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  • Writer's pictureCherie Larson

Navigating Business Vehicle Expenses

Do you own or use a car in your business? What about your employees? There can be a lot of confusion over what is allowed and/or required. The start of the new year is a great time to figure this all out. Regardless of whether you or your employees use a company car or personal vehicle, several facts remain constant:

  • Any mileage or related expenses you want to deduct must be documented for audit purposes. Travel “To” and “From,” “Date,” “Miles,” and “Purpose” are all important details to back up your deduction.

  • Personal usage is not deductible by the business. If it is reimbursed or expensed, it becomes taxable income to the recipient and goes onto their W-2.

  • Mileage commuting from home to work and back is never a business expense.

Have you considered having your company rent or own your vehicle? If the primary use of your car is for business purposes, this may be beneficial. You will still need to keep track of your personal miles, as well as all of your expenses for gas, repairs, and maintenance.

While having your company own your vehicle, there are additional financial considerations. If you borrow money to purchase the vehicle, the interest rate is usually higher. You will also need business auto insurance rather than personal insurance, which can be more expensive. There may be numerous tax advantages, so it is best to talk to your tax professional to see what is best for your business. Learn more about deducting expenses for business vehicle use!

If you choose to provide your employees with a company vehicle, their rules for tracking will be the same as yours as the owner. Any personal mileage put on the car becomes a taxable fringe benefit for them. The company may pay for all related expenses such as gas, repairs, and maintenance.

Your employees may be reimbursed for their business driving, but some rules must be followed to avoid unintended tax consequences. If they use their own vehicles, consider the following:

  • As mentioned, mileage must be documented.

  • Any reimbursement to employees above the IRS mileage rate is considered compensation and is taxable.

  • Gas, repairs, and maintenance may be paid in lieu of mileage, but this involves more work. Your employee (or you) will need to track ALL related expenses, the total miles driven in the year, and the percentage of those miles that are business-related. This method requires more record-keeping but could result in a higher amount.

  • Providing an employee a vehicle allowance is taxable compensation to them and must be added to their W-2.

  • It's also wise to include requirements for your employees' driving in your company handbook. This is the place to address things like requiring a valid driver's license, appropriate insurance, refraining from texting while driving, etc.

If you choose to reimburse based on the IRS mileage rate, it is fairly simple. You will take business miles traveled times the current rate (currently $0.67 per mile). See IRS standard mileage rates for 2024.

Assume you drove a personal vehicle 10,000 miles, 3,000 of which are for work purposes. Your total vehicle costs for the year were $9,000.

  • Under the IRS reimbursement rate for 2024, your reimbursement would be $2,010 (3,000 miles * $0.67 mileage rate).

  • Under the actual expense method, your reimbursement would be $2,700 (3,000 miles divided by 10,000 miles is 30%. Then 30% * $9,000 total costs).

In this case, the actual expense method would yield a greater reimbursement, but it does require more calculations. If you plan to reimburse regularly, a year-end adjustment may be necessary.

Like many other issues small businesses face, these decisions are not as straightforward as they appear. Reach out to us today to help you figure out what is best for you and your business!


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