Question

Brent Bishop is the vice president of operations for Southern Sweets Bakery. He drives a 2017 Toyota Prius Prime as his company car, and it has a fair market value of $37,500. The annual lease for the vehicle is $9,950. He reported driving 34,950 miles during 2018, of which 20 percent were for personal reasons. The company pays his fuel and charges him five cents per mile for fuel charges.

Required: Using the lease value rule, what is the valuation of Brent’s company car benefit? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Answer 1

The given problem relates to Fringe Benefit Valuation.

As per IRS table annual lease for the car should be $9750 but in question it is given $9950.

The solution is given as per the details given in the problem.

As per lease value rule employers use the annual lease value of the vehicle as specified by an IRS table that bases annual lease value on an automobile’s fair market value multiplied by the percentage of personal miles out of total miles driven by the employee subject to a fuel adjustment.

Annual Lease Value: $9,950

Personal Use Lease Value: $1990 (9950*20%)

Personal Use Miles:$6990 ($34950*20%)

Personal Use Fuel: $349.5 (6990*0.05)

Therefore using Lease Value Rule Value of Car Benefit=$9950-$1990= $8005