{"id":16494,"date":"2019-07-02T08:00:27","date_gmt":"2019-07-02T13:00:27","guid":{"rendered":"https:\/\/taxprocenter.proconnect.intuit.com\/?p=16494"},"modified":"2019-07-01T08:21:29","modified_gmt":"2019-07-01T13:21:29","slug":"are-your-clients-overdue-for-a-company-car-tune-up","status":"publish","type":"post","link":"https:\/\/accountants.intuit.com\/taxprocenter\/tax-law-and-news\/are-your-clients-overdue-for-a-company-car-tune-up\/","title":{"rendered":"Are Your Clients Overdue for a Company Car Tune-Up?"},"content":{"rendered":"<p>Use of a company car for <i>business trips <\/i>is tax-free for an employee. However, the value of an employee\u2019s <i>personal<\/i> use of a company car is taxable compensation. The IRS gives employers a choice of methods to value an employee\u2019s taxable personal use of a company car, but employers often get stuck in a single gear, using the same method from year to year.<\/p>\n<p>Nonetheless, like the car itself, an employer\u2019s car valuation methods can use a tune-up from year to year. What\u2019s more, new valuation figures from the IRS make a 2019 tune-up particularly important.<\/p>\n<p>Here\u2019s a rundown of the available options:<\/p>\n<p><b>General valuation method.<\/b> For this method, the employer must determine the fair market value (FMV) of an employee\u2019s use of a company car \u2013 that is, how much it would cost to lease a comparable car on comparable terms in the same geographic area. A comparable lease term should match the amount of the time the vehicle is available for the employee\u2019s use. The FMV of the employee\u2019s use is multiplied by the employee\u2019s personal-use percentage \u2013 that is, the ratio of the employee\u2019s personal mileage to his or her total mileage. The result is the taxable value of the employee\u2019s personal use.<\/p>\n<p><b>Annual lease value method.<\/b> This is a simplified version of the general valuation method. After the fair market value of a car is determined, the annual lease value is obtained from a table provided by the IRS. The table can be found in IRS <a href=\"https:\/\/www.irs.gov\/pub\/irs-pdf\/p15b.pdf\"title=\"\"  target=\"_blank\" rel=\"false noopener noreferrer\" data-wa-link=\"body_irs-p15b\" target=\"_blank\">Publication 15-B<\/a>, <i>Employer\u2019s Tax Guide to Fringe Benefits<\/i>.<\/p>\n<p><b>Fleet-average method.<\/b> An employer with a fleet of 20 or more vehicles can use the annual lease value \u2013 with a twist. Instead of valuing each vehicle separately, the employer can use the average fair market value of the fleet [Reg. \u00a761-21(d) (5)(v)]. The annual lease value is deemed to include the fair market value of the automobile&#8217;s maintenance and insurance. Any other services or products, such as fuel provided by the employee\u2019s company, must be separately valued and added to the automobile&#8217;s annual lease value.<\/p>\n<p><b>Cents-per-mile method.<\/b> Under the cents-per-mile method, the value of an employee\u2019s personal use is equal to the business standard mileage rate multiplied by the total number of miles the vehicle is driven by the employee for nonbusiness purposes. The standard mileage rate for 2019 is 58 cents per mile [<a href=\"https:\/\/www.irs.gov\/pub\/irs-irbs\/irb19-02.pdf\"title=\"\"  target=\"_blank\" rel=\"false noopener noreferrer\" target=\"_blank\">Notice 2019-2<\/a><a href=\"https:\/\/www.irs.gov\/pub\/irs-irbs\/irb19-03.pdf\"title=\"\"  target=\"_blank\" rel=\"false noopener noreferrer\" data-wa-link=\"body_irs-irb1902\" target=\"_blank\">,<\/a> <a href=\"https:\/\/www.irs.gov\/pub\/irs-irbs\/irb19-03.pdf\"title=\"\"  target=\"_blank\" rel=\"false noopener noreferrer\" data-wa-link=\"body_irs-irb1903\" target=\"_blank\">2019-3 IRB<\/a>]. So, if an employee drives 5,000 personal miles during 2019, the taxable amount under the cents-per-mile method is $2,900 (5,000 x $0.58).<\/p>\n<p><b>Higher Dollar Limits for 2019<\/b><\/p>\n<p>The cents-per-mile and fleet-average methods can be used only for vehicles with fair market values that do not exceed certain maximum limits. In prior years, this meant the cents-per-mile and fleet-average methods were available only for economy models. For 2017, for example, the cents-per-mile method was restricted to automobiles with a fair market value of $15,600, while the fleet-average method was restricted to automobiles with a fair market value of $21,100 \u2013 even though the average new-car price topped $36,000.<\/p>\n<p>In early 2019, however, the IRS announced a dramatic increase in the dollar limits for both methods to $50,000 for 2018 [Notice 2019-8, 2019-3 I.R.B.]. Moreover, while the increased limits for 2018 came too late in the game for many employers to switch valuation methods, the IRS made it clear that the $50,000 figure will be used as the base for inflation adjustment for 2019. Therefore, the cents-per mile and fleet-average methods will be available for more vehicles in 2019.<\/p>\n<p><b>Note:<\/b> In prior years, separate dollar limits applied to automobiles and to trucks and vans. However, due to lack of data, the IRS will not provide separate maximum values for trucks and vans for 2018 and 2019.<\/p>\n<p><b>Commuting Method<\/b><\/p>\n<p>When an employee\u2019s personal use is restricted to commuting to and from work, a special commuting valuation rule may apply. Under this rule, an employee&#8217;s taxable use of a vehicle is valued at $1.50 per one-way commute, regardless of the distance.<\/p>\n<p><b>Switching Gears<\/b><\/p>\n<p>Even if an employee and a car qualify for more than one method, an employer can\u2019t switch methods at any time. An employer can use the lease valuation rule or the cents-per-mile rule for a particular car only if it adopts it as of the later of the first day on which the car is made available to an employee of the employer for personal use, or the first day on which the commuting valuation rule is not used, if it was used when the employer first provided the automobile for the employee&#8217;s personal use. Once either rule is adopted for a car, it generally must be used for all subsequent periods in which that car is made available to any employee.<\/p>\n<p>On the other hand, the commuting valuation rule can be adopted at any time the use of the car qualifies for the rule. Prior use of the annual lease valuation method or the cents-per-mile method does not prohibit adoption of the commuting valuation rule.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Learn the available methods to value an employee\u2019s taxable personal use of a company car, and which may be best for your clients.<\/p>\n","protected":false},"author":104275893,"featured_media":1498,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rkv_browse_by_id":0,"rkv_cta_id":0,"rkv_optimize_for_pagespeed":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"useModifiedDate":false,"customPublishDate":"","_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"_wpas_customize_per_network":false},"categories":[509474089],"tags":[7649],"intuit_collection":[],"intuit_series":[],"coauthors":[509474241],"class_list":["post-16494","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tax-law-and-news","tag-irs"],"header_image":"","yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.3 (Yoast SEO v27.3) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Are Your Clients Overdue for a Company Car Tune-Up? 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