COMPANY CARS FOR PERSONAL USE

Personal use of a company vehicle is a taxable fringe benefit and must be included in the employee's gross income. All owners are also considered employees for this reporting. "Personal use" for this purpose is any use of a company vehicle-including commuting to and from the employer's regular place of business-that is not related to the employer's trade or business.

The business gets 100% write-off for all expenses related to the car BUT the business must include the "personal use" value in the employee's Form W-2. There is a standard IRS formula that is used to compute the amount that must be included in the employee's Form W-2. The IRS is requesting this during payroll tax audits so please be attentive to this information.

What you must do with the "personal use" amount, once computed:

You must report the "personal use" amount to your payroll service prior to your last payroll in 2012 and have the payroll service report it on the employee's Form W-2 (Boxes 1, 3, and 5). The payroll service will have a special code so that there is no income tax withheld and the amount does not get paid to the employee by mistake. However, FICA and Medicare tax will be withheld.

What the employee must do:

The employee must keep a record of the "business use" portion and is responsible for reporting the "personal use" portion to the employer. The employee is responsible to maintaining acceptable documentation to support the business use of the vehicle. The following items must be included in the employee's records: date of the use, mileage used during the trip, business purpose of the trip, odometer readings at the beginning and end of the year.

Talk to your CPA for further information

If the correct amount is not withheld during the year, the difference will be calculated on the individual's income tax return, when filed.

Information provided by Lance, Soll, Lunghard LLP