There are a lot of questions surrounding taxes and funding. This article will go over all the rules surrounding deducting fuel and mileage from taxes, how the IRS defines these deductions, and what they allow taxpayers to deduct in their annual filings. It will also cover the tax implications of this form of deduction.
Can You Claim Fuel Mileage on Taxes?
This question is one I get asked frequently: Can I claim fuel mileage on my taxes? Most people don’t think about this possibility, even though it is a legitimate tax deduction. However, it only works in limited circumstances.
Fuel claimed for business use must be included in business income, and the amount can’t exceed what would have been paid for gas purchased at market prices.
We have a few standard mileage rates to help you calculate the amount to claim. The standard rate is 56 miles per gallon for most businesses and can be claimed on Line 15, Schedule C of your 1040 tax form. There are also some exceptions to these rules, as indicated below.
Fuel Tax Deductions
If you own or operate a business in which you use fuel for both business and personal purposes, there are specific rules for any deduction claimed for that fuel.
If your business uses a particular fuel and you claim a deduction for that fuel, you may have to reduce the amount of business income or increase the income subject to tax by the amount of deduction claimed.
Here are some general rules for deducting expenses for fuel for traveling on business:
- You can deduct the cost of fuel for any vehicle you use in your business.
- You may not deduct the cost of fuel used by a passenger vehicle to carry employees.
- You may not deduct the cost of fuel you use to commute to work. Commuters are not allowed to claim their commuting expenses on their tax return.
You may be able to deduct the cost of fuel used in a vehicle that belongs to your business if you use that vehicle for transportation purposes. Remember that this vehicle must not be available for personal use by you, your employees, or your family.
If you have employees who use fuel to travel in a vehicle that belongs to your business for purposes other than commuting, you may be able to deduct the cost of fuel.
If you cannot deduct the fuel expense you claimed, you may be able to take an overall deduction that includes your business and personal expenses. The IRS limits this deduction, so do not overstate expenses or try to claim a deduction for something that would get rejected. Also, only the first 2,500 gallons of fuel you use for business purposes can be deducted each year. If you exceed this amount, you will have to pay the penalty on top of any tax due.
Here is an example of when you might be able to deduct fuel and mileage on your taxes:
You own a truck that you drive to work from a location nearby. To save time, you ride the bus most days and keep a car at work for any trips that are more than 20 miles from your office.
You use the truck only for business, so you can fully deduct the costs of fuel you used for business purposes. Remember, the limit: You may only deduct 2,500 gallons of fuel per year, only the first 2,500 gallons of fuel used for business. If you drive more than that, you must pay the penalty on top of any tax due.
You can even deduct the cost of fuel if you travel in your car and your employer reimburses you for it. The IRS requires that you maintain records to show that you’ve paid the fuel costs. You must also record what your actual miles per gallon is.
You can also claim mileage expenses if you use your vehicle for business purposes, but not personal ones. The rule is simple: all miles are deductible for driving for business purposes.
Suppose you’ve incurred fuel expenses driving for your business. In that case, you can deduct those expenses on Schedule C on your corporate tax return or Schedule C-EZ if you are a sole proprietor or an LLC member who owns more than 2 percent of the business and is actively engaged in it. You can then deduct that expense from your net income before calculating your total income tax.
And remember: companies can offer employees mileage reimbursement plans. These plans allow employees to claim mileage on their tax returns, but they provide federal and state tax benefits for the company. They also work with payroll companies to keep track of this data and make it simple for employees to get reimbursed.
Although many people don’t think about claiming their fuel and mileage on taxes, it is a legitimate deduction. However, everyone needs to research and learn the rules before claiming something they shouldn’t.
If you own a business, you can try claiming fuel and mileage on taxes the next time you’re filing your federal return. Make sure you are claiming the right amount and that you’re not breaking any IRS rules.
I hope this article has helped you understand the tax implications of deducting your fuel costs for business use. You can claim fuel on your taxes, but it might not be as simple as you initially thought.