Using Gas as a Tax Reduction

Gas can be deducted from personal taxable income if it is work, medical, logistic or charity related. Gas used for leisure is not tax deductible according to IRS Revenue Procedure 2008-72. The four categories for which gas costs may be used as a tax reduction are from the IRS 2009 Standard Mileage Rates available at the Internal Revenue Service website, and include the following categories and allocations for the 2009 tax year. These tax deductions are sanctioned in Title 26 of the U.S. Code, specifically sections 213, 217, 162(a), and 170(i). These sections outline specific vehicular use for which tax deductions may apply. 

• Work -55 cents per mile ex: Travel to clients homes during workday
• Charity – 14 cents per mile ex: Travel to volunteer church choir
• Logistics -24 cents per mile ex: Travel to new city for new job
• Medical -24 cents per mile ex: Trips to hospital for medical treatment

Forms needed for gas tax reduction

Properly reporting gas as a tax deduction requires use of the appropriate Internal Revenue Service (IRS) forms. Specific forms that are used to report gas tax reduction include the following list in addition to instructional material provided by the IRS for assistance with completing of the forms. These forms are recorded by the IRS and may be used to calculate a tax refund or reduction in taxes due. Not all these forms may be required; for example if a gas is used as an expense for a sole proprietorship IRS 1040 Schedule C may be used but not IRS Form 1120(S) which is for a different type of business structure.

• IRS Form 1040, Schedule A ‘Itemized deductions’

• Schedule A Instructions

• IRS Schedule C: ‘Profit or Loss from Business”

• Schedule C instructions

• Form 1040 Instructions

• Form 2106 “Employee Business Expenses”

• Publication 526 ‘Charitable contributions’

• Form 1120(S) “U.S. Income Tax Return for an S Corporation”

Key factors and consideration in gas tax reduction

Not all scenarios in which vehicles are used for work purposes are subject to reduction in tax for gas expenses. This is because certain situations may take place in which the funds may be compensated for by the employer or the gas usage does not qualify for tax reduction for other reasons specified by the IRS. Some of factors to consider when determining if gas expenses can be used as a tax reduction are as listed.

• Reimbursed mileage from employers is not tax deductible

• Employers are not required to pay the IRS gas deduction amounts

• Standard mileage rates may be replaced with actual costs

• Excess mileage reimbursement provided by employers is subject to employment tax

• Business vehicle limitations apply ex-number of vehicles

• Gas as tax reduction not applicable if business depreciation is utilized for vehicle

• Only deductions over 2% of AGI qualify for tax reduction as per IRS Publication 529

Summary

Gas can be used as a tax reduction but only in specific instances such as those mentioned in this article. Even within the allowable categories in which gas may be used as a tax reduction, additional IRS regulations may apply that prohibit the use of gas expenses as a tax reduction. An example of such a circumstance is when an employer reimburses an employee for gas independently of a gas tax reduction.

The rates at which the IRS allows reductions for gas expenses is reported by the IRS and is available in this articles’ 2009 Standard Mileage Rates.  For unique tax circumstances and more information regarding gas as a tax reduction consulting a tax professional or  the IRS directly may be necessary. Additionally the links in this article provide source information and originating U.S. Code for applicable uses of gas as a tax reduction.

Sources:

1. http://www.irs.gov (Internal Revenue Service)
2. http://www.us.code.house.gov (U.S. Code)