How a $1.2M Delivery Startup Bought 50 E-Bikes with Corporate Funds - and Nearly Triggered an IRS Review

Why buying e-bikes with company money looked like a clear win - until it wasn't
Two years after launch, "CityDash" was growing fast: $1.2 million in annual revenue, a churny pool of independent courier contractors, and complaints about delivery times in dense neighborhoods. A manager proposed a simple fix - use corporate cash to buy 50 mid-range e-bikes ($1,500 each) and assign them to couriers to reduce reliance on cars. The pitch sounded strong on paper: lower delivery times, reduced fuel costs, happier couriers, and better brand visibility.

What the founders underestimated were three things that matter far more than a shiny fleet: tax treatment, employee classification, and employee benefit creep. That moment changed everything - the company realized its menu of benefits was bloated, poorly documented, and that some "perks" would create taxable income or disallowable deductions. One wrong line item in the books almost spawned an IRS review for misclassified compensation.
Why buying e-bikes with company money was riskier than it looked
At first glance, the problems seemed trivial. But the issues carry cash consequences:
Tax treatment: Are company-provided bikes a business asset deductible as equipment, or a taxable fringe benefit to the rider? The answer determines whether CityDash gets an immediate deduction or has to report imputed income on W-2s. Classification: Couriers were a mix of employees and independent contractors. Giving equipment to contractors often counts as nonemployee compensation, which affects 1099 reporting and withholding. Personal use: How much of the bike's use is business versus personal commuting or weekend rides? Untracked personal use can turn a deductible asset into taxable wages.
Which benefit matters most? The ones that materially reduce your cost per delivery and are defensible to the IRS with documentation. Free snacks and gym discounts look great in retention surveys but they do not move the efficiency needle like a properly handled work tool does.
Treating e-bikes as business assets: the strategy that followed
CityDash pivoted from a perks mindset to an asset-and-policy mindset. The team designed a four-part strategy:
Asset treatment: Buy the bikes as business equipment and elect immediate expensing where legally available (Section 179 or bonus depreciation), while preparing for MACRS depreciation if required. Clear assignment and agreement: Issue bikes as company property with signed use agreements that limit personal use, require return on termination, and mandate reporting of incidents. Monitoring and maintenance: Tag every bike with a GPS tracker and asset tag, enroll bikes in a fleet management tool, and centralize maintenance to track business usage. Payroll and tax treatment: For employees, treat any personal-use imputation on the W-2; for contractors, decide whether providing bikes will be considered 1099-reportable compensation or equipment loaned for business.
That approach aimed to protect deductibility while controlling the downside of imputed income or misclassification. It is pragmatic and slightly contrarian - spend corporate dollars where the company captures measurable return, and document ruthlessly.
Rolling out 50 e-bikes: a 90-day step-by-step implementation
Here is the practical 90-day timeline CityDash used. If you are considering a similar move, this is the checklist to adopt and adapt.
Days 1-15: Strategy and approvals Decision metrics: Projected cost per bike $1,500; accessories and insurance $500 per bike; total project cost $100,000 for 50 bikes. Forecasted reduction in fuel/maintenance of $250 per month across the fleet. Projected revenue lift 10% in dense zones. Board sign-off: Present expected ROI, tax treatment, and a draft employee agreement. Secure CFO approval for Section 179/bonus depreciation election with CPA sign-off. Days 16-30: Procurement and vendor negotiation Vendor selection: Chosen vendor - Rad Power Bikes for budget and service network. Negotiate bulk pricing: list $1,800 each, discounted to $1,500 with three-year service plan. Financing options: Compare paying cash versus a 24-month capital lease. Cash saves interest and simplifies accounting; lease preserves working capital but has different tax and balance sheet treatment. Days 31-60: Policy, tracking, and insurance Create a "Company Property Use Agreement" that explicitly states business-first use, return conditions, damage responsibility, and personal-use imputation rates. Install GPS trackers (Trackimo or Linkio), assign asset tags, and add each bike to Fleetio for maintenance logs and repair history. Obtain a commercial fleet insurance rider covering e-bikes - quoted at $6,000/year for occupational liability across 50 bikes in dense urban areas. Days 61-90: Deployment, training, and payroll setup Training: One-day safety and operations training per rider. Track completion and issue helmets and locks as taxable or non-taxable depending on policy. Payroll and tax setup: For employees, designate personal-use imputation at $120/month per bike (based on IRS guidelines and local law) and agree to include this in taxable wages. For contractors, decide to treat bike provision as equipment loaned; if unlimited personal use is allowed, prepare to issue 1099-NEC for the deemed income. Accounting entries: Capitalize bikes as fixed assets and either expense under Section 179 in year one (if elected) or depreciate under MACRS 5-year schedule. Record insurance and maintenance as operating expenses. Cutting costs and increasing capacity: measurable results in 6 months
Numbers are what saved CityDash from squishy HR thinking. After six months the company tracked these outcomes:
Metric Before After 6 months Average delivery time in dense zone 28 minutes 23 minutes (18% reduction) Monthly fuel and vehicle maintenance cost $6,400 $3,200 (50% reduction) Courier turnover 36% annualized 22% annualized Revenue month-over-month growth (city zones) +2% +14% in target zones Tax deduction realized (Section 179, immediate expensing) n/a $100,000 purchase deducted; tax savings ~$21,000 at 21% tax rate Payroll tax cost from imputed income n/a $6,600 annual payroll tax cost for 50 bikes at $120/month imputation
Net effect: after accounting for the added payroll tax cost and insurance, CityDash estimated a six-month net cash improvement of roughly $34,000 from lower fuel/maintenance and higher deliveries. The tax treatment (Section 179 election) shaved another $21,000 off book-tax liability in year one.

Did an IRS audit actually happen? Not directly. But the company received one inquiry requesting documentation for the deduction and the signed use agreements. Because CityDash had GPS logs, signed agreements, and maintenance records, the company produced the documentation and the inquiry closed with no adjustment. That near-miss validated the investment in controls.
3 hard lessons about employer-paid equipment and employee benefits
Lesson 1 - Treat work tools as assets, not perks. When you buy equipment with corporate money, you are making a capital decision. Documentation matters: invoices, serial numbers, signed agreements, and usage logs protect both your deduction and your payroll position.

Lesson 2 - One size does not fit all for employee classification. Giving equipment to contractors is different than giving it to employees. If contractors get unlimited personal use, that is compensatory and should be reported as 1099 income. If equipment must be returned and is used primarily for business, it can be treated as a loaned asset. Decide upfront and document it.

Lesson 3 - Measure the benefit, and stop subsidizing vanity benefits. Benefits that don't move efficiency or retention are costs buried in HR budgets. Free lunches, fancy swag, or gym reimbursements can be helpful, but they are not substitutes for capital investments that change unit economics. Ask: does this reduce cost per delivery or increase revenue per courier?
How you can copy this playbook without getting an audit
Ask these questions before you buy corporate e-bikes:
Who will use the bikes - employees or contractors? What percentage of use will be business versus personal? Can you enforce return and maintenance requirements? What accounting election (Section 179 or depreciation) yields the best tax outcome this fiscal year? Do you have fleet management and insurance lined up?
Practical replication checklist:
Build a cost model: purchase price, accessories, GPS, insurance, training, and ongoing maintenance. Use a conservative utilization rate (70% business use) to model imputed income risk. Choose payment method: cash if you have spare capital and want tax simplicity; lease if you prefer preserved cash flow. Compare total cost of ownership over 3 years. Implement a signed use agreement and upload it to HRIS (Gusto or Rippling) tied to each rider's profile. Install GPS trackers and connect to a fleet manager like Fleetio or a lightweight tracker such as Trackimo linked to a shared dashboard. Export monthly usage reports for tax support. Coordinate with your CPA to decide on Section 179 vs MACRS. If you expect profit this year and want to reduce taxable income now, Section 179 can be powerful. Document everything: purchase invoice, inventory list with serial numbers, photos at delivery, training signoff, maintenance logs, and usage reports.
Tools to use: QuickBooks for asset and depreciation tracking, Gusto for payroll imputation handling, Fleetio or Samsara for fleet operations, and Trackimo or similar for GPS tracking. Vendors: Rad Power Bikes, Ride1Up, or VanMoof for mid-market e-bikes. Consult your CPA or tax advisor before making major elections.
The bottom line: buy work equipment with the discipline of a CFO, not the optimism of HR financialpanther.com https://financialpanther.com/the-day-job-hack-how-to-leverage-corporate-benefits-to-accelerate-financial-independence/
Buying e-bikes with corporate money can dramatically improve unit economics and retention in last-mile delivery. But the most expensive mistakes are not the bikes - they are sloppy documentation, muddled classification of users, and treating the purchase as a perk rather than a capital decision. CityDash's experience shows a clear pattern: quantify the impact, set strict policies, install tracking, and coordinate tax treatment with your advisor.

Are you willing to trade a low-impact perk for an asset that reduces cost per delivery? How does your company currently document employer-provided equipment? If you want, I can draft a sample company property use agreement, a 90-day rollout checklist tailored to your city, or a three-year total cost of ownership model. Which would help you take the next step?