Company Car Tax Benefits
The use of company cars has long been a great fringe benefit for owners and employees of small businesses, and it has gotten even better with the recent tax law changes and updated IRS rules. Not only will the employer receive tax deductions, the owners and employees driving the vehicles will also receive tax breaks.
If you’re the owner or employee of a business who is going to provide you with a car to meet customers, visit vendors, and check-in with suppliers, a large percentage of the miles driven should be for company use. If you are also expecting to use the vehicle for personal use, your cost for the vehicle will be equal to the tax you pay on the fringe benefit value of your mileage. Personal use of company vehicles is treated as fringe benefit income.
The business will treat your vehicle as any other company asset, depending on the depreciation deduction restrictions if the business has purchased the car. Expenses that you may pay out-of-pocket, such as insurance, gas, and maintenance, are deductible (even expenses associated with your personal use!). If your company has financed the vehicle, the interest paid on the loans can be deductible if your business isn’t subject to interest limitation under current tax codes.
These benefits of using a company car can be easily compared to if you had bought the car on your own. You wouldn’t be entitled to deductions, and your business-associated use of your vehicle won’t be reimbursed due to new suspensions of miscellaneous itemized deductions from 2018-2025 under the Tax Cuts and Jobs Act. If you financed your car, all interest payments wouldn’t be deductible.
Although there is paperwork, and sometimes complications, with getting a company car, it is still a valuable fringe benefit for owners or employees. Using a company vehicle can provide you with a low tax costing car while generating deductions for the business. Personal use should be meticulously tracked and valued for tax purposes.
Contact us for help staying in compliance with the updated tax rules and a deeper explanation of this perk as it applies to your situation.