Discussion:Partnership and Auto Personal Use of Company Car

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Discussion Forum Index --> Tax Questions --> Partnership and Auto Personal Use of Company Car


Chase (talk|edits) said:

14 December 2006
How does the personal use amount of a company car get reflected on the 1065 and the members' 1040's? The members of the LLC are not employees of course, so no W-2. Thanks.

Death&Taxes (talk|edits) said:

14 December 2006
Would you not charge each person's draw with the personal portion, reducing auto expense on the return and thus increasing profit, or better yet charge it to Guaranteed Salary/Draw....Partner A then would pay tax on his use and Partner B would pay tax on her use?

Chase (talk|edits) said:

14 December 2006
I thought I'd add increase the partnership income by the amount of personal use. Then, I thought I would specially allocate the amount to the 2 partners who used the vehicles personally so that it would show up on their K-1's and not affect the 3rd partner sho was not involved. Does that sound reasonable?

Kluskey (talk|edits) said:

14 December 2006
Under Reg 1.61-21 rules relating to valuation of fringe benefits apply to partners, and must be valued at the fair market value of the personal use of the auto. The market value can be calculated using the annual lease value tables in the regs and the amount calculated would be considered income to the partners, subject to SE taxes. Alternatively, the amount calculated can be reimbursed by the partners.

None of this changes the partnership income, since 100% of the expenses related to the auto are deducted as usual. It only changes the income required to be included on the partner in question's tax return.

Chase (talk|edits) said:

14 December 2006
Seems like this approach does not equal out. Why would the P-ship deducts 100% if some of the expenses are attributable to personal use? Also, seems like the depreciation would need to be adjusted for business use percentage?

Will (talk|edits) said:

14 December 2006
Hi Chase,

On the deduction question I think it works just like a corporation with the corp taking 100% of the expenses and the personal use is allocated to the employees w-2. In this case it would be a K-1. The expenses reduce the partnership distributable income and increase the partners separately stated income.

Will

Chase (talk|edits) said:

14 December 2006
Makes sense - I was just harkening back to when I had to calculate this for a C Corp where I worked --- no change to C Corp but we calculated the W-2 inclusion for chaffeur, etc.

Will (talk|edits) said:

14 December 2006
I was trying to find an authority on which box on the K-1 but haven't been able to find one. There is no spot for it on the SE worksheet. Wonder if it is just added to the GP total?

Publication 946 states that if this vehicle qualifies as listed property, then the max allowable depreciation needs to be lowered by the personal use percent.

I'm learning as I go here so take this for what is worth. Will

Death&Taxes (talk|edits) said:

14 December 2006
Am I missing something here: in a corporation (S or C) there is the W-2 to use to reflect factors like personal use of a car, but a partnership is governed by an agreement which specifies the percentage of profit and loss. All would be fine if this were covered in the agreement, but what if not? If agreement says A & B get 40% and C gets 20%, how do we reconcile this? This is why I feel any valuation for personal use should be considered part of guaranteed salary, for it leaves the percentages the same.

Kluskey (talk|edits) said:

14 December 2006
That sounds reasonable, especially when coupled with the fact that the personal use of a company car is considered compensation, and compensation for partners is reported as guaranteed payments (as opposed to the partners' share of profit).

Will (talk|edits) said:

14 December 2006
What I should have said was that it reduces the partnerships distributable income and increases the partners taxable income, i.e GP. Thanks for the clarification.

Will

Kluskey (talk|edits) said:

14 December 2006
I think that the market value of the personal use of the auto included in partner's income as a guaranteed payment would not be deductible by the partnership, since the partnership is already deducting the auto expenses such as depreciation, gas & insurance. It would be a schedule M item (just like in the case of a corporation when the value of the personal use of a company owned auto is included in a corporate employee's W-2).

Chase (talk|edits) said:

14 December 2006
The personal use of the auto is, say, 10%. Can I look at the Annual Lease Value (prorated since it was a partial year) and then exclude 90% from that value to calculate the amount of inclusion? Since I am now including this 10% as a guaranteed payment to 2 out of the 3 partners, my distributable income is lower and the taxpayers who used the vehicle for personal use, have additional taxable income. I'm still pondering if the GP resulting from the lease inclusion should be a deduction to the partnership or not. Seems like that's OK because wouldn't the depreciable basis of the auto now be 90% of the FMV.

Kluskey (talk|edits) said:

14 December 2006
I think that the GP resulting from including 10% of the Annual Lease Value of the auto in the income of the partners' using the cars should not be a deduction to the partnership. The partnership distributable net income is already being reduced by 100% of the auto depreciation, insurance, gas, etc. Instead, it should be a schedule M item. I don't believe the depreciable basis of the auto should be reduced at all.

Chase (talk|edits) said:

18 December 2006
Thought I'd try this one again to see if anyone else has partnership experience with company cars used personally. Should the personal use of the auto by a partner in an LLC be treated as a guaranteed payment deductible by the partnership? Partnership is getting all of the deduction for depreciation already --- thanks.

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