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Business Automobiles: How the Tax Depreciation Rules Work

Do you use an automobile in your trade or business? If so, you may question how depreciation tax deductions are determined. The rules are complicated, and special limitations that apply to vehicles classified as passenger autos (which include many pickups and SUVs) can result in it taking longer than expected to fully depreciate a vehicle.

Depreciation is built into the cents-per-mile rate

First, be aware that separate depreciation calculations for a passenger auto only come into play if you choose to use the actual expense method to calculate deductions. If, instead, you use the standard mileage rate (65.5 cents per business mile driven for 2023), a depreciation allowance is built into the rate.

If you use the actual expense method to determine your allowable deductions for a passenger auto, you must make a separate depreciation calculation for each year until the vehicle is fully depreciated. According to the general rule, you calculate depreciation […]

By |2023-10-16T18:22:20+00:00October 16th, 2023|automobile, depreciation|0 Comments

Personal use of employer-provided automobile on 2014 W-2s

An employee must include personal use of an employer-provided automobile in gross income. If not reimbursed by the employee, the personal use of the automobile is a taxable fringe benefit.

The employee must include in income the FMV (fair market value) of the fringe benefit reduced by (1) the amount, if any, paid for the benefit, and (2) the amount specifically excluded from gross income by statute (i.e., the portion attributed to use in the employer’s business).

The value of the fringe benefit as current compensation is subject to FICA (for non-agricultural employees) and FUTA, and must be included in the employee’s W-2. However, it is not subject to federal income tax withholding if the employee is so notified.

Methods to value the fringe benefit:

  • Annual Lease Valuation
  • Vehicle Cents-per-Mile Valuation
  • Commuting Valuation
  • Special Commuting Rules

If your business provides automobiles to your employees, please consider contacting us to discuss your options.

Written by Mike Musson, CPA, Partner

By |2020-09-03T20:05:34+00:00January 9th, 2015|automobile, w2|0 Comments
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