When you’re the owner of a business, it’s not uncommon for you to give certain perks to employees – especially those that have performed well enough for the company. You can offer all sorts of benefits such as paid leave, reduced hours, reduced workload, or even other forms of incentives you can come up with to continuously motivate your team. When you’re a big enough team, however, sometimes the notion of giving employees something to use outside of work is tempting, especially when you talk of company cars. Giving company cars to employees is not a joke, and it’s important to know what to consider before doing it.
However, do remember to consult with a business professional in order to ensure that this move will not immediately harm the company’s finances, as of course it’s still important to make sure the kinds of incentives your providing are still within reason. If all the stars align and if a car is really a good move, then perhaps it really is something you can consider giving to your employee. If not, you may want to opt for something else.
According to the Balance, perhaps the trickiest part to consider before buying cars for employees is the part that can be separated into multiple sets of considerations: just what are the things you have to pay for? This might seem like a concept that is obvious, but there’s a lot more that goes into purchasing things for business, especially when it comes to materials such as vehicles.
Think About: Deductible Business Use
Just who gets to use the car and what are they supposed to use it for? When employees get vehicles sponsored by the company, the tendency is to of course use the car for both company and personal reasons. This of course means that if the car is used for the company’s sake, then the option is there to deduct the car’s usage for business as a business expense.
- If you plan on giving an employee a car, it might be a good idea to require them not just to take care of the car, but to also keep track of the way they use the vehicle. Having records of usage for business purposes, such as driving and delivery, should be recorded.
- This can be done using a notebook or a tracking spreadsheet that allows them to record the day they used the car for business, and other relevant details such as the mileage, location, date, and purpose.
Think About: Auto Allowance
Another alternate option when it comes to letting employees use company cars is for you to provide them with an auto allowance that can serve as the reimbursement of funds for driving or using the car for the sake of the business.
- It has to be remembered however that this isn’t exactly a taxable benefit for the staffer if this is provided from what is known as an accountable plan. The concept of an accountable plan is that it’s a set of policies that adequately take note of money given to employees. This allows the IRS to see that the money given to employees isn’t benefits but rather a legitimate expense of the business that reimburses money the employees paid.
- In speaking of accountable plans, the plan you should use must be something the IRS acknowledges. Your accountable plan only works if the auto expenses themselves have a proper business purpose, and the staff using them must be able to show records of amounts spent and usage for the business. The employee is also obligated to return reimbursement that hasn’t been spent in a certain period of time. The plan is determined via the standard rate of the IRS, or from your actual expenses. Remember, if you don’t have an accountable plan, the reimbursement or allowance the staffers have will be taxable to them.
Think About: Considering Employee Use As A Working Benefit
Another consideration is to have the employee use the company car as a benefit from the company. According to the IRS, when something is declared as a working condition benefit, it describes a kind of service or property the company is providing an employee to help them perform their duties. This is not included in the income of the staff, as it is assumed the staff is capable of taking the reduction on their personal tax return.
- However, remember that anything you give to employees can be considered a taxable benefit. If in this case a car was given to the employee, the IRS considers its personal use as a non cash fringe benefit.
- Try to assess what might happen if for instance the employee in question has involved the car in an unfortunate accident. A lawyer such as the ones here can help you determine the best course of action to prepare for such an eventuality, like for instance, with what to do in case this vehicle has been subjected to a truck accident?
Think About: Cars As Property Of The Company
Also, remember that business vehicles are considered listed property. This means these are property that can be used for both personal and business reasons. It’s important to remember that if the car has been used less than half of the time for helping the company, you are still able to deduct the business use, though you may need to utilize straight line depreciation. It’s helpful to consult the help of a business lawyer or a financial lawyer to understand these concepts and how they can work for your company.
Company cars can be an enticing way to show thanks for the enthusiasm of an employee, but it’s not always the most practical choice to show your appreciation. It’s important to have a good heads up on what to consider when planning on giving an employee a company car so you know the full extent of how it can affect your company and your finances.
Disclaimer: Please remember that this article is merely informative, not actual legal advice. It’s advised you speak with a lawyer to determine all necessary legal considerations regarding company cars.
Joanne Reed has been writing about law and business for almost a decade, and is currently writing her next big law project. She is an avid sports fan and loves watching games if she has free time.