Using a Company Car for Personal Trips? Here’s How to Keep It IRS-Compliant—and Tax-Smart

If your S corp or C corp owns a vehicle that you also use personally, there are some important tax rules you need to follow. The good news? With a little planning, you can maximize your deductions and avoid nasty tax surprises.

Let’s say you use the company vehicle 80% for business and 20% for personal use. Seems reasonable, right? But here’s the key: the IRS doesn’t allow you to use that personal portion for free. You’ve got two options:

• Option 1: Count the value of your personal use as W-2 income, which bumps up your taxable income (and payroll taxes).

• Option 2: Reimburse the company for the personal use—usually the more tax-efficient path, with fewer payroll tax implications.

Why this matters

If you structure things properly, your corporation can deduct 100% of the vehicle’s costs—that includes depreciation, gas, insurance, maintenance—the whole package. Even with some personal use mixed in.

But there's a catch: your business use must stay above 50%. If it drops below that threshold, your company loses access to accelerated depreciation methods like Section 179 and bonus depreciation. Instead, you’ll be stuck with straight-line depreciation, which is much slower and less favorable.

What about high-value vehicles?

If the vehicle costs more than $61,200 (for 2025), the IRS wants more precise reporting. You’ll need to use either:

• The lease valuation table provided by the IRS, or

• A fair-market lease equivalent, plus the actual cost of fuel used for personal trips.

Don’t wait until year-end

Waiting until tax time to handle this can lead to problems like amended W-2s, or worse, non-deductible dividends that could’ve been avoided. The sooner you set this up correctly, the more you can save—and the less risk you take on.

The bottom line: If your company owns your car, it can be a fantastic tax benefit—as long as you handle the personal use portion properly. From calculating fair value to setting up reimbursement strategies, we can help you turn that company car into a tax-smart business asset, not a liability.

We provide these articles as general information and not individualized tax advice.  They do not constitute a client relationship with you, and any information provided here should be applied at your own risk.