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Lecture Employee benefits and retirement planning - Chapter 53: Company car or reimbursement plan

This chapter focuses on business use of cars. The two primary scenarios considered are the use of a company car and reimbursement of expenses for business use of a personal vehicle. Advantages, disadvantages, and tax treatment of the employer and the employee are reviewed. Reporting requirements are covered, and there is a reference for finding out more. The chapter closes with a question and answer section. | What is it? Company cars or plans that reimburse expenses for use of personal cars are not employee benefits as such since purpose is not to compensate employee Employer’s policy regarding business use of cars is often regarded as part of the employer’s fringe benefit package Copyright 2009, The National Underwriter Company Possible Arrangements Business Use of Cars Company car Reimbursement plan No plan Note, for self-employed, all business related car expenses are tax deductible Copyright 2009, The National Underwriter Company Company Car - When is it Indicated? When employees use a car substantially for business or commuting Fringe benefit for selected executives Copyright 2009, The National Underwriter Company Company Car Advantages A company car can maximize tax benefits for an employee Company retains maximum control over cars used by employees Copyright 2009, The National Underwriter Company Company Car Disadvantages Company bears capital investment costs of car ownership Substantial administrative costs Copyright 2009, The National Underwriter Company Company Car - Tax Treatment of Employer As car owner, employer entitled to deductions for depreciation and expenses Under employer reporting, employer can either: report entire value of car availability on employee W-2; or employee claims as deduction for business Copyright 2009, The National Underwriter Company Reimbursement Plans and “No Plans” Accountable plan - employee must account for expenses to employer return excess reimbursement Nonaccountable plan - employee doesn’t account for expenses or employee keeps excess reimbursements Copyright 2009, The National Underwriter Company Reimbursement Plans and “No Plans” No plan employer does not directly reimburse employee responsible for paying expenses employee entitled to any deduction for expenses Copyright 2009, The National Underwriter Company Reporting W-2 reporting by employer in certain situations Employee determines deductible amount (Form 2106 or Form 2106- EZ) and claims as miscellaneous itemized deduction to extent exceed 2% employee adjusted gross income Self-employed compute and enter car expense on Schedule C, no 2% of adjusted gross income limitations Copyright 2009, The National Underwriter Company Discussion Questions What types of “getting to work” trips are business expenses rather than commuting expenses? Why is it advantageous for a car to be used more than 50% of the time for business rather than 50% or less? When is it advantageous to use the standard mileage rate rather than exact expenses? Copyright 2009, The National Underwriter Company Discussion Questions: see pages 433-435