Having a company car can be a great perk of the job, but too often people overlook the tax implications that come with the car. If your employer owns the car you’re driving, the monetary value of your business driving is a tax-free working condition fringe benefit provided by your company. Your company can withdraw all of the other car costs, including the loan on the car, depreciation, and automotive insurance. And typically, you can’t personally make these deductions. Let’s talk more about what you need to know when it comes to company car tax rules.
Any personal use of a company car is considered a non-cash fringe benefit, according to the IRS. If your company offers this benefit, it must follow the IRS rules when deciding a few things:
- Compensation value
- Deductible income tax
- Social Security
Simply, when looking at the value of a company car as a fringe benefit, it’s not based on actual costs but on the amount an employee would pay to lease the car. This is the fair market value, for fringe benefit purposes.
If you’re planning on using your company car to go on a long road trip or use it for anything beside traveling to work and back, think again. If your employer creates a rule that states the only personal use for your company vehicle is commuting, the IRS sets a compensation level of $1.50 per one-way trip. This approach can be utilized if the vehicle is only used for work and the employee is not a high-ranking individual at the office.
About Mileage Rates
The standard mileage rate put in place by the IRS, as of January 1, 2018, is 54.5 cents per mile. Employees have to keep a log of business and personal miles driven and typically where they went. The employer can have the employee pay them back for their personal mileage at the standard rate. If they do this, there is no taxable fringe benefit. The company vehicle has to be driven at least 10,000 miles a year, and 50 percent or more of its use needs to be business related.
In order to figure out the taxable value of using a company car, you will have to determine the guidelines found in the IRS Publication 15-B. The company’s fair market value is the first step, this can be found on websites like Kelley Blue Book. After you have determined the FMV and figured out the annual lease value based on the IRS Publication, look toward the employee’s record of miles they drove. The percentage of annual miles driven is multiplied by the annual lease value to calculate the employee’s taxable benefit.
In order to make tax reporting easier, the employer might use a unique accounting rule that takes into account the value of a fringe benefit for the last two months of the year with the expense for the first ten months of the upcoming year. If the company accountant uses this method for one employee, they must use it for everyone.
If you or your employer needs assistance with company car taxes, tax law and resources, contact the professionals at Bodine Perry at (855) 851-8318 or visit http://bodineperry.com/ to learn more.