Parking your car can be just as expensive as driving if, if not more so. The good news is that parking can be a tax0deductible expense. Let’s walk through deducting parking expenses on your taxes.
Deducting Parking When You’re Self-Employed
If you’re self-employed, the basic rule is that any money you spend to park for business is deductible. Basically, if the mileage is deductible, the parking is, too. For example, you may deduct your parking charges if you drive from your office or to a client’s office.
This applies whether you use the standard mileage rate or the actual expense method . Either way, you need to keep track of what you pay for parking and then deduct it on IRS Schedule C.
If your mileage isn’t deductible, your parking likely also isn’t deductible. This means you can’t deduct your parking for personal commuting.
Commuting from home to your regular workplace is not deductible. So you can’t deduct the parking at your office or another workplace. Yet, there’s a big exception to the commuting rule if you have a tax deductible home office. In this case, the parking at your office would be deductible.
If a client reimburses you for your parking (as some do), you get no deduction for the expense. The client may deduct it as a business expense.
The client shouldn’t include parking reimbursement on any 1099-MISC it files. Yet, some clients do this by mistake. If this happens, list the total amount reported on the 1099-MISC as income on your Form 1040 and then deduct the parking expense as a business expense. This way the amount listed on the 1099-MISC will match what you report as income on your tax return. Mismatches lead to questions from the IRS.
Parking Expenses for Employees
If you’re an employee in someone else’s business, it’s always best if your employer reimburses you for your parking expenses. These reimbursements are tax-free provided you adequately document them with receipts.
If your employer won’t reimburse you, you may deduct such parking expenses. Do this as a miscellaneous itemized deduction on IRS Schedule A.
Yet, such expenses are deductible only to the extent that they, along with your other miscellaneous itemized deductions, exceed 2 percent of your adjusted gross income. For example, if your 2017 AGI is $100,000, you may deduct these miscellaneous expenses exceed $2,000 (2 percent x $100,000 = $2,000).
What about parking at your office or other regular workplaces? Employees ordinarily can’t deduct this cost as a personal deduction, since it’s part of commuting.
Yet, your employer may pay for your parking as a tax-free fringe benefit. Such parking must be at or near the employer’s business premises, or at a mass transit facility such as train station or car pool parking lot. For 2017, the value of employer-provided parking is tax-free up to $255 per month. Any value over $255 is taxable income for the employee.
There are various ways an employer may provide tax-free parking benefits for its employs—it may
- Pay for the parking directly—for example, pay a parking lot operator
- Reimburse the employee for parking upon submission of a receipt
- Provide employee parking on premises it owns or leases.
Note that tax-free parking fringe benefits may only be provided to regular employees. Partners in partnerships, members of limited liability companies, and over 2 percent shareholders of S corporations don’t qualify for the benefit. Yet, they may be provided up to $21 per month in parking as a tax-free de minimis fringe benefit.
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MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.