Is Gas Deductible on Your Taxes?

Soo has over 10 years of experience at publicly traded companies and public accounting firms offering tax, accounting, payroll and advisory services to clients in diverse industries, including manufacturing, wholesale and retail, construction, real estate development, banking, finance, and professional and legal consulting. At Pricewaterhouse Cooper, she worked with many foreign-owned companies and advised clients on a broad range of issues, including federal and state tax minimization, determining the optimal structure for new foreign investments, and restructuring and reorganization for existing operations.

Soo has over 10 years of experience at publicly traded companies and public accounting firms offering tax, accounting, payroll and advisory services to clients in diverse industries, including manufacturing, wholesale and retail, construction, real estate development, banking, finance, and professional and legal consulting. At Pricewaterhouse Cooper, she worked with many foreign-owned companies and advised clients on a broad range of issues, including federal and state tax minimization, determining the optimal structure for new foreign investments, and restructuring and reorganization for existing operations.

Are you a self-employed worker who sometimes uses your car for business purposes? If so, car expenses like auto insurance, maintenance — and yes, gas — can be a huge source of tax savings for you.

Gas is deductible from your taxes as long as you choose the actual expense method for writing off the business use of your car. Let's dive into how that works!

How to claim gasoline on your taxes

There are two ways to write off car-related expenses on your tax return: the actual expense method and the standard mileage method. You'll have to pick the former if you want to deduct what you're actually spending on gas.

Here's how these two methods compare.

Writing off gas expenses with the actual expense method

Using this method, you'll keep track of what you're actually spending on your car, including the cost of gasoline. Then, you'll multiply that sum by your business-use percentage — that is, the percentage of the time you're putting your vehicle to business use instead of personal use.

That means that, if you have a car you only use for work, you can deduct the entire cost of operating it. Otherwise, though, you'll have to write off a portion of your expenses, corresponding to how much you drive your personal vehicle for business purposes.

For example, say you drove 10,000 miles in a year, with 5,000 of those being business miles. Then your business-use percentage for your car would be 50%.

What you can write off with the actual expense method

The actual expense method lets you write off your business-use percentage for everything you spend on your car, including your gas or diesel fuel. Here are some of the other costs that it covers:

• 🛡️ Insurance
• 🛢️ Oil changes
• 🔧 Repairs and maintenance
• 🚘 New tires
• 🏷️ Vehicle depreciation
  

This method does require you to track all of your vehicle expenses, which made it a less attractive option to self-employed taxpayers in the past. These days, though, apps like Keeper can do all the expense tracking for you by automatically scanning your credit card and bank transactions for car expenses.

Keeper takes the tedium out of tracking your actual costs. And that's very good news, since most freelancers tend to save more using this method.

Reimbursing employees for gas and other car expenses

Now, what if you run a business with employees who also drive for work?

Say you have employees who drive company cars, or use their personal cars for work. Then you'll need to reimburse them for what they're spending on their auto expenses.

Prior to the 2018 tax year, employees were allowed to deduct unreimbursed expenses that exceed 2% of their adjusted gross income if they itemized their deductions. After 2018, though, employees can't write off unreimbursed gas anymore — you'll have to pay them back for it.

Soo has over 10 years of experience at publicly traded companies and public accounting firms offering tax, accounting, payroll and advisory services to clients in diverse industries, including manufacturing, wholesale and retail, construction, real estate development, banking, finance, and professional and legal consulting. At Pricewaterhouse Cooper, she worked with many foreign-owned companies and advised clients on a broad range of issues, including federal and state tax minimization, determining the optimal structure for new foreign investments, and restructuring and reorganization for existing operations.

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