Buying a company car requires the necessary valuation and paperwork and can be a bit complicated. However, providing a company car remains a valuable side effect for contractors and key employees. This can allow them to use a vehicle at low tax cost. Best of all, a company car can generate excellent tax deductions for small businesses. Our accounting firm can help you comply with the rules and further explain this valuable benefit. Enforce regulations for each vehicle. You can use different rules for different vehicles. Plus, you don`t have to tell employees or the IRS how often you include performance value in employee salaries. They include the market value of the employee`s personal use of the company`s vehicle in the salary. To determine the market value of own use, you can use a general valuation method or one of the three special valuation rules to calculate the proper use of company vehicles.
Any commercial use of a vehicle must be proven so that you can deduct the business costs associated with the vehicle. If employees are involved, anyone driving a vehicle in connection with your business should keep written mileage records showing the duration and purpose of their business trips. Determining whether a road trip was deductible for a business trip follows the same rules as for your own business trip. In order to apply the previous rules, you must keep adequate and accurate records. The employee must record the professional use of the vehicle for each trip. The employee must indicate the mileage, time and location of the trip, as well as the business purpose of the trip. This ancillary company car benefit is considered part of employee compensation for tax purposes. You must determine its value, include it in employees` salaries and withhold taxes on it. There is a special accounting rule that can facilitate the payment and reporting of benefits.
If your employees use their car for business or if you provide them with a car, you need to know the rules of use of the vehicles by employees. If you provide a car that is also available for the employee`s personal use, you must consider that use when determining refunds and deductions. File the fees according to the filing rules and your frequencies. When an employee uses a company car for business purposes, the use of the vehicle is an ancillary benefit to working conditions. This means that the value of the use of the vehicle is neither included in the employee`s income nor taxed. Similar rules apply when an employer offers to transport workers for commuting purposes due to unsafe conditions. Unsafe conditions may exist around the person`s home or workplace. Your personal use is treated as ancillary income.
For tax purposes, your business will treat the car the same as any other business asset. This means that the car is subject to depreciation restrictions when purchasing the vehicle. Car-related expenses are deductible, including the portion related to your personal use. These expenses include insurance, gas, oil and maintenance. In order to take advantage of these three special valuation rules, you and your employees must keep complete and timely reports on the personal use of company vehicles. You can read more about this in the “Recordings” section below. If you want to include the full benefit amount in the employee`s salary by the end of the year, the employee may not have enough salary to cover taxes. In this case, you are liable for uncollected social security and health insurance taxes in addition to your own share. Suppose you include the semi-annual performance value in employee salaries. An employee uses a company vehicle for personal purposes during the first half of the year. But you don`t include the value of the benefit in the employee`s salary until the very end of the first half of the year.
That is when you look at the benefits paid to the employee. Providing a car for the professional and personal use of an owner or key employee comes with complications and paperwork. Monitoring and evaluation for personal use is still required under the ancillary benefits tax regulations and is treated as income. This article only explains the basics.