There are many things to consider when deciding how your employees should use their company vehicles. Adding another layer to the issue is whether you should allow your employees to use their company vehicles for non-work-related purposes. While this can be a very appealing and beneficial measure for your employees, it also opens up a bevy of new liabilities for you as the employer. If you choose to allow this, having certain rules in place will assist you. In addition to covering your company with New Jersey commercial auto insurance, familiarize yourself with the following guidelines for commercial auto use.
Business use of a vehicle must be substantiated for you to deduct business expenses associated with the vehicle. However, every individual who drives a vehicle in connection with your business needs to keep mileage records showing the length and purpose of trips. Knowing if a trip can be a deductible business-related travel is decided under the same rules that apply to your own business travel.
Business-use substantiation rules will not apply to qualified non-personal use vehicles. These are vehicles that will only be used for minimal personal use, such as delivery trucks with only a driver’s seat.
If you provide a vehicle to an employee for the entire year, to use for business and personal driving, you may put a price tag on this fringe benefit for tax purposes by using the vehicle’s annual lease value.
Value may be reevaluated at the end of the lease term, depending on the fair market value of the vehicle on the first of the year.
If you provide a vehicle to the employee for less than a year, the annual lease value must be prorated. A lease 30 days or more is determined by multiplying the annual lease value by days during the year the vehicle was available to the employee, divided by 365 or 366.
If lease was 30 days or less, use the daily lease value by multiplying the applicable annual lease value by four times the number of days of availability and dividing by 365 or 366.
Cents per Mile
You may determine what to include in an employee’s income for their personal use of a company car using the cents-per-mile method. This can only be used for vehicles that are not classified as luxury auto.
A vehicle is considered “regularly used” in an employer’s business if either at least 50% of its total mileage for the year is for the employer’s business or is generally used each workday to transport at least three employees to and from work. This method only works if the comparable vehicle could be leased on a cents-per-mile basis. Once rate has been made, use valuation method until the vehicle no longer qualifies.
Commercial auto insurance is included in the standard mileage rate.
The value of an employer-provided vehicle for commuting is $1.50 per one-way commute. To use this method, you must own or lease the vehicle and provide it to one or more of your employees for use in connection with your company. Require employees to commute to or from work in the vehicle. Employees should not use the vehicle for any personal purpose other than commuting.
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