Local transportation refers to travel in which you aren't away from your tax home (the city or general area in which your main place of business is located) long enough to require sleep or rest. Different rules apply if you are away from your tax home for significantly more than an ordinary work day and need sleep or rest in order to do your work.

The most important feature of the local transportation rules is that your commuting costs are not deductible. That is, the fare you pay or the miles you drive simply to get to work and home again are personal and not business miles and no deduction is available. This is the case even if you work during the commute, e.g., via a car phone, or by performing business-related tasks while on the train.

An exception applies for commuting to a temporary work location that is outside of the metropolitan area in which you live and normally work. “Temporary,” for this purpose, means a location where your work is realistically expected to last (and does in fact last) for no more than a year.

Once you get to work, the cost of any local trips you take for business purposes is a deductible business expense. So, for example, the cost of travel from your office to visit a client, pick up supplies, etc., is deductible. Similarly, if you have two business locations, the cost of travel between them is deductible.

Recordkeeping. If your deductible trip is by taxi or public transportation, save a receipt, if possible, or make a notation of the expense in a logbook, and record the date, amount spent, destination, and business purpose. If you use your car, note miles driven instead of amount spent. Note also any tolls paid or parking fees (with receipts).

You will need to allocate your automobile expenses between business and personal use based on miles driven during the year. Proper recordkeeping is crucial in the event of an IRS challenge. Your deduction can be computed using:

(1) a standard mileage rate (for the year 2009, 55 cents per business mile; for 2008, 50.5 cents for each business mile driven through June, and 58.5 cents per business mile drive thereafter) plus tolls and parking, or

(2) actual expenses (including depreciation, subject to limitations) for the portion of car use allocable to the business.

For method (2), you will need to keep track of all costs for gas, repairs and maintenance, insurance, interest on a car loan, and any other car-related cost.