Homework Answers
Ans :When an employee uses a company vehicle for personal reasons, the value of using the vehicle for personal purpose should be included in the employment income for tax purposes as per Internal Revenue Service (IRS)
Valuing personal use: The fair market value of the employee's personal use of the company vehicle is included in their employment income. We can use the annual lease valuation rule to determine the fair market value of the employee's personal use of company vehicle. Following are the steps
1. Determine the fair market value of the vehicle on the first day it was available to B which is total cost including tax and title fees which is $40,000.
2. Find the annual lease value using the table in Publication 15-B. Because the fair market value is $40,000, the annual lease value is $10,750.
3.Calculate B's percentage of personal km driven 1400/2000 = 70% (personal km/total km)
4.Calculate the fair market value of B's personal use of company vehicle
Annual lease value * Percentage of personal miles
$10,750*70% = $7,525
Hence the amount included in B's employment income for tax purposes is $7,525.
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