Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, June 18, 1990                   TAG: 9006160017
SECTION: BUSINESS                    PAGE: B5   EDITION: METRO 
SOURCE: MAG POFF BUSINESS WRITER
DATELINE:                                 LENGTH: Medium

COMPANY CAR NOT THE PERK IT USED TO BE

When you drive it for personal reasons, the company car generates taxable income.

Stick strictly to business and you still face the job of proving to the IRS that you aren't motoring off on a venture of your own.

And now 1990 has brought another change in the law that Harry Schwarz of H. Schwarz & Co. described as "unfortunate" for those with a company car in the driveway.

Schwarz said many companies choose to escape record-keeping completely, transferring that chore to the employee with the car.

The company merely consults a government table showing the annual value of the car, Schwarz said. That's basically the lease value plus 5.5 cents a mile.

The full value is added into the employee's W-2 form as income.

Instead of dealing with his company, the driver must now account directly to the IRS.

Until this year, the expenses of operating the car could be deducted directly from income. Now the costs must be listed as miscellaneous itemized deductions.

That forces the employee to itemize deductions even if he doesn't want to, Schwarz said.

The alternative to itemizing is to pay tax on the full annual value of the car - probably several thousand dollars - as if it were income.

And, he pointed out, car deductions are subject to the 2 percent floor on business expenses. Expenses can be written off only after they exceed 2 percent of adjusted gross income.

Adding the value of the car to income, of course, increases the 2 percent threshold that must be reached to claim a deduction.

The result, Schwarz said, is that the government gets more money because the employee will pay higher taxes.

Under an alternate method, the employee can turn in expenses and the company may maintain the records. The share for personal use, not the car's value, shows up on the W-2.

By contrast, if you use your own car and receive 26 cents a mile for business driving, Schwarz said, there are no tax ramifications.

Anyone who receives more than 26 cents is supposed to report the excess as income, he said. Those who receive a lesser amount might claim the difference if it exceeds the 2 percent floor.

Is it worth having a company car?

Hugh Sawyer, a certified public accountant with Sawyer & Co., said the good old days are gone.

That was when you could make money writing off the expenses on a BMW or Mercedes within a few years. Now luxury autos don't even qualify as a business car.

"But it's still a great perk," Sawyer said. People with a business-owned car don't have to ante up a down payment and finance their own vehicle, he said.

But he advised minimizing use of the company car.

Both the company and the IRS frown on personal use of a business vehicle, Sawyer said.

They have another common interest. Both expect you to keep good records: a log of mileage and operating expenses. Sawyer said the expenses include gas, repairs, state inspection and insurance. They must be prorated according to business and personal miles.

The cost of commuting isn't deductible unless you travel between more than one workplace.