Company Owned/Leased Vehicles

Company vehicles include all leased or owned vehicles.  The tax laws state that the value of the personal use of a company vehicle is a taxable fringe benefit.  This benefit is additional compensation and is subject to the typical payroll rules.  These rules require the withholding of Federal income tax, Social Security and Medicare taxes, as well as proper reporting (Form W-2, 941, 940 and Florida Form RT-6). These rules apply even if you are using a staff leasing company or another outside payroll service. Please provide them with all the relevant information. The IRS allows employers to adopt any 12-month period that ends between October 31 and December 31. We suggest that all clients take advantage of a special IRS rule that allows the calculation of the fringe benefit to be based upon a fiscal year ending October 31, 2020. Click here to view the questionnaire. The necessary worksheets can be prepared now so that you can fulfill all filing and depository requirements by year-end. Click here to view the worksheet.

The steps that you should take are as follows (substitute the October 31 date with a different date if you decide to use a different fiscal ending period):

1. Total your auto logs for each vehicle for a twelve-month period through October 31, 2020.
2. Have each applicable employee complete and sign the enclosed vehicle information questionnaire.  Please make additional copies for each vehicle owned or leased.
3. Send the completed questionnaires to our office before November 30, 2020.  We will determine the value of the fringe benefit from the information you provide.
4. By December 15, 2020, we will contact you regarding the fringe benefit value, and we will calculate the required Federal tax deposit. If you were using a leasing or payroll company, you need to contact them with this information.
5. By January 31, 2021, you will need to notify each affected employee that you used the special October 31 accounting rule and that only Social Security and Medicare taxes will be withheld from wages for the upcoming year.  A copy of the required notification is attached.  Please notify the employees (including shareholder-employees) and have them sign the notification form.

A taxpayer MUST maintain adequate records or other corroborative evidence to support the business portion of the auto expense.   Note: Driving to & from work is a personal expense for employees, not business use.

The IRS generally disallows any deduction, unless the taxpayer can substantiate by the adequate record or sufficient evidence, the (1) amount of an expenditure (or mileage for vehicles), (2) time and place of use, (3) business purpose, and (4) business relationship. Failure to comply with this requirement can result in loss of the deduction. The Tax Court has also disallowed the deduction because of the taxpayer's failure to maintain a mileage record. 

Under the IRS regulations, the taxpayer may substantiate vehicle expenses by maintaining both:

1. An account book, diary, or similar record, such as trip sheets, expense reports, and/or other corroborative evidence.
2. Documentary evidence, including receipts, paid bills, and similar information.

A business entity cannot take actual expenses for things such as insurance, fuel, and repairs and maintenance for vehicles that are not in the company's name.   If those circumstances, you must use the mileage rate.