Building Your Business Business Taxes Company or Employee Business Vehicle Ownership By Jean Murray Jean Murray Facebook Twitter Jean Murray, MBA, Ph.D., is an experienced business writer and teacher who has been writing for The Balance on U.S. business law and taxes since 2008. She has taught accounting, business law, and business finance at business and professional schools for over 35 years, has authored several books on saving money and simplifying your business, and was the owner of startup-focused company Emence Enterprises, LLC. learn about our editorial policies Updated on November 30, 2022 Reviewed by David Kindness Reviewed by David Kindness David Kindness is a Certified Public Accountant (CPA) and an expert in the fields of financial accounting, corporate and individual tax planning and preparation, and investing and retirement planning. David has helped thousands of clients improve their accounting and financial systems, create budgets, and minimize their taxes. learn about our financial review board Fact checked by Hans Jasperson Fact checked by Hans Jasperson Hans Jasperson has over a decade of experience in public policy research, with an emphasis on workforce development, education, and economic justice. His research has been shared with members of the U.S. Congress, federal agencies, and policymakers in several states. learn about our editorial policies In This Article View All In This Article Acceptable Business Driving Expenses Taxes and Business Vehicles Benefits of Business Ownership Leasing vs. Buying a Car for Business Use Photo: Alastair Berg / Getty Images A car purchased for use in a business has certain tax advantages for the owner, whether that owner is the business or an employee. But before you buy that car, consider the pros and cons of having the company or the employee owning the car. There are tax implications and other factors to consider in this decision. In this situation, we'll look at ownership by a corporation vs. ownership by an employee. Acceptable Business Expenses for Use of Car/Truck First, remember that whether the business or the employee owns the car, only actual business use of the car is deductible as a business expense. Commuting expenses between home and business are not deductible and personal travel is not deductible. Note Whoever drives the car must keep good records on business travel expenses in order to have those miles allowed as a deduction. You might want to consider a business driving app as an easy way to keep mileage records. Taxes and Business Vehicles Probably the biggest benefit to either the company or the employee from owning a business car is the cost savings from tax deductions. This deduction comes in two parts: Deduction for the act of owing the carDeductions for costs of driving the car for business For the owner, the cost of the vehicle as a business asset and the costs for use of the car are both fully deductible from business taxes. For the employee, the cost of the car as an asset is not deductible—nor is the interest expenses of the car loan. Employees can no longer deduct unreimbursed business expenses. Benefits of Business Ownership of the Vehicle The company can deduct depreciation expenses at the rate in effect at the time the asset is put into service (begins to be used). The company can also deduct general auto expenses for business use of the vehicle, like maintenance, gasoline, and tires. Also, interest on a car loan is deductible (the percentage of business use only) to a business as an ordinary and necessary business expense. If the business owns the car, personal use of the car must be documented. The company must report personal use by an employee—as an example, they drive the car to and from work—as taxable compensation on the employee's W-2. Insurance for a company-owned car may be cheaper than for an employee-owned vehicle since businesses can get leased-car and multiple-car rates and other discounts. If a company-owned car is involved in an accident, the driver's personal insurance rates and liability are minimized, especially when drive other car insurance is added for the employee. Employee Ownership of the Vehicle The major benefit of employee ownership of a vehicle for business driving has been eliminated by the 2017 Tax Cuts and Jobs Act (TCJA), beginning in 2018 continuing through 2025. As noted above employees can no longer take a deduction on Schedule A for unreimbursed business expenses, including business driving expenses. Also, the employee may need to get a separate auto insurance policy to cover the commercial use of the vehicle. While any personal coverage the employee has may cover some damage, it is unlikely to cover the car if its primary function is for business activities. As an example, imagine a plumbing company that has a business truck used for making calls. If the owner should drive the truck to the store and have an accident, the damage may not be covered because it was not in business use at the time. Business Ownership Best for Business Driving In general, having the business own the car allows more deductions, such as depreciation. Most of these deductions are not available to individual employees on their personal tax returns, but there may be specific instances when employee ownership of a car or truck for business use is advantageous. Leasing vs. Buying a Car for Business Use The same factors may apply if a business decides to lease a car for employee business use. If you lease a car for an employee, you don't have much control over how much mileage the employee puts on that car. Many car lease terms have mileage restrictions. If you (as the owner) drives a leased car, you may be able to control personal use and keep costs down. Every situation is different, but consider leased cars as perks for owners and executives, and buy cars if employees will be driving them. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Internal Revenue Service. "Publication 463, Travel, Gifts, and Car Expenses," Page 12. Accessed Feb. 18, 2021. Internal Revenue Service. "Publication 463, Travel, Gifts, and Car Expenses," Pages 14-17. Accessed Feb. 18, 2021. Internal Revenue Service. "IRS Updates Guidance for Deductible Business, Charitable, Medical and Moving Expenses." Accessed Feb. 18, 2021. Internal Revenue Service. "Publication 463, Travel, Gifts, and Car Expenses," Page 2. Accessed Feb. 18, 2021.