Fuel Tax Credits: An Overlooked Opportunity for Businesses

Many businesses are overlooking this easy way to legitimately recover tax dollars.

fuel-tax.jpgThe Credit for Federal Tax Paid on Fuels was created to offset the tax that the federal government charges on fuels such as gasoline and diesel in specific circumstances. This tax is charged mainly to fund the upkeep of roadways and is imposed when fuel is purchased. Because it is not feasible to separate taxable and non-taxable use of the fuel at the time of purchase, generally, everyone pays it. However, not everyone is using it for cars and trucks or other taxable purposes. Many owners of landscaping, farming, manufacturing, and construction companies are purchasing the fuel to power the equipment necessary to run their businesses and are often overlooking this credit. 

For example, a landscaper who is using gasoline to power lawnmowers will have a legitimate claim to the credit. Using the fuel in that manner will qualify for the “Off-Highway Use” category of the credit. There are many other non-taxable uses of fuel that are also intitled to the credit.  For instance, if you are a non-profit organization you may benefit too, even if you are using vehicles on the road.  School bus companies, commercial fishing boats, and others may qualify as well.

How much can you save by claiming this credit for the business use of chainsaws, generators, lawn mowers, forklifts, bulldozers, etc.?

The credit is reported on IRS Form 4136 and is calculated by the number of gallons used for a qualifying purpose multiplied by the applicable credit rate. For example, if you purchased 5,000 gallons of gasoline during the year with a credit rate of .184 and used it in running off-highway equipment you would receive a tax credit of $920. Or perhaps, you purchased 10,000 gallons of diesel fuel with a credit rate of .244, by claiming this credit you will recover $2,440. 

It is important to keep in mind that this is a refundable tax credit and not a deduction. A tax credit is more powerful in that it saves you tax dollar for dollar, where as a deduction will reduce the amount of money that tax is calculated on. You will have to include the amount refunded in your income the following year since you would have already deducted the full cost of the fuel.  Instead of waiting until filing your tax return to claim the annual credit with Form 4136, you can also file Form 8849 to claim a periodic refund or Form 720 to claim a credit against your excise tax liability.  Every business is different and it is best to discuss your unique situation with your tax advisor.

Relevant Links
https://www.irs.gov/forms-pubs/form-4136-credit-for-federal-tax-paid-on-fuels

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If you have questions or need help determining if you qualify please contact The Innovative CPA Group at 203-489-0612.

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