Discussion:Auto Fringe Benefit
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Discussion Forum Index --> Tax Questions --> Auto Fringe Benefit
Actionbsns (talk|edits) said: | 4 January 2007 |
| I was just doing some research on this topic and now I'm confusing myself. What I have done in the past is to multiply the personal use miles by the standard mileage rate, gross it up for FICA/MC to put on the W-2, then net that against the auto expense on the books. The company still gets the deduction for the expense, and the employee has the taxable benefit on the W-2. But now my reading is confusing me some with the Annual Lease Value rules. It seems that by using this method in the manner I'm reading it, the company will get a double deduction - once for the actual expenditure involving the car and then as a payroll deduction. The mileage method seems a lot easier to use. My client is the sole stockholder in a C-corp, but I have some S-corps coming up that I need to consider also. Can anyone unconfuse me? | |
| 4 January 2007 | |
| Cents-per-mile rule, commuting rule, or lease value rule. See Publication 15-B for the one that fits your circumstances. | |
| 4 January 2007 | |
| Debit compensation expense, credit auto expense (or misc income). No double deduction. I don't believe the cents per mile method is allowable for a stockholder (not sure). | |
| 4 January 2007 | |
| Because he is the sole stockholder 9more than 5% owner) he must use the lease valution rule. See pg 19 of the referenced IRS Pub 15-B | |
| 4 January 2007 | |
| Additional adjustment/charge for gas, oil, maint, etc may be necessary if the Corp paid for it, the mileage was personal, & it was not reimbursed. | |
Actionbsns (talk|edits) said: | 4 January 2007 |
| Thanks again for the help. This site is awsome. The problem I was having was in the entry to the books, I have a client who uses a local CPA and they toss me the employee forms at the year end. His entry for the auto fringe benefit was to offset Distributions. Then I started reading and thought something alluded to the same thing but it just wasn't computing. Thanks Jdugan for confirming that I need to credit auto expense. The same would be true if the Fringe Benefit were sports tickets or opera tickets, the offset would be to entertainment or wherever the company had initially booked the expense. That makes way more sense. I would much rather use the mileage rule, but thanks for the info that I can't, keeps us on the right track. | |
Johnnylove12345 (talk|edits) said: | 7 August 2008 |
| Two Questions:
1. I've read a million ways to deal with this. Some people say debit wages and credit auto expense or misc income, others say leave as it is, add to wages, and reconcile back via an M-1 adjustment. The prior way seems correct to me, as it avoids double deduction. Can anyone verify this? 2. Instead of W-2 inclusion, can the shareholder reimburse the corp for the lease value (credited to misc. income) and the additional FICA be avoided that way? | |
Michaelstar (talk|edits) said: | 7 August 2008 |
| It is not an M-1 adjustment, or at least I have never seen it done that way so there must be a good reason for this. I am not a proponent of off setting the expense account but booking the credit to other income. I consider off setting the expense sort of like mixing apples and oranges and leaves a sloppy audit trail.
Yes, the s/h can write a check back to the corp for the annual lease valuation amount (if done timely - w/in 120 days)- not just book it to advance to be paid two or three years down the road but consider this. The preferred method seems to suggest that it be "included" in the compensation of the s/h and if you think about this - if done this way, the s/h's real (out of pocket )cost is the taxes he must pay and not the total amount calculated if they were to write a check back to the corp for the total amount. The s/h is far better off only having to pay the net taxes in the end (in my opinion in most cases) and reporting the gross compensation. Yes, it may effect the phase outs on the 1040 in some cases but that is on a case by case basis and really requires additional specific year individual tax planning which is really over kill for the extra $5-10k in W-2 compensation in most cases. | |
