What expense category is a company car?

Using a company car adds convenience to your business operations, but figuring out how to categorize these expenses can be tricky. Let's break down how company car expenses fit into your accounting records.

Classifying company car expenses

How you use your company car determines which category its expenses fall into. Here are some categories:

• Operating expenses: Day-to-day costs like fuel, maintenance, and insurance that keep the car running.
• Capital expenses: If you purchase or lease a vehicle, the cost is considered a capital expenditure. This includes the price of the car and any associated financing fees.
• Fringe benefits: If employees use the company car for personal trips, it may be classified as a fringe benefit, which has specific tax implications.
• Depreciation: Over time, the value of the car decreases. Depreciation is recorded to reflect this loss in value.

Examples of company car expenses

Here are some typical examples of costs you might incur while managing and maintaining a company car:

• Fuel costs: Gasoline or electricity expenses for keeping the car running.
• Routine maintenance: Oil changes, tire rotations, and regular servicing to keep the car in good condition.
• Repairs: Unexpected fixes like replacing a broken part or addressing accident damage.
• Insurance premiums: Payments for the vehicle's insurance coverage.
• Registration and taxes: Fees required to keep the vehicle legally on the road.
• Depreciation: Accounting for the car's loss in value over time.

Picture this, if your company spends $500 per month on a car lease and $150 on fuel, these amounts should be accurately recorded under the appropriate expense categories.

Tax implications of company car expenses

When it comes to taxes, here’s how you can max out on benefits when it comes to company car expenses:

• Tax deductions: Operating expenses like fuel and maintenance can often be deducted from your taxable income.
• Depreciation: You can claim depreciation to reduce taxable income over the car's useful life.
• Benefit-in-kind tax: If the car is used for personal reasons, it may be considered a fringe benefit, and both the company and the employee might owe additional taxes.

Remember that keeping detailed records of how the car is used helps substantiate your expense claims and ensures compliance with tax regulations.

Let Ramp automate your expense process

Managing company car expenses doesn't have to be complicated. Ramp can automate the categorization and tracking of all your vehicle-related costs. Gain real-time insights, streamline your financial operations, and focus on driving your business forward.