When
a company supplies employees with a company automobile you appreciate the convenience
and dollar savings, but remember that this "perk" also has tax implications for
the personal use of the automobile. The personal use of a company auto must be
treated as a non-cash fringe benefit income that is subject to income and social
security taxes.
Before you
get too far into the new year or put too many miles on your company car, start
thinking of ways to minimize the tax consequences of your personal use of the
auto. There are three general ways to assure that you will pay the absolute minimum
in federal income tax on your usage of a company auto.
First,
make sure that business miles are not misclassified as personal miles. Only your
personal miles create fringe benefit compensation income that is subject to tax;
your business-connected mileage does not count against you. So, it is vital that
every valid business mile be treated as such and is not mislabeled as a personal
mile. Keep a detailed diary or mileage log of each instance of car usage (date,
destination, mileage and business or personal purpose).
Second, make
sure you are using the valuation method available to you that produces the lowest
amount of fringe benefit compensation income. Fortunately, the tax rules give
you some flexibility in valuing the personal use of your company car. Finding
the valuation method that is most advantageous to you will depend on factors such
as the value of the car, the way you use your car, and the ratio of your personal
miles to total mileage (business and personal).
Lastly,
minimize your personal mileage on the company-provided auto. Obviously, you'll
use the company auto to get back and forth to work and the occasional business
trip. After all, that is why you have your "perk." However, for those long personal
trips where you'll be driving, you will cut your W-2 compensation income by taking
the family car instead of the company car.
Call
The Henssler Financial Group Tax & Accounting Division at (770) 428-4025 if you have any questions, or to discuss all the details on how you
can enjoy your company-provided auto without winding up with a large tax bill.
