| Driving the Company Car |
|
There are many valid business reasons for having a company car. For
example, most businesses will need a car at some point so that the owners
or employees can visit customers, make deliveries, and travel to industry
conferences. Expenses related to cars that are used 100% for business
purposes are fully deductible by the business. However, in many cases, the
owner or an employee will use the company car for personal reasons. This
is where the rules on deducting the related expenses get a little tricky.
What is personal use? The most common scenario for personal use of a
car is commuting, or driving back and forth from home to the workplace.
The business cannot deduct commuting expenses no matter how far the
employee or owner's home is from the regular workplace, even if they work
during the commuting trip. Putting an advertising display on the company
car does not change the use of the car from personal to business. Hauling
tools or instruments in the company car while commuting to and from work
does not necessarily make the car expenses deductible, either.
However, if the owner or employee's principal place of business is in a
home, they can deduct the cost of transportation between their home and
their customer's place of business.
The good news is that the business may still be able to deduct 100% of
the cost of operating the car, even if the car is used for personal
purposes. Business owners will have to keep track of their (and their
employee's) personal use of the company car and include the appropriate
amount in their personal income. Special rules apply in determining the
amount that has to be included in income. The bad news is that some deductions for the car may be limited
to a smaller amount if the personal use of the car is too much.
Please contact us for advice on how to meet the IRS rules for claiming
a deduction for your business vehicle costs and how to maximize the tax
benefits of owning and operating a company car. |
|