The (Fringe) Benefit of Providing a Company Car

Providing a company-owned vehicle for employees can be a good idea for both the business and the employee. Employees who drive a lot for their job can save wear and tear on their own vehicles, while the company can enjoy a tax deduction. But it’s important to maintain accurate records to segregate business from personal use.

Employees should maintain written mileage logs, including dates and the beginning and ending odometer readings, to substantiate the business use of the car. The difference between the total miles driven during the year and the business miles is considered personal use of the automobile and is included in the employee’s taxable income (and reflected on Form W-2).

On the company’s side, the vehicle is treated like any other business asset. The business can claim a depreciation deduction, and out of pocket expenses including insurance, fuel, oil, and maintenance can also be deducted (including those expenses attributable to personal use). If the company borrows to purchase the car, the loan interest can generally be deducted as a business expense.

In contrast, if an employee uses his or her own vehicle for business, they can be reimbursed for mileage (in 2022, 58.5 cents/mile) but that may or may not cover the actual cost of operating the vehicle. Also, any unreimbursed employee business expenses are not currently deductible as miscellaneous itemized deductions (at least until after 2025).

This article just provides an overview of the pros and cons of providing a company car. More details on company-owned automobiles are available from IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits. Or contact your Mize relationship manager for more information about your situation.