What Are Excise Taxes?

Excise taxes are imposed by the government on certain types of fuels and other commodities, as well as certain activities.

Before 1913, when the income tax was imposed, the federal government relied on excise taxes to meet its funding requirements.

Since excise taxes are generally included in the price of gas, diesel fuel, and other motor fuels used in your business, you simply deduct the total cost of the fuel as a business deduction rather than take a separate deduction for the tax.

For example, if you use the actual expenses method for deducting car expenses, you would just deduct the total cost of fuel used for business purposes, which includes the excise tax.

Examples of fuels that are taxed:

  • Gasoline
  • Diesel fuel
  • Aviation fuel (any liquid, other than gasoline or diesel fuel)
  • Aviation gasoline (all special grades suitable for use in aviation)
  • Liquid petroleum gas (propane, butane, and pentane)

Examples of other commodities that are taxed:

  • Liquor
  • Tobacco.

Examples of activities that are taxed:

  • Wagering
  • Highway usage by trucks.

There are instances when you may be eligible for a credit for federal excises taxes on certain fuels.

For example, a tax credit may apply for fuel used in machinery and off-highway vehicles, such as tractors. A credit may also apply for kerosene used for heating, lighting, and cooking on a farm.

File your personal and small business taxes (Schedule C)

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