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Company Car vs Mileage

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Every year we get very similar questions, from a variety of different businesses.

In this post, we will cover the age old question, Company car vs Mileage

Pros – Company car

  • Write off the actual costs of the company car including
    • Actual car price
    • Any gas
    • Any maintenance
    • Any repairs
    • Any insurance
  • In many cases an individual such as an owner or employee can use the company car, and only have a small amount of compensation for the use
  • Usually only want a company car if it is very expensive initially, or is not efficient (think large truck) or both (think large truck).

Cons- Company car

  • Limited to the actual costs expended- see pros- mileage for more information
  • If you are buying a company car that has any of the following characteristics, you will probably be better taking mileage:
    • Company car costs less than $30,000
    • Company car gets better than 17 miles per gallon
    • You will own this company car longer than 3 years
    • Company car has low maintenance and repair costs
  • Still limited to depreciation method(s) available
    • Even if you pay cash now, cannot write off the price of the vehicle this year, in most cases
    • Most vehicles cannot be written off faster than five years
  • Still have to track mileage for company car (please note, this is a big deal, and most people do not anticipate this issue)
  • If you sell the vehicle at a later date, you will probably have income or loss at that time and this amount is not easy to calculate
  • Like-kind exchanges are no longer available for company cars
  • Have to worry about if business use goes below 50% for the company car (compared to personal or other use)

Pros- Mileage

  • Usually get a better write off (see explanation below)
    • Mileage is made up of many parts- see the multiple parts as issued by the IRS
      • Depreciation = $.27 Per mile
      • Gas, maintenance, etc = $.29 Per mile
      • Total mileage rate is $.56 Per mile for 2021
  • One of the few times in the tax code, where you do not have to necessarily spend money today to get a tax deduction
  • Will not have to calculate income or expense relating to selling or buying a different vehicle
  • Do not have to worry about if company vehicle use goes below 50% business use
  • Usually use mileage for less expensive and more fuel-efficient vehicles

Cons- Mileage

  • Have to track mileage (not fun)
  • May not get a better deduction if above items (under pros- company car) are higher than the mileage amount available
  • Will not be able to “write-off” personal use of the company vehicle, please note this is usually only a benefit for expensive vehicles.

General other disclosures:

  • Once you start using one method, such as the mileage method, you are usually stuck with that method for the life of that vehicle
  • Mileage may not be available in certain situations such as fleet use
  • Depreciation is a tricky subject, and we have purposely skipped it in this venue, since it would take many pages to cover all the individual considerations relating to depreciation.

We help many other individuals and businesses with depreciation issues, company car issues and general tax compliance and advice. If you do not feel comfortable taking care of these filings, reach out to us at [email protected].

Anthony Momany, Managing Member, Capstone CPA Group PLLC