Welcome to tax season. When it comes to taxes, there are many factors and considerations to keep in mind (go figure!). One you might not be thinking of is properly accounting for business versus personal use of vehicles. Trust us, it’s important.
Why do I need to know about this?
First and foremost, the IRS and state taxing authorities will almost ALWAYS ask about this during an exam. If the IRS wants to know about it, you should know about it too. Personal use of a company owned vehicle is considered a taxable benefit and should be included as taxable wages/salary to the employee, unless he or she reimburses the business for personal use. Also, the amount of business versus personal mileage will determine the amount of deductions (i.e.-depreciation) that can be taken in regard to the vehicle.
What do I need to do in order to be in compliance?
Each employee who drives a company owned vehicle should keep records, such as a mileage log, to track business and personal miles. These records should be submitted regularly to the business accounting department so they can properly account for the personal usage. Undocumented mileage may be considered personal miles upon exam. Commuting miles, driving from home to the office, are also considered personal miles.
Do I really need to go through the hassle?
Yes – but there is help! There are apps available to help log business and personal miles. You can also adopt a company policy restricting personal use of company vehicles.
An example of this would be disallowing personal use. When no personal use is allowed, this usually means the vehicle is stored on the employer’s premises. The only exception would be de minimus personal use, such as a stop for lunch between two business locations (food is important, people).
However, frequency is a factor of consideration to the de minimus exception. Another policy would be to allow personal use only for commuting from home to the office. The commuting miles would still be a taxable benefit to the employee, but the mileage log would no longer be required.
The moral of the story…
Keeping records on employer vehicles is good. Keeping accurate records so the IRS can’t bug you (too much) is great! If you need help down the road (see what we did there?), let us know. From figuring out what counts as business or personal use, to drafting an appropriate personal use policy or even teaching the basics of this, we’ve got you covered. We’re happy to jump in the driver’s seat (okay we’re done with the awful puns now) to help.