Discussion:S Corp, Shareholder owns vehicle
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Kareneemery (talk|edits) said: | 12 December 2006 |
| Man, I have been all over this website on this issue and I think I'm still confused. If the 100% shareholder personally owns the vehicle and uses it 30% of the time for business use, and he's electing to use actual expenses as opposed to SMR, does this mean that 30% of actual expenses as well as 30% of depreciation on the vehicle can be deducted by the corp? (Shareholder keeps log of all expenses for the vehicle, a mileage log showing all business travel, quarterly odometer readings to determine percentage of business use, and submits reports to the corp for reimbursement.) If depreciation is allowed on 1120S, does it go on form 4562 even though the shareholder owns the vehicle rather than the corp? And where do the actual auto expenses go?
Thanks for your help. | |
| 12 December 2006 | |
| Hi Karen,
I don't have an answer to all of your questions, but I do not see how the depreciation could go on 4562. Perhaps check Publication 463 for proper treatment. Also, sound like a dream client if he is keeping that kind of records. :) Will | |
{{ForumReplyPost|UserID=Lhhesscpa|Date=12 December 2006|Text=Karen: The shareholder is presumably also an employee of the corp. In general, an employee is entitled to deduct unreimbursed out-of-pocket employment-related expenses as miscellaneous itemized deductions on their own 1040 through using Form 2106 with the total flowing to Sch A. So that's where your shareholder would take their deduction. The corp. can only deduct expenses related to a vehicle it owns. If the actual expense method is chosen, the depreciation is accounted for on Form 4562 attached to the employee's 1040 & the depreciation deduction flows to the 2106. --[[User:Lhhesscpa|Larry Hess, CPA - Albuquerque, NM Talk to Me}}
Death&Taxes (talk|edits) said: | 12 December 2006 |
| Following up on Larry, this shareholder/employee should submit expense logs to the corporation and receive the 44.5/48.5 next year, allowance. The expense belongs with the owner of the car. | |
{{ForumReplyPost|UserID=Lhhesscpa|Date=12 December 2006|Text=Right. This approach is better for the employee who may not even get a benefit from itemized deductions. But, even if they do, the miscellaneous itemized deduction category is reduced by 2% of AGI. In addition, there will be no tax benefit from the itmeized deduction if the employee is subject to AMT. --[[User:Lhhesscpa|Larry Hess, CPA - Albuquerque, NM Talk to Me}}
| 12 December 2006 | |
| How would the original scenario play out if the shareholder leases the vehicle to the corporation? | |
| 12 December 2006 | |
| Rosalydia: I think there is a prohibition against a shareholder leasing personal property to their corporation. --Larry Hess, CPA | Albuquerque, NM | Talk to Me | |
Kareneemery (talk|edits) said: | 15 December 2006 |
| Thanks, all, for the input. Do I have this right? The 30% of expenses that the corp has reimbursed to the shareholder are allowed on the 1120S. That will cover all of the business-related expenses, excluding depreciation. The remainder of the operating costs for the vehicle are not allowed as deduction on the 1040 because they're for personal use. He can take 30% of the depreciation for the vehicle on Form 2106. Is this right?
Thanks again for your help. | |
| 15 December 2006 | |
| Technically I think the full 30% of expenses have to be shown on the 2106 and netted against the reimbursement.♫ | |
| 15 December 2006 | |
| Assuming the shareholder wishes to use the actual expense method, rather than the cents per mile method, I believe that all of the auto expenses incurred by the shareholder, including depreciation, can be reimbursed to him by the corporation. The shareholder should keep his depreciation calculations with the other auto expense backup he uses to come up with the amounts on his requests to the corporation for expense reimbursement. Form 4562 wouldn't be included on the form 1120S. The depreciation amount would be included in the amounts reimbursed by the corporation to the shareholder and would be included in a single line item "auto expense" on form 1120S.
Leasing the auto to the corporation is usually not done due to unfortunate sales tax requirements, depending on the state you are in. I know the above information, but I don't know how to get many of my clients to keep contemporaneous mileage records. I hope this helps. | |
| 15 December 2006 | |
| I wonder why you are using actual vs. mileage. Unless you have a reason for doing so, the very easiest way, especially since you have the mileage logs, is to reimburse the shareholder for his business mileage. This simply is an expense to the corporation and includes depreciation. The shareholder doesn't have to report anything at all on his personal return. That's it. | |
Death&Taxes (talk|edits) said: | 15 December 2006 |
| Mileage is my preferred method, but if you live in a state with the highest auto insurance in the nation, drive perhaps 5-6,000 miles a year and lease an expensive car, actual expenses can give more tax ooomph....even with the lease inclusion rules on the 2106. | |
Kareneemery (talk|edits) said: | 15 December 2006 |
| This year, he gets greater expense/deduction by using actual expenses, nearly double what he'd get using SMR. (He has very low miles and had a repair to the vehicle during the year.) He plans to purchase another vehicle next year for 100% business use, so it's primarily this year, the starting year of his business, that he's thinking of. I know SMR would be the simplest way and it's probably the way he will choose to go with the new vehicle in 2007.
I guess I'm confused because there were other threads that sounded as if it didn't matter who the owner of the vehicle was, shareholder vs. corp -- the business could use the expenses, including depreciation, that were allocated to business usage. I would rather get all of the expense on one return, either the 1120S or the 1040, so if he can be reimbursed by the corp for the depreciation, too, that would be preferable. Does this mean that everything the corp reimburses gets included in income for him and that's how he shows both the expense and reimbursement? | |
| 16 December 2006 | |
| The reimbursement paid by the corporation to the employee for the auto expenses including depreciation incurred by the employee using his own auto for the business is deducted by the corporation. No reporting at all is required on the employee's form 1040, assuming the "accountable plan" rules are followed and the reimbursement is exactly equal to the business % of the employee's auto expenses including depreciation. (It's the same as if you bought a book for your employer and the employer wrote you a check to reimburse you. The employer would deduct the cost of the book, and the transaction would have no impact on your form 1040).
In this case, i.e. the employee owns the vehicle, the employer deducts all reimbursements paid to the employee for the business use of the auto as a single line item "auto expense" on the form 11120S. Form 2106 is only used on the employee's form 1040 if the reimbursements are either more or less than the actual expenses, or the reimbursements are included in the employee's W-2. Inclusion in the employee's W-2 is not required if the "accountable plan" rules are met. Therefore, I think you can achieve your goal of deducting all of the business related auto expenses on the form 1120S. It does matter who the owner of the vehicle is - if the corporation owns the auto, all of the expenses are deducted by the corporation, but the value of the personal use is included in the employee's W-2, or is reimbursed by the employee to the corporation. In this case, if the employee doesn't submit documentation to the employer for the business use of the corporation owned auto the employer has provided to him, then the entire market value of the use of vehicle for the year is included in the employee's W-2. If the employee has business use he didn't submit to the employer he can offset this income with deductions on form 2106. | |
Death&Taxes (talk|edits) said: | 16 December 2006 |
| "If the employee has business use he didn't submit to the employer he can offset this income with deductions on form 2106." Is this true? If the employer will reimburse and you don't submit, you can't choose to deduct the expense on your return. My thought runs more to people who work for larger employers, but I have seen this principle invoked enough on IRS audits to respect it. | |
Kareneemery (talk|edits) said: | 16 December 2006 |
| That is a very clear explanation -- I understand and thanks for all your help! | |
Sawtellecpa (talk|edits) said: | 16 December 2006 |
| What do you think about reimbursement of the Sec 179 expense on a >6000 lb SUV purchased personally by the S Corp shareholder as an auto expense on the S Corp return? I have this issue personally this year. Using the Sec 179 expense on my 2106/1040 creates an AMT problem and I get no benefit. Without refinancing, I don't know of any other way around this. I do not have the cash flow to actually make the reimbursement out of the S corp, so it would have to be a SH loan or capital contribution. Thoughts? | |
| 4 January 2007 | |
| What about requirement for business use to be 50% or more in order to take any depreciation? | |
| 4 January 2007 | |
| What about requirement for business use to be 50% or more in order to take any depreciation? | |
| 4 January 2007 | |
| Railey: The 50% requirement you mention refers to eligibility to use the MACRS system for computing depreciation and also Sec. 179 I might add. If business use is 50% or less the ADS system is used and Sec. 179 is not allowed. -- Larry Hess, CPA, Albuquerque, NM - Talk to me | |
| 4 January 2007 | |
| Exactly? I guess I didn't understand your question. -- Larry Hess, CPA, Albuquerque, NM - Talk to me | |
| 4 January 2007 | |
| I agreee exactly with your clarification AND that Sect 179 consideration is inappropriate. | |
| 4 January 2007 | |
| My initial question was not really a question but to trigger a thought process. | |
| 4 January 2007 | |
| Larry, you stated above that there is prohibition against s shareholder leasing pernsonal property to his corporation. Would please point me to the IRS reg. that addresses this issue. Thanks. | |
| January 4, 2007 | |
| I don't know if it's prohibited, but more irrelevant. I still see these, amazingly enough, and wonder why. When the ITC left town many moons ago (I'm not that old am I?), it was the end of personal leasing deals...reinforced as I recall by the limits on the use of 179, maybe? | |
Death&Taxes (talk|edits) said: | 4 January 2007 |
| And by the fact that in many states, the lessor should be collecting sales tax: if your state does not require that, then perhaps it is a way to get money out of a C corporation without paying FICA etc | |
Www.cpa1.biz (talk|edits) said: | 4 March 2008 |
| Almanacers,
Regarding an Scorp. Client has fully shown expenseses for gas and repairs for his business vehicle. 20% of this is personal. Is it clear to say that I can take out 20% of this expense and reclass it as a distribution on the books and for the 1120S? Now 20% of the expenses will not be shown on the profit and loss and it will be a balance sheet distribution. Please tell me if you have done this or some other alternatives that you have used in the past (i.e. loan to shareholder, reimbursement of cash to company for personal use or W-2). The W-2s have been given out already to the owner so if another method could be used, I will try to use that. These cost are minimal ($1300). Thanks, Bj | |
| 4 March 2008 | |
| Bj, assuming the car is owned by the S corp, no, your method is incorrect. I use the lease value method whereby the lease value is determined from a table based upon the FMV of the vehicle at the time it is acquired (& subsequently recalculated every 4 years). Lease value X 20% personal use plus $.055 per mile for company provided gas & oil. The total of all that is what should be charged to the s/h, credited to misc income or credited to auto expense. | |
Www.cpa1.biz (talk|edits) said: | 4 March 2008 |
| JD,
These are actual expenses. There is no lease here. If I am understanding you right, the Scorp is leasing the vehicle to the shareholder and charging for gas, oil and the lease value. I forgot to mention that the depreciation is only 80% since the other 20% if personal so I think this lease value can be ommitted. I see where you are saying it can be charged to the shareholder as a receivable to the corp. Now that you have this 80% business percentage, do you think I should omit the lease value? | |
| 4 March 2008 | |
| Depreciation will be 100% if you follow this method. I.e., corp expenses 100% of the depreciation, 100% of all ownership costs. Then corp takes income for the lease value charged to the s/h. See here: http://www.irs.gov/publications/p15b/ar02.html#d0e2738 | |
Www.cpa1.biz (talk|edits) said: | 4 March 2008 |
| Thanks JD. I have reviewed this vehicle option of Pub 15b. It looks like an easier system. | |
