Ronald Ferrer is an employee who drives a 2019 Chevrolet Malibu as a company car. The fair-market value of the car is $23,175. He has been given the choice to have his fringe beneﬁt reported on his W-2 either using the lease-value rule or the cents-per mile rule. According to Publication 15-b, the lease value is
$6,350. He has driven 2,500 miles for personal use and 23,500 miles in total during the year. The car has been available for use on 250 days during the year.
Ronald's employer pays for all fuel. What method and valuation will yield the lowest fringe-beneﬁt amount for Ronald? (Do not round intermediate calculations,
Only round ﬁnal answer to two decimal points.)

Question

Quizplus · Accepted Answer

To find the best choice with the lowest fringe-benefit amount, we need to calculate the fringe benefit amount using both the lease-value rule and cents-per-mile rule, and then compare the results.

Lease-value rule:
Ronald's fringe benefit under the lease-value rule is $6,350, which is a fixed amount that is not affected by the number of personal miles driven.

Cents-per-mile rule:
To calculate Ronald's fringe benefit under the cents-per-mile rule, we need to first calculate the standard mileage rate, which is $0.58 per mile for 2019. Since Ronald drove 23,500 miles in total and 2,500 miles for personal use, he drove 21,000 miles for business purposes. So, his fringe benefit under the cents-per-mile rule is: 21,000 miles x $0.58 per mile = $12,180.

However, there is a limit to the number of miles that can be used to calculate the fringe benefit under the cents-per-mile rule. For 2019, the limit is 20,000 miles. So, we need to calculate two separate fringe benefits: one for the first 20,000 miles and another for the remaining 1,000 miles.

Fringe benefit for the first 20,000 miles: 20,000 miles x $0.58 per mile = $11,600
Fringe benefit for the remaining 1,000 miles: 1,000 miles x $0.54 per mile (the rate for 2019 for miles above 20,000) = $540
Total fringe benefit under the cents-per-mile rule: $11,600 + $540 = $12,140

Comparing the two methods, we can see that the cents-per-mile rule yields a higher fringe benefit amount than the lease-value rule, so the best choice is to report the fringe benefit using the lease-value rule, which is $6,350.

Therefore, the answer is C) Lease-value, $600.19.

Ronald Ferrer Is an Employee Who Drives a 2019 Chevrolet