Now Is the Time to Be “Accountable”
By Brian Cassidy
As we move into the final stretch of the year, it’s time for every business owner to take a closer look at their policies and documentation for company-provided vehicles and employee reimbursements.
Company -Owned Vehicles
A Tax Adviser article, “Employer-Provided and Company-Owned Vehicles”, highlights that without proper substantiation, the IRS may treat the personal use of a company car—or even flat vehicle allowances—as taxable wages rather than business expenses. That can create unnecessary payroll taxes, lost deductions, and headaches come audit time.
If you haven’t already done so, now is the time to get documentation from employees showing their business versus personal use of employer-provided vehicles.
What You Should Do Now
To keep your arrangement “accountable” under IRS rules (Treas. Reg. § 1.62-2), each employee who drives a company-provided or reimbursed vehicle should maintain a contemporaneous log showing:
- Date, destination, and purpose of each trip.
- Beginning and ending odometer readings or total miles driven
- Segregation of personal, commuting, and business miles
Reimbursements or benefits without this substantiation are considered non-accountable—and therefore taxable.
Key Planning Point: We recommend the Plan Document specify that the employee to maintain a contemporaneous mileage log or equivalent record, assigns the responsibility for recordkeeping and timely submission to the employee and states that failure to provide adequate substantiation will cause the reimbursement (or company-paid benefit) to be treated as taxable income. This will generally get the employer “off-the-hook” in the event of an audit.
Why It Matters for Owners
Business owners and “control employees” face an additional wrinkle.
If the company provides a vehicle for personal use, the IRS looks at how that use is treated:
- When personal use is recorded as compensation on a W-2, it’s deductible to the business.
- When it’s not, the IRS may treat it as a constructive dividend—not deductible by the company and taxable to the shareholder.
In short: documenting business versus personal use isn’t just good practice—it’s essential for keeping your deductions intact.
Valuation Methods to Know:
The IRS allows several ways to calculate the value of personal use, but each comes with rules:
Method | Key Criteria | Notes |
Annual Lease Value (ALV) | Based on IRS tables and vehicle’s fair market value | Most common for company-owned cars |
Cents-Per-Mile | Vehicle must be used regularly in business and not exceed value threshold | Simplifies recordkeeping but limited |
Commuting Valuation ($3 each way) | Strictly limited to non-control employees using vehicle for commuting only | Not available for owners or executives |
If you’re using flat allowances or estimates without mileage logs, the IRS will treat those as taxable wages—no exceptions.
Keystone’s Takeaway
At Keystone, we encourage every business to:
- Collect 2025 mileage logs from employees before year-end.
- Review your accountable plan policy to ensure it meets IRS standards.
- Confirm owner treatment—make sure any personal use of a company vehicle is properly reported through payroll.
- Document, document, document.
- Failure to do so is problematic in the event of an audit. Literally, becoming fully non-deductible, just because you didn’t get a one-page substantiation form. Play the game to win!
Getting this right now means fewer surprises later—and ensures your vehicle program remains both compliant and tax-efficient.
If you’d like, we can help you review your accountable plan or prepare a simple vehicle-use policy and mileage log template tailored to your business.
Contact Keystone CPAs today to ensure your plan stays accountable—because in tax, accountability really does pay.