The company car: A valued fringe benefit for company owners and key
By: Emily DiGesare and Cheryl Prout
The company car has long been a popular perk or fringe benefit for company
owners and key employees. This benefit yields substantial non-tax as well
as tax benefits for the owner and employee, as well as tax deductions for
However, there are rules employers must follow consistently when providing
company owned vehicles to employees. A portion of the value of the company
provided vehicle must be taxed to the employee annually for any personal
There are also recordkeeping requirements that employers must follow to use
this fringe benefit. The only way to distinguish between employment-related
business driving and personal driving is based on mileage.
The employee must keep a diary or similar record with detailed
entries for employment-connected business usage of the auto (time,
place, mileage, business purpose).
Note that if all personal use of the auto by an owner or employee is
properly treated as fringe benefit compensation income, the auto will be
treated as if it were 100 percent used for business. That means the
employer may deduct all its operating expenses and may also claim all of
the otherwise allowable depreciation deductions or lease deductions.
For passenger autos, immediate first year expensing is limited to $18,100.
These restrictions don't apply if the company owned vehicle is a heavy SUV
with a gross vehicle weight rating (GVWR) of over 6,000 pounds. Because
such vehicles fall outside of the definition of a passenger auto, the 100
percent first-year bonus depreciation rules apply and write off of its
entire cost is allowed in the first year.
For leased autos, a business that leases an auto for its owner or key
employee may deduct the full lease payment, assuming personal use is
properly treated as compensation income. However, for leases with a term
beginning in 2019, unless the auto is priced below $50,000, the business
must include a certain amount in income during each year of the lease. This
income inclusion amount varies with the initial FMV of the leased auto, the
lease term and the year of the lease, and is adjusted for inflation each
The company auto has long been a go-to fringe benefit for the company owner
or key employee. It can provide company owners or key employees with the
use of an auto at a low tax cost while generating tax deductions for the
company. If you would like additional information regarding this issue, and
how both employers and employees can benefit, please contact one of our
Bonadio experts today.