A company car can be a tax-free fringe benefit as long as you document its use correctly. Whether you use the car strictly for company purposes or for personal and company tasks you can deduct your company use on your taxes. There are two ways to deduct company car expenses: 1) Track actual expenses such as gas, oil changes, maintenance, etc. or 2) Use the standard mileage rate, which varies from year to year but is typically around 30 cents a mile. Whatever method you choose you must be sure to document your expenses and record them properly on your taxes.
Purchase or lease the company car of your choice.
List the company as the owner of the car if you work for the company. If you are the owner of the company then the car can be purchased in your own name.
Track your deductions for the car by keeping a mileage journal and filing all pertinent receipts for car maintenance, gasoline expenses, etc. If you use an actual expense deduction then typically you will get a higher tax deduction amount.
Talk to your accountant about the best way to utilise the company car tax benefits.
File your taxes with the proper car expense deductions documented and make sure to attach all required documentation so that you get the maximum tax benefits.
Decide whether the car is going to be used strictly for company use or if it will be used for company and personal tasks. If you use the car for both company and personal uses then you must determine a business-use percentage and keep records of expenses. Be sure to keep records of tolls and parking fees as well as maintenance fees so that you can record every deduction possible. If you do not itemise your deductions then you can file a standard mileage rate deduction, but you still need to have records of your mileage for the tax year. Even if you use your personal car for business uses you can deduct the expense under miscellaneous on your personal taxes. Remember to keep records of the instances where you used your automobile for company tasks.
Keep your records accessible and save your receipts for five to seven years so you will have them in case there is any question about your deductions.