Can You Get Reimbursed for Gas and Mileage?

Understanding the rules for gas and mileage expenses incurred during business travel is important for both employees seeking reimbursement and self-employed individuals aiming to reduce taxable income. This article will cover qualifying expenses, reimbursement procedures for employees, deduction methods for self-employed individuals, and essential record-keeping practices.

Qualifying Business Travel Expenses

Business travel expenses encompass costs incurred when traveling away from a regular place of business for work. This differs from ordinary commuting expenses, which are personal costs to get to and from one’s primary workplace and are not deductible or reimbursable. Common scenarios include travel to a client’s office, attending a business conference, or visiting a temporary work location.

These expenses must be ordinary and necessary for the business activity. An ordinary expense is common and accepted in the industry, while a necessary expense is helpful and appropriate for the business. Two methods exist for calculating these expenses: the standard mileage rate and the actual expense method. The standard mileage rate is a set rate per mile driven for business, established annually by federal tax authorities. The actual expense method involves tracking and deducting the real costs of operating a vehicle for business.

Employee Reimbursement Procedures

Employees seeking reimbursement for business gas and mileage expenses do so through their employer, often under an “accountable plan.” An accountable plan is a reimbursement arrangement meeting federal tax requirements, allowing reimbursements to be non-taxable to the employee and deductible by the employer. For a plan to be accountable, three requirements: the expenses must have a business connection, employees must provide adequate accounting of expenses to their employer within a reasonable period, and any excess reimbursement must be returned within a reasonable time.

The process involves submitting an expense report, detailing the business purpose, date, destination, and amount for each expense. This documentation allows the employer to verify costs and process reimbursement. Without an accountable plan, or if its requirements are not met, reimbursements may be treated as taxable wages, subject to income tax withholding and reported on the employee’s Form W-2. Understanding an employer’s policies and procedures is important.

Deducting Expenses as a Self-Employed Individual

Self-employed individuals, including independent contractors, freelancers, and small business owners, can deduct gas and mileage expenses directly on their tax returns. These deductions reduce their taxable income, lowering their overall tax liability. They have the choice between using the standard mileage rate or the actual expense method to calculate their deductible vehicle costs. The standard mileage rate simplifies the deduction process, allowing a set amount per business mile driven without needing to track every specific vehicle expense.

Opting for the actual expense method requires detailed record-keeping of all vehicle-related costs, such as gas, oil, repairs, tires, insurance, registration fees, and depreciation or lease payments. While more complex, this method can sometimes result in a larger deduction if actual costs exceed the standard mileage rate calculation. These business vehicle expenses are reported on Schedule C (Profit or Loss From Business) of Form 1040, contributing to the calculation of net profit or loss from the business activity. The chosen method must be applied consistently for the tax year, and switching between methods in subsequent years has specific rules.

Essential Record Keeping

Maintaining accurate and detailed records is essential for both employees seeking reimbursement and self-employed individuals claiming deductions for gas and mileage. Contemporaneous records, meaning documentation created at or near the time the expense is incurred, provide strong evidence to support claims. For each business trip, specific information should be recorded, including the date of travel, the destination, and the business purpose of the trip.

If using the standard mileage rate, recording the starting and ending odometer readings for each business journey is necessary to calculate total business miles driven. If the actual expense method is chosen, receipts for all related costs, such as gas purchases, oil changes, and vehicle repairs, must be retained. Comprehensive records ensure compliance with federal guidelines and facilitate a smooth reimbursement process or successful deduction on tax filings.