Personal Use of Company Car based on IRS Lease Value Rule

Use this program to determine the value of the personal use of a company car using the annual lease value of the vehicle. The lease value is multiplied by the percentage of personal miles out of total miles logged.

About this program

The personal use of a company car is considered a "fringe benefit" and subject to income tax. The value of the personal use must be included in your salary.

This program calculates the personal use of the vehicle based on the ratio of the #personal mileage out of the total mileage logged. The personal use is then multiplied by the total "lease" expenses logged for the vehicle during the report period, in order to determine the "value of personal use" to be included in your salary. This logic follows the IRS Lease Value Rule.

How to use this program

Psngr uses any expense items with the category "Vehicle - Fixed Costs / Lease" to determine the "lease value" of the vehicle in a given report period.

  • First, use the IRS Annual Lease Value Table to determine the annual lease value of your vehicle.
  • If you use monthly reports, log a single expense item for the vehicle per month. The expense amount should be the monthly lease value (annual lease value divided by 12).
  • If you use the annual reports, you can log only a single expense item for the vehicle at any time during the calendar year. The expense amount should be the annual lease value.

How this program works

▪︎ Trips - you should classify trips as #business or #personal. Trip tagged using hashtags of custom mileage rates are considered business trips. Unclassified trips are considered personal trips. It is therefore important that you classify all your trips in order to avoid unexpected results in your reports.

▪︎ Expenses - you can log expenses in the app under the category "Vehicle - Fixed Costs / Lease". If you use the vehicle for only part of the calendar year, you should log monthly "lease" expenses, each for the monthly lease value. If you use the vehicle for the entire calendar year, you can log a single "lease" expense with the annual lease value. Note that in this case the monthly reports will not be useful, and you should only use the annual report.

▪︎ Reports generated by this program are restricted to a single vehicle (i.e. the vehicle using this program) and include a mileage summary and trips list, as well as a calculation of the "value of personal use" based on the total lease expenses logged in the report period.

We recommend that you log "lease" expenses on a monthly basis, with each expense item amount equals 1/12 of the annual lease value (i.e. the monthly lease value). Logging one lease expense per month instead of one per year will allow you to use monthly, quarterly and annual reports. Each report will include only the expenses relevant to the report period, and will therefore result in the correct pro-ration of the lease value of the vehicle for that period.

If you log only a single "lease" expense for the entire year, your monthly or quarterly reports will not be useful as the annual lease expense would only be visible in the monthly report in which the expense was logged.

Conditions

Consistency requirements

If you use the lease value rule, the following requirements apply.

  1. You must begin using this rule on the first day you receive the vehicle from your employer. However, the following exceptions apply.
  2. If you first use the commuting rule with this vehicle (see program: "Private Use - Commuting Rule"), you can change to the lease value rule.
  3. If you first use the cents-per-mile rule (see program: "Private Use - Cents Per Mile"), you can change to the lease value rule.
  4. After choosing this rule for your vehicle, you must continue using it in all later years, unless the commuting rule applies to the vehicle, in which case you can switch to the commuting rule.
  5. You must continue to use this rule if you receive a replacement vehicle, and your primary reason for the replacement is to reduce federal taxes.

Disclaimer

Psngr does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors.

Source: IRS publication 15-B