on 

your return.

However, if your actual expenses are more 

than the federal rate, you can complete Form 

2106 and deduct those excess expenses. You 

must report on Form 2106 your reimbursements 

up to the federal rate (as shown under code L in 

box 12 of your Form W-2) and all your expenses. 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 government officials, and employees with impairment-related work expenses. Due to the suspension of miscellaneous itemized deductions 

subject to the 2% floor under section 67(a), employees who do not fit into one of the listed categories may not use Form 2106.

Example 1. 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 Albuquerque, 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 included in Laura's income. Laura doesn’t have to 

complete Form 2106; however, she must include 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 Joe 

CAUTION

!

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-entertainment-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 employer also enters $284 under code L in box 12 

of Joe's Form W-2.

Joe completes Form 2106 to figure his deductible expenses. He enters the total of his actual 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 beverages 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 government 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 reimbursement 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 complete 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 expense allowances for your business expenses 

to the person paying the reimbursement or allowance. Excess reimbursement means any 

amount for which you didn’t adequately account 

within a reasonable period of time. For example, if you received a travel advance and you 

didn’t spend all the money on business-related 

expenses or you don’t have proof of all your expenses, you have an excess reimbursement.

Adequate accounting and reasonable period 

of time were discussed earlier in this chapter.

Travel advance. You receive a travel advance 

if your employer provides you with an expense 

allowance before you actually have the expense, and the allowance is reasonably expected to be no more than your expense. Under an 

accountable plan, you are required to adequately account to your employer for this advance and to return any excess within a reasonable period of time.

If you don’t adequately account for or don't 

return any excess advance within a reasonable 

period of time, the amount you don’t account for 

or return will be treated as having been paid under a nonaccountable plan (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 advance within a reasonable period of time. If you 

don’t do this, the unproven amount will be considered paid under a nonaccountable plan (discussed later).

Per diem allowance more than federal 

rate. If your employer's accountable plan pays 

you an allowance that is higher than the federal 

rate, you don’t have to return the difference between the two rates for the period you can 

prove business-related travel expenses. However, the difference will be reported as wages 

on your Form W-2. This excess amount is considered paid under a nonaccountable plan (discussed 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) advance 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 received and the federal rate for Phoenix (($80 − 

$56) × 3 days). However, the $72 will be reported 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 accountable 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 expenses related to your employer's business. 

See Reimbursement of nondeductible expenses, earlier, under Accountable Plans.

An arrangement that repays you for business 

expenses by reducing the amount reported as 

your wages, salary, or other pay will be treated 

as a nonaccountable plan. This is because you 

are entitled to receive the full amount of your 

pay whether or not you have any business expenses.

If you aren’t sure if the reimbursement or expense allowance arrangement is an accountable or nonaccountable plan, ask your employer.

Reporting your expenses under a nonaccountable plan. Your employer will combine 

the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other 

pay. Your employer will report the total in box 1 

of your Form W-2.

You must complete Form 2106 and itemize 

your deductions to deduct your expenses for 

travel, transportation, or non-entertainment-related meals. Your meal and entertainment expenses will be subject to the 50% Limit discussed 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 government officials, and employees with impairment-related work expenses. Due to the suspension of miscellaneous itemized deductions 

subject to the 2% floor under section 67(a), employees who do not fit into one of the listed categories may not use Form 2106.

Example 1. 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 employer, 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 business 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 designates $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 arrangement 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 discussed in this publication, and they affect both 

independent contractors and their clients or 

customers.

You are considered an independent contractor if you are self-employed and you perform services for a customer or client.

Accounting to Your Client

If you received a reimbursement or an allowance for travel, or gift expenses that you incurred on behalf of a client, you should provide an 

adequate accounting of these expenses to your 

client. If you don’t account to your client for 

CAUTION

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Page 32 Chapter 6 How To Report
these expenses, you must include any reimbursements or allowances in income. You must 

keep adequate records of these expenses 

whether or not you account to your client for 

these expenses.

If you don’t separately account for and seek 

reimbursement for meal and entertainment expenses in connection with providing services for 

a client, you are subject to the 50% limit on 

those expenses. See 50% Limit in chapter 2.

Adequate accounting. As a self-employed 

person, you adequately account by reporting 

your actual expenses. You should follow the recordkeeping rules in chapter 5.

How to report. For information on how to 

report 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 reimbursements 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 entertainment expenses incurred on your behalf, 

and

• The contractor adequately accounts to you 

for these expenses.

Contractor adequately accounts. If the contractor adequately accounts to you for non-entertainment-related meal expenses, you (the client 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 report amounts paid to the independent contractor if the total of the reimbursements and any 

other fees is $600 or more during the calendar 

year.

How To Use Per Diem

Rate Tables

This section contains information about the per 

diem rate substantiation methods available and 

the choice of rates you must make for the last 3 

months of the year.

The Two Substantiation 

Methods

High-low method. IRS notices list the localities that are treated under the high-low substantiation method as high-cost localities for all or 

part of the year. Notice 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 allowance. See 50% Limit in chapter 2 and 

IRS.gov/Newsroom/IRS-Provides-Guidanceon-Per-Diem-Rates-and-the-Temporary-100-

Percent-Deduction-for-Food-or-BeveragesFrom-Restaurants for additional information.

Regular federal per diem rate method. Regular 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 substantiation method, when new rates become effective (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. However, you must continue using the high-low 

method for the rest of the calendar year 

(through December 31). If you are an employer, 

you must use the same rates for all employees 

reimbursed under the high-low method during 

that calendar year. 

The new rates and localities for the high-low 

method are included each year in a notice that 

is generally 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 September 30 of the following year. Employees being reimbursed under the per diem rate method 

during the first 9 months of a year (January 1–

September 30) must continue under the same 

method through the end of that calendar year 

(December 31). However, for travel by these 

employees from October 1 through December 

31, you can choose to continue using the same 

per diem rates or use the new rates.

The new federal CONUS per diem rates are 

published each year, generally early in September. Go to GSA.gov/travel/plan-book/per-diemrates.

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-diemrates.

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 deductions subject to the 2% floor under section 

67(a), employees who do not fit into one of the 

listed categories may not use Form 2106.

This section briefly describes how employees complete Forms 2106. Table 6-1 explains 

what the employer reports on Form W-2 and 

what the employee reports on Form 2106. The 

instructions for the forms have more information 

on completing them.

If you are self-employed, don’t file 

Form 2106. 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 generally figured on Form 2106, Part II, and then 

claimed on Form 2106, Part I, line 1, column A.

Information on use of cars. If you claim 

any deduction for the business use of a car, you 

CAUTION

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CAUTION

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Chapter 6 How To Report Page 33
must answer certain questions and provide information about the use of the car. The information relates to the following items.

• Date placed in service.

• Mileage (total, business, commuting, and 

other 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 deduction based on the standard mileage rate instead of your actual expenses, you must complete 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 Mileage Rate in chapter 4 for information on using 

this rate.

Actual expenses. If you claim a deduction 

based on actual car expenses, you must complete Form 2106, Part II, Section C. In addition, 

unless you lease your car, you must complete 

Section D to show your depreciation deduction 

and any section 179 deduction you claim.

If you are still using a car that is fully depreciated, continue to complete Section C. Since 

you have no depreciation deduction, enter zero 

on line 28. In this case, don’t complete Section D.

Car rentals. If you claim car rental expenses on Form 2106, line 24a, you may have to 

reduce that expense by an inclusion amount, as 

described in chapter 4. If so, you can show your 

car expenses and any inclusion amount as follows.

1. Figure the inclusion amount without taking 

into account your business-use percentage for the tax year.

2. Report the inclusion amount from (1) on 

Form 2106, Part II, line 24b.

3. Report on line 24c the net amount of car 

rental 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 transportation expenses that didn’t involve overnight 

travel on Form 2106, line 2, column A. Also include on this line business expenses you have 

for parking fees and tolls. Don’t include expenses of operating your car or expenses of commuting 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 expenses for nonentertainment meals on those lines. 

Line 4 is for expenses such as gifts, educational 

expenses (tuition and books), office-in-the-home expenses, and trade and professional publications.

If line 4 expenses are the only ones 

you are claiming, you received no reimbursements (or the reimbursements 

were all included in box 1 of your Form W-2), 

and the special rules discussed later don’t apply to you, don’t complete Form 2106.

Non-entertainment-related meal expenses.

Show the full amount of your expenses for nonentertainment 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 subject to the Department of Transportation's 

“hours of service” limits (as explained earlier under Individuals subject to “hours of service” limits in chapter 2), use 80% instead of 50% for 

meals while away from your tax home.

Reimbursements. Enter on Form 2106, line 7, 

the amounts your employer (or third party) reimbursed you that weren’t reported to you in box 1 

of your Form W-2. This includes any amount reported under code L in box 12 of Form W-2.

Allocating your reimbursement. If you 

were 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 deductible non-entertainment-related meals.

You must allocate that single payment so that 

you know how much to enter on Form 2106, 

line 7, column A and column B.

Example. Rob's employer paid him an expense allowance of $12,000 this year under an 

accountable plan. The $12,000 payment consisted of $5,000 for airfare and $7,000 for 

non-entertainment-related meals, and car expenses. The employer didn’t clearly show how 

much of the $7,000 was for the cost of deductible non-entertainment-related meals. Rob actually 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 identified, Rob knows that $5,000 of the payment 

goes in column A, line 7, of Form 2106. To allocate the remaining $7,000, Rob uses the worksheet from the Instructions for Form 2106. His 

completed worksheet follows.

TIP

Reimbursement Allocation Worksheet

(Keep for your records.)

1. Enter the total amount of 

reimbursements your 

employer gave you that 

weren’t reported to you in 

box 1 of Form W-2 ......... $7,000

2. Enter the total amount of your 

expenses for the periods 

covered by this 

reimbursement ............ 8,500

3. Enter the part of the amount 

on line 2 that was your total 

expense for 

non-entertainment-related 

meals ................... 4,500

4. Divide line 3 by line 2. Enter 

the result as a decimal 

(rounded to at least three 

places) .................. 0.529 

5. Multiply line 1 by line 4. Enter 

the result here and in column 

B, line 7 ................. 3,703

6. Subtract line 5 from line 1. 

Enter the result here and in 

column A, line 7 ........... $3,297

On line 7 of Form 2106, Rob enters $8,297 

($5,000 airfare and $3,297 of the $7,000) in column A and $3,703 (of the $7,000) in column B.

After you complete the form. If you are a 

government official paid on a fee basis, a performing artist, an Armed Forces reservist, or a 

disabled employee with 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 expenses 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 expenses 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 reporting information. (See 50% Limit in chapter 2.)

2. Limit on total itemized deductions. 

Limitations on itemized deductions are suspended for tax years beginning after 2017 and before tax year January 2026, per section 68(g).

Special Rules

This section discusses special rules that apply 

only to Armed Forces reservists, government 

officials who are paid on a fee basis, performing 

artists, and disabled employees with impairment-related work expenses. For tax years beginning 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 Allowances, earlier, for more information.

Member of a reserve component. You are a 

member of a reserve component of the Armed 

Forces of the United States if you are in the 

Army, Navy, Marine Corps, Air Force, or Coast 

Guard Reserve; the Army National Guard of the 

United States; the Air National Guard of the United States; or the Reserve Corps of the Public 

Health Service.

How to report. If you have reserve-related 

travel that takes you more than 100 miles from 

home, you should first complete Form 2106. 

Then include your expenses for 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 employee business expenses on Form 2106.

Fee-basis officials are persons who are employed by a state or local government and who 

are paid in whole or in part on a fee basis. They 

can deduct their business expenses in performing services in that job as an adjustment to 

gross income rather than as a miscellaneous 

itemized deduction.

If you are a fee-basis official, include your 

employee business expenses from Form 2106, 

line 10, in the total on Schedule 1 (Form 1040), 

line 12.

Expenses of Certain

Performing Artists

If you are a performing artist, you may qualify to 

deduct your employee business expenses as 

an adjustment to gross income. To qualify, you 

must meet all of the following requirements.

1. During the tax year, you perform services 

in the 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 expenses 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 business expenses.

Special rules for married persons. If you are 

married, you must file a joint return unless you 

lived apart from your spouse at all times during 

the tax year. If you file a joint return, you must 

figure requirements (1), (2), and (3) separately 

for both you and your spouse. However, requirement (4) applies to your and your spouse's 

combined adjusted gross income.

Where to report. If you meet all of the above 

requirements, you should first complete Form 

2106. Then you include your performing-arts-related expenses from Form 2106, line 10, in the 

total on Schedule 1 (Form 1040), line 12.

If you don’t meet all of the above requirements, you don’t qualify to deduct your expenses as an adjustment to gross income.

Impairment-Related Work 

Expenses of Disabled Employees

If you are an employee with a physical or mental disability, your impairment-related work expenses aren’t subject to the 2%-of-adjusted-gross-income limit that applies to most 

other employee business expenses. After you 

complete Form 2106, enter your impairment-related work expenses from Form 2106, line 10, 

on Schedule A (Form 1040), line 16, and identify 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 example, blindness or deafness) that functionally limits your being employed; or

• A physical or mental impairment (for example, a sight or hearing impairment) that 

substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, 

learning, or working.

You can deduct impairment-related expenses as business expenses if they are:

• Necessary for you to do your work satisfactorily;

• For goods and services not required or 

used, other than incidentally, in your personal activities; and

• Not specifically covered under other income tax laws.

Example 1. You are blind. You must use a 

reader to do your work. You use the reader both 

during your regular working hours at your place 

of work and outside your 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 expenses.

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 expenses.

How To Get Tax Help

If you have questions about a tax issue; need 

help preparing your tax return; or want to download 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 statements (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 community, 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-preparation-and-filing software or Free File fillable forms. However, state tax preparation 

may not be available through Free File. Go 

to IRS.gov/FreeFile to see if you qualify for 

free online federal tax preparation, e-filing, 

and direct deposit or payment options.

• VITA. The Volunteer Income Tax Assistance (VITA) program offers free tax help 

to people with low-to-moderate incomes, 

persons with disabilities, and limited-English-speaking taxpayers who need help 

preparing their own tax returns. Go to 

IRS.gov/VITA, download the free IRS2Go 

app, or call 800-906-9887 for information 

on free tax return 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 MilTax, a free tax service offered by the Department of Defense through Military OneSource.

CAUTION

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Publication 463 (2021) Page 35
For more information go to, 

MilitaryOneSource (MilitaryOneSource.mil/

Tax).

Using online tools to help prepare your return. Go to IRS.gov/Tools for the following.

• The Earned Income Tax Credit Assistant 

(IRS.gov/EITCAssistant) determines if 

you’re eligible for the earned income credit 

(EIC).

• The Online EIN Application (IRS.gov/EIN) 

helps you get an employer identification 

number (EIN) at no cost.

• The Tax Withholding Estimator (IRS.gov/

W4app) makes it easier for 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 deductions.

– 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 provides information on your repayments and 

account balance.

• The Sales Tax Deduction Calculator 

(IRS.gov/SalesTax) figures the amount you 

can claim if you itemize deductions on 

Schedule A (Form 1040).

Getting answers to your tax questions. On IRS.gov, 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 Assistant, 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, instructions, and publications. You will find details 

on 2021 tax changes and hundreds of interactive links to help you find answers to 

your questions.

• You may also be able to access tax law information 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, certified public accountants (CPAs), attorneys, and 

many others who don’t have professional credentials. If you choose to have someone prepare your tax return, choose that preparer 

wisely. A paid tax preparer is:

• Primarily responsible for the overall substantive accuracy of your return,

• Required to sign the return, and

• Required to include their preparer tax identification number (PTIN).

Although the tax preparer always signs the 

return, you're ultimately responsible for providing all the information required for the preparer 

to accurately prepare your return. 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 preparer, go to Tips for Choosing a Tax Preparer 

on IRS.gov.

Advance child tax credit payments. From 

July through December 2021, advance payments 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 coronavirus, as well as tax relief available for individuals and families, small and large businesses, 

and tax-exempt organizations.

Employers can register to use Business 

Services Online. The Social Security Administration (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 social security number (SSN) or other confidential 

information on social media sites. Always protect your identity when using any social networking site.

The following IRS YouTube channels provide short, informative videos on various tax-related topics in English, Spanish, and ASL.

• Youtube.com/irsvideos.

• Youtube.com/irsvideosmultilingua.

• Youtube.com/irsvideosASL.

Watching IRS videos. The IRS Video portal 

(IRSVideos.gov) contains video and audio presentations for individuals, small businesses, 

and tax professionals.

Online tax information in other languages. 

You can find information on IRS.gov/

MyLanguage if English isn’t your native language.

Free Over-the-Phone Interpreter (OPI) Service. The IRS is committed to serving our multilingual 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 taxpayers with disabilities. Taxpayers who need information 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 intended.

Access your online account (individual taxpayers only). Go to IRS.gov/Account to securely access information about your federal tax 

account.

• View the amount you owe and a breakdown by tax year.

• See payment plan details or apply for a 

new payment plan.

• Make a payment or view 5 years of payment history and any pending or scheduled payments.

• Access your tax records, including key 

data from your most recent tax return, 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 professional submit an authorization request to access your individual taxpayer IRS online 

account. For more information, go to IRS.gov/

TaxProAccount.

Using direct deposit. The fastest way to receive a tax refund is to file electronically and 

choose direct deposit, which securely and electronically 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 refund. 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 affected if your SSN is used to file a fraudulent return or to claim a refund or credit.

• The IRS doesn’t initiate contact with taxpayers by email, text messages, telephone 

calls, or social media channels to request 

personal or financial information. This includes requests for personal identification 

numbers (PINs), passwords, or similar information for credit cards, banks, or other 

financial accounts.

• Go to IRS.gov/IdentityTheft, the IRS Identity Theft Central webpage, for information 

on identity theft and data security protection for taxpayers, tax 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 eligible 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 return with your SSN. To learn more, go to 

IRS.gov/IPPIN.

Ways to check on the status of your refund. 

• Go to IRS.gov/Refunds.

• Download the official IRS2Go app to your 

mobile 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 using 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 instructions.

• 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 institution. Contact your financial institution for 

availability, cost, and cut-off times.

Note. The IRS uses the latest encryption 

technology to ensure that the electronic payments you make online, by phone, or from a 

mobile device using the IRS2Go app are safe 

and secure. Paying electronically is quick, easy, 

and faster than mailing in a check or money order.

What if I can’t pay now? Go to IRS.gov/

Payments for more information about your options.

• Apply for an online payment agreement 

(IRS.gov/OPA) to meet your tax obligation 

in monthly installments if you can’t pay 

your taxes in full today. Once you complete 

the online process, you will receive immediate notification of whether your agreement has been approved.

• Use the Offer in Compromise Pre-Qualifier 

to see if you can settle your tax debt for 

less than the full amount you owe. For 

more information on the Offer in Compromise program, go to IRS.gov/OIC.

Filing an amended return. You can now file 

Form 1040-X electronically with tax filing software 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 updates.

Checking the status of your amended return. 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 alternative language, when these are available. 

Once your Schedule LEP is processed, the IRS 

will determine your translation needs and provide you translations when available. If you 

have a disability requiring notices in an accessible 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 Assistance 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. Before you visit, go to IRS.gov/TACLocator to find 

the nearest TAC, check hours, available services, and appointment options. Or, on the 

IRS2Go app, under the Stay Connected tab, 

choose the Contact Us option and click on “Local Offices.”

The Taxpayer Advocate 

Service (TAS) Is Here To 

Help You

What Is TAS?

TAS is an independent organization within the 

IRS that helps taxpayers and protects taxpayer 

rights. Their job is to ensure that every taxpayer 

is treated fairly and that you know and understand your rights under the Taxpayer Bill of 

Rights.

How Can You Learn About Your 

Taxpayer Rights?

The Taxpayer Bill of Rights describes 10 basic 

rights that all taxpayers have when dealing with 

the IRS. Go to TaxpayerAdvocate.IRS.gov to 

help you understand what these rights mean to 

you and how they apply. These are your rights. 

Know them. Use them.

What Can TAS Do For You?

TAS can help you resolve problems that you 

can’t resolve with the IRS. And their service is 

free. If you qualify for their assistance, you will 

be assigned to one advocate who will work with 

you throughout the process and will do everything possible to resolve your issue. TAS can 

help you if:

• Your problem is causing financial difficulty 

for you, your family, or your business;

• You face (or your business is facing) an 

immediate threat of adverse action; or

• You’ve tried repeatedly to contact the IRS 

but no one has responded, or the IRS 

hasn’t responded by the date promised.

How Can You Reach TAS?

TAS has offices in every state, the District of 

Columbia, and Puerto Rico. Your local advocate’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 provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. 

Services are offered for free or a small fee for 

eligible taxpayers. To find an LITC near you, go 

to TaxpayerAdvocate.IRS.gov/about-us/LowIncome-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 inclusion 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 automobile (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, 

23

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, 

30

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, 

30

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