The Tax Consequences on Driver Reimbursement
by admin on 3-30-2011 • Tags: Business car leasing, corporate auto, driver reimbursement, fleet management & maintenance, vehicle & truck fleet leasingManaging your time and expenses is always a difficult task. You struggle between balancing your work and personal finances to stay current in both instances. With tax time upon us, it is good time to be reminded of the risks and rewards that taxes play in your vehicle business-related expenses.
Employers, generally, provide their employees with two options regarding vehicles used for business - Corporate fleet vehicle leasing and vehicle allowance. If your company offers a fleet vehicle program then the tax burden falls on the company and becomes part of the fleet vehicle management. This alleviates the need for you to personally manage the business vehicle on your personal taxes.
If your company provides you with a car allowance, there are some things you should consider when choosing your vehicle and how you keep track of the expenses. Consider the following:
· Taxable income. A considerable chunk of your car allowance will need to be allocated for tax liabilities, both federal and state. It will be important to research the exact amount and plan your vehicle payments based on the amount that remains.
· Two-percent adjusted gross income threshold. Tax guidelines suggest that all business-related expenses can be deducted on your taxes. This is not always the case. First, it is your responsibility to accurately itemize each expense to be eligible for reimbursement and you must first meet the threshold. The threshold means that before you can deduct anything, you must have enough expenses to meet that limit and THEN you can start deducting. This, will likely leave you with little to no money coming back to you.
· Social Security tax (FICA). FICA taxes cannot be reduced by itemized deductions for business use of a personal vehicle.
· Interest payments are not tax deductible. Interest on a personal loan is not tax deductible even if the vehicle or portion of the vehicle is used for business.
Employers should consider leaning toward fleet vehicle leasing to benefit both employer and employee business expense. Too many tax implications can cause both employee and employers to shy away from business traveling. Employees are more realistic with their expense reporting when they are not trying to cover the difference in personal costs and employers have a more accurate account of the costs.
Whichever category you fall into, be aware of the risks and rewards and know what is required of you to benefit as much as possible.