How to categorize fuel expenses?
Fuel expenses are business costs incurred to purchase gasoline, diesel, or other fuel used to operate vehicles or equipment for work-related purposes. These expenses commonly arise from business travel, deliveries, on-site services, or equipment operation.
What are fuel expenses?
Fuel expenses cover the cost of gas your business pays to run company-owned or leased vehicles, rental vehicles, and business-use equipment. They may also include fuel for personal vehicles used for business purposes, provided the business portion is properly tracked. To qualify as deductible, fuel costs must be reasonable in amount and tied directly to business activity.
How to categorize fuel expenses
- Record as Operating Expenses in your income statement.
- Use a Fuel Expense, Vehicle Expense, or Transportation Expense account in your chart of accounts.
- Include only fuel costs related to business use; personal fuel is not deductible.
- For mixed-use vehicles, deduct only the portion attributable to business use.
- Maintain receipts and mileage logs to support business-related fuel usage.
- Do not deduct fuel separately if you use the standard mileage rate; fuel is included in that rate.
Examples of fuel expenses
- Gasoline for company-owned cars, trucks, or vans.
- Diesel for delivery vehicles or commercial equipment.
- Fuel for rental cars used during business travel.
- Fuel used while visiting clients or job sites.
- Fuel for generators or machinery used in business operations.
Tax implications for fuel expenses
- Fuel expenses are generally tax-deductible when using the actual expense method.
- Businesses using the standard mileage rate cannot deduct fuel costs separately.
- Fuel expenses must be ordinary, necessary, and properly documented to be deductible.
- Personal use of fuel must be excluded or prorated.
- Deduct fuel expenses on Schedule C (for sole proprietors) or under vehicle and transportation expenses on business tax returns.
