What to know about federal tax credit on diesel fuel

Not an exciting topic, but sure enough, not all new entrants into the motorcoach industry are aware of this federal tax benefit until they have filed several tax returns. Reasons for this costly oversight may be that the operator had yet to hear of it from industry peers, has not explored all the information that is available at the association level, and their tax accountant is not aware of industry nuances when it comes to the federal tax code. It is not too late if you are one of these operators. And by the way, welcome to the industry!

Motorcoach operators are eligible for a federal diesel fuel tax credit if any part of your bus operations includes intercity or local transportation, or the transportation of students or school employees. These credits are based on the number of gallons of diesel fuel your company uses for these nontaxable uses. The rates are 17 cents or 24.3 cents per gallon of diesel, depending on what the fuel is used for. In other words, you are due at least 17 cents per gallon of diesel fuel pumped into your buses and motorcoaches. And if you have not filed for such credits, you are eligible to go back three years and file for the credits. These are credits, dollars back to you, not expense deductions. This credit is fully refundable should your business have no tax liability or can help the company pay any federal taxes due.

Eligibility rules

Note: You are not due a credit if the diesel fuel was purchased without the federal excise tax added.

A bus used for intercity or local use bus, designed for 20 passengers or more, qualify for a tax credit of 17 cents per gallon.

A school bus is defined as a bus used to transport students and employees of schools. Schools are defined as any educational institution with regular faculty, curriculum, and enrolled body of students.  Schools are not limited to kindergarten through 12th grades. Make sure you track the student purposed miles so you can use your average MPG to determine the gallons used for student runs which qualify for a higher tax credit of 24.3 cents per gallon. This is not limited to “yellow bus” mileage.

Your company can file for this credit either quarterly or annually. If filed quarterly, use IRS Form 8849 and Schedule 1 of Form 8849 to record your information. Line 3a for Student Travel, Line 3d for all other. The claim must be filed during the quarter following the last quarter included in the claim and be at least $750.

If you choose to file annually or you are late filing the quarterlies, use IRS Form 4136 and file it with your annual income tax return. Line 3a for Student Travel, Line 3d for all other.

Seek assistance from BUSBooks or your CPA when filing for previous year credits you may have missed.

How about tires? Are you paying the federal excise tax on tires used for intercity, local or school buses?  You do not need to! Apply for a federal excise tax exemption number from the IRS. Once received, providing that information to your tire retailer will allow you to purchase and lease those tires without paying the federal excise tax. There is no reason to pay that tax if you are exempt from it! Save over $50 on a typical bus tire, or $400 on a full set. Receive more information from your tire retailer who will be happy to assist.

Let us at BUSBooks guide you in obtaining tax benefits that are available to your company right now!

Written by Tracy Fickett, CPA and Peter Shelbo, Veteran Bus Operator

BUSBooks is a unique CPA accounting firm dedicated to the motorcoach industry.

The information contained in this communication is general in nature and is not intended, and should not be considered, as legal, accounting, or tax advice provided by BUSBooks, LLC to the reader. The reader is also notified that this material may not apply to or be suitable for the reader’s specific circumstances or needs and may require consideration of additional factors including other tax and non-tax facts and circumstances. BUSBooks, LLC recommends that the reader contact his/her tax professional before taking any action based on this information. BUSBooks, LLC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

It is not too late to claim ERC for your business

IRS definition: A start-up recovery business is a business that started on or after Feb. 15, 2020.

Those businesses may still be eligible for employee retention credit (ERC) during the fourth quarter of 2021, whereas businesses that started prior to Feb. 15, 2020, cannot. Your ERC eligibility ends with the third quarter of 2021.

For most reading this, your company was in business before Feb. 15, 2020, and therefore, you may still be able to review 2020 and the first three quarters of 2021 for potential payroll tax credits. If you have not investigated your business’s potential eligibility or calculated the potentially available credit, I recommend you do. Seek the advice of your tax preparer. The amount of tax credit can be substantial.

If you do still want to pursue these or already have, there is new IRS guidance to consider.

In late 2021, the IRS issued guidance on when and how to include the employee retention credit claimed on the income tax return of the business claiming it. Therefore, amended business income tax returns may be necessary.

Details on guidance

Let us start with how to report the claimed amounts. The ERC amounts claimed should be reported as a reduction of the salaries and wages paid for the income tax year. This means that the wages and salaries reported on the return will be less than the gross amount paid.

The biggest impact of the new guidance is when the claimed amounts should be reported. According to the IRS, the amounts should be reported for the period in which the related salaries and wages were paid.

Perhaps an example will better illustrate what this may mean to your business. For this example, I assume the following:

  • Business is a calendar-year income tax reporter.
  • In this example three quarterly claims were filed.
  • ERC claimed for the second quarter of 2020 on form 941-X (Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund) in the amount of $10,000.
  • ERC claimed for the third quarter of 2020 on form 941-X (Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund) in the amount of $15,000.
  • ERC claimed for the fourth quarter of 2020 on form 941-X (Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund) in the amount of $35,000.
  • Forms 941-X filed April 2022.
  • ERC refund not yet received.

In this example, the 2020 business income tax return should be amended to reduce the reported salaries and wage expense by $60,000, regardless of whether the refund was received or remains due. This is the proper reporting regardless of the method of accounting chosen by the business for income tax reporting.

Please check with your tax preparer to see how this might affect your business and personal income tax returns.

Let BUSBooks put your accounting in order! Together we can make YOUR accounting MORE meaningful. 

Written by Tracy Fickett, CPA and Peter Shelbo, Veteran Bus Operator, and published in Bus and Motorcoach News on March 20, 2022.

BUSBooks is a unique CPA accounting firm dedicated to the motorcoach transportation industry.

This information is general in nature and is not intended as legal, accounting, or tax advice provided by BUSBooks LLC to the reader. This material may not apply to the reader’s specific circumstances and may require consideration of additional factors. BUSBooks LLC recommends that the reader contact a tax professional before taking any action based on this information. BUSBooks assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect this information.

Reporting PPP Forgiveness for Income Taxes Copy

 

Reporting PPP forgiveness for income taxes

With all this talk about forgiveness, you would think we all did something wrong. That is certainly not the case! Thankfully, most of you who are reading this have survived this unprecedented upheaval and are now planning a bright future. Therefore, we are pleased to share this information.

The IRS has finally issued guidance on when and how to recognize the tax-exempt income related to PPP loan forgiveness. Revenue Procedures 2021-48, 2021-49, and 2021-50 were issued in the latter part of 2021. In this guidance, the IRS discusses three acceptable periods for recognizing the exempt forgiveness income.

Period One

The earliest period for recognizing and reporting the exempt income is when the PPP funds are used toward eligible expenses. This means as they are spent. For most PPP loan recipients, this would be the calendar year 2020 for the first draw and calendar year 2021 for the second draw. If your first draw was received later in 2020 or 2021, or the business is a fiscal or non-calendar year reporter, then this period may cover two different tax reporting periods.

Period Two

The next possible time for reporting the tax-exempt forgiveness income would be the period in which the forgiveness application was submitted. For example, if you requested forgiveness in November 2020, using this approach, the business would report the tax-exempt income on the tax return including November 2020. This would be tax year 2020 for calendar year reporters.

Period Three

The last possible time for reporting the tax-exempt forgiveness income is the period in which the forgiveness was granted.

What if full forgiveness was reported, but actual forgiveness was limited to a lesser amount?

If you originally reported the full amount of the PPP loan as exempt income and it was only partially forgiven, the IRS requires an amended return to correct the reporting. If the entity amending the return is a flow-through entity such as a partnership or S corporation, the business should issue amended forms K-1 and the recipients should amend their returns as well.

For 2021 business returns, there are also additional reporting requirements for how to report and disclose the exempt income from PPP loan forgiveness.

Check with your tax preparer to see how this might affect your business and personal income tax returns.

Let BUSBooks put your accounting in order! Together we can make YOUR accounting MORE meaningful. 

Written by Tracy Fickett, CPA and Peter Shelbo, Veteran Bus Operator, and published in Bus and Motorcoach News on March 11, 2022.

BUSBooks is a unique CPA accounting firm dedicated to the motorcoach transportation industry.

This information is general in nature and is not intended as legal, accounting, or tax advice provided by BUSBooks LLC to the reader. This material may not apply to the reader’s specific circumstances and may require consideration of additional factors. BUSBooks LLC recommends that the reader contact a tax professional before taking any action based on this information. BUSBooks assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect this information.