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.
Incorporating gas expenses into the standard mileage rate
The other method you can use to write off the business use of your car is the standard mileage method. This gives you a tax deduction based on the number of miles you drive for work. (Keep in mind that commuting miles don't count! You can read more about the difference between them in our post on business vs. commuting miles.)
To calculate your deduction using the standard mileage rate, you'll first have to track your miles using a mileage log or app. Then, just multiply your business mileage by a standard mileage rate set by the IRS, which is updated annually. (For 2022, you get two rates. It's $0.585 for the first half of the year, but thanks to rising gas prices, the IRS raised it to $0.625 for the miles you drive from July to December.)
What you can write off with the standard mileage method
With this method, you won't be able to claim gas — or other expenses like insurance and tires — as separate expenses at all. Those are already included in the IRS's standard rate.
However, some car-related costs do stack on top of the standard mileage rate, including parking fees, registration fees, and tolls. So you'll still need to track those expenses, using Keeper or a manual ledger.
Choosing between claiming gas and claiming miles
How do the two methods for writing off auto expenses like gas compare?
Let's run through a simple example so we can test them. We’ll reuse the scenario from above: 5,000 work miles and 10,000 total miles driven
Example write-off with actual expenses
We'll try the actual expenses method first. Say you spent the following on your car:
- $2,000 on fuel
- $3,000 on insurance
- $100 on an oil change
- $400 on repairs and maintenance
- $200 on new tires
Your total car expenses for the year come out to $5,700. Multiply that by your business-use percentage of 50%, and you get a write-off of $2,850 using the standard mileage method.
Example write-off with standard mileage
Now, let's try the standard mileage method. With 5,000 work miles, multiplied by $0.56 a mile, you end up with a write-off of $2,800 — slightly less than with actual expenses.
Which method to choose
In general, self-employed people who drive a moderate amount tend to save more with actual expenses. But those who use their cars a lot for work — including rideshare and delivery drivers — tend to do better with the standard mileage method.
Of course, how much money you'll save with each method depends on how fuel-efficient your vehicle is, as well as what kind of work you do.
To see an in-depth comparison of the two methods, check out our detailed breakdown of actual expenses vs. the standard mileage deduction!
Switching between actual expenses and standard mileage
Keep in mind, there are some restrictions when it comes to switching between the two methods.
To use the standard mileage rate for a car you own, you have to choose to use it in the first year you use the car for work. Then, in later years, you can choose to use the standard mileage rate or switch to actual expenses.
For a car you lease, you must use the standard mileage rate method for the entire lease period (including renewals) if you choose the standard mileage rate.
Where to claim car expenses like gas
As you know now, freelancers, independent contractors, and small business owners who sometimes drive for work, can claim gas on their taxes if they choose to write off actual vehicle expenses.
If you’re a sole proprietor (or run a single-member LLC), then claiming car expenses like gas is very straightforward. You'll just enter them in Line 9 of your Schedule C, following the instructions given by the IRS.
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.
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At Keeper, we’re on a mission to help people overcome the complexity of taxes. We’ve provided this information for educational purposes, and it does not constitute tax, legal, or accounting advice. If you would like a tax expert to clarify it for you, feel free to sign up for Keeper. You may also email firstname.lastname@example.org with your questions.