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Equipment Fuel Costs - Tax Deduction or Tax Credit?

Discussion in 'Business Operations' started by Ciaran, May 11, 2020.

  1. Ciaran

    Ciaran LawnSite Member
    Messages: 13

    Your fuel costs for running your equipment, do you:
    1. deduct all the cost as an expense? or
    2. deduct some of the costs as an expense and some as a tax credit?
    I am looking over a friend's tax return as a favour, I am an accountant and he wanted a second opinion. I saw that his current accountant is claiming a deduction for all the fuel he uses to run his equipment on his Schedule C. Now, if your are using gas to run a non-highway registered motor engine eg a mower, you can claim the excise tax back on Federal and State tax return. On $1,000 fuel cost, you are better off by $120 which is more cash in your pocket.

    I am interested to know if anyone else is claiming the excise tax back on their return and if you have had any push back from the IRS or any State tax authority. I thought I would ask this question on this forum as everyone seems to very generous and willing to help out fellow Lawn Care business owners. I don't want to recommend it to my mate if he is going to get into an audit with the IRS, so I am interested in any experiences (good or bad) that you may have had if you went down this route.
     
    LonestarLandscaping1 likes this.
  2. RBJones5689

    RBJones5689 LawnSite Member
    Messages: 1

    how does that work?
     
  3. BigJlittleC

    BigJlittleC LawnSite Fanatic
    from Chicago
    Messages: 8,282

    Sounds like I need to talk to my CPA and find out what he be doing.
     
  4. Mark Oomkes

    Mark Oomkes LawnSite Fanatic
    Messages: 21,603

    I'm not sure I'm following.

    All my fuel is a deductible expense.

    AND I get a refund or credit for the road taxes that I pay for off road equipment. Except my dyed diesel which isn't taxed to start with.

    So if I am understanding you, I am doing both which is perfectly legal. Because one is an expense and the other is a tax that shouldn't have been paid.
     
  5. kemco

    kemco LawnSite Gold Member
    Messages: 3,362

    Fun read of 24 pages... not.
    IRS Form 510 pg 18 Nonhighway business use in trade
    Off-highway business use (No. 2). Off-high- way business use means fuel used in a trade or business or in an income-producing activity other than as a fuel in a highway vehicle regis- tered or required to be registered for use on public highways. The terms “highway vehicle,” “public highway,” and “registered” are defined below. Don't consider any use in a boat as an off-highway business use.
    Off-highway business use includes fuels used in any of the following ways.
    • In stationary machines such as generators, compressors, power saws, and similar
    Caroline owns a landscaping business. She uses power lawn mowers and chain saws in her business. The gasoline used in the power lawn mowers and chain saws qualifies as fuel used in an off-highway busi- ness use. The gasoline used in her personal lawn mower at home doesn't qualify.
    Highway vehicle. A highway vehicle is any
    Caroline owns a landscaping business. She uses power lawn mowers and chain saws in her business. The gasoline used in the power lawn mowers and chain saws qualifies as fuel used in an off-highway busi- ness use. The gasoline used in her personal lawn mower at home doesn't qualify.
    Highway vehicle. A highway vehicle is any
    • For cleaning purposes.
    • In forklift trucks, bulldozers, and earthmov-
    ers.
    Generally, this use doesn't include nonbusi- ness use of fuel, such as use by minibikes, snowmobiles, power lawn mowers, chain saws, and other yard equipment.
    Example. Caroline owns a landscaping business. She uses power lawn mowers and chain saws in her business. The gasoline used in the power lawn mowers and chain saws qualifies as fuel used in an off-highway busi- ness use. The gasoline used in her personal lawn mower at home doesn’t qualify.

    like most thing irs, double dipping not allowed. Seems much easier just to expense fuel used in mowers and get a deduction rather than attemp to get a small credit. But to each their own.
     
  6. OP
    OP
    Ciaran

    Ciaran LawnSite Member
    Messages: 13


    It sounds like you have this covered Mark. You are doing, what I strongly believe, is the right thing - you are claiming the deduction for the fuel you use in your off road equipment and claiming a refund/credit for the taxes you have paid on this same fuel. The final step is to report the tax credit/refund as income in the year that you receive it to make sure that you are not double dipping.
     
    Mark Oomkes likes this.
  7. Mark Stark

    Mark Stark LawnSite Fanatic
    Messages: 11,003

    Our CPA does what Mark is describing. I know they put through whatever tax credit we get back since we don't use that fuel on the roads.
     
    Doc8406 and Mark Oomkes like this.
  8. OP
    OP
    Ciaran

    Ciaran LawnSite Member
    Messages: 13

    RB - this only applies to fuel used in off road equipment but it is money that you are entitled to. This is how it works.

    Let's assume you paid $1,000 for 400 gallons of fuel for your off road equipment.

    When you file your Fed and RI tax returns, you will claim your off road fuel as an expenses against your income. That is great and you have done nothing wrong. This is where most people stop and where they are missing out on some decent money.

    As Kemco and Mark pointed out, as you are using this fuel in your off road equipment, you can claim the Federal and State excise tax back on this fuel. The excise tax is calculated on a per gallon basis. For Federal purposes the tax is 18.3 cents per gallon. For RI purposes the tax is a whopping 32 cents a gallon. In this example, you would be eligible for a tax credit/refund of $201.20. Granted this will need to reported as income in the year that you receive it but still you have the potential to get a decent chunk of change back here.

    Plus, if you have not claimed the tax credit/refund of the excise tax previously, you may be able to go back and claim a refund for the prior 3 years. Not bad for just going the one more step when filing your tax return.

    Hope this is helpful.
     
    kemco, Valk and Mark Oomkes like this.
  9. Mark Oomkes

    Mark Oomkes LawnSite Fanatic
    Messages: 21,603

    I assume my accountant does, really not sure.
     
  10. OP
    OP
    Ciaran

    Ciaran LawnSite Member
    Messages: 13

    That is good to hear - might as well take the money!! A quick way to double check is to see if there is a Form 4136 in with your Fed tax return.

    Also check your State return as you may be eligible there too.
     

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