Discussion:Auto expense in S Corp

Or should that (purchase auto through company) be a consideration? Any advice would be appreciated.

Thoughts/suggestions?

Accountant states that since I own over 5% of my S-corp, I can't do actual expenses, I must do a mileage-based reimbursement. (sounds contradictory to JR1) My accountant's "logic" is that if I need a new transmission, the IRS will not let me deduct 'biz portion' of that large 'actual' expense. Seems silly to me, especially since I didn't have any extraordinarily large actual expenses. I live in a compact town, so my total miles (biz + personal) are low, thus my actual cost per mile is higher than SMR.

Another rule we found states that a small company cannot do an auto plan, i.e. a flat allowance each month as a benefit. I think you need 10 participants or something like that.

My accountant's solution is to figure out actual expenses and get reimbursed based on miles driven for business. (ala Jdugancpa's "accountable plan") In my case, it works out to about 80 cents per mile. The difference between the 80 cents and the federal standard needs to get reported as income. After reading the notes above, I see other complications:

1) Since the diff between standard mileage rates and my 80 cents is taxable income anyway, wouldn't it be simpler (and same effect on bottom line) just to reimburse me the standard rate and forget the 80 cents?

2) JR1's assertion that you can't use mileage rates seems to contradict my accountants advice. (yes my W-2 is already filed and I don't want to amend it) Where did you find the rule re: no mileage rates for S-corps?

I'd really prefer to stick with the actual expenses, submitting an 'expense report' on a periodic basis for reimbursement, and deducting that as a legitimate biz expense of the S-corp. I am not looking to write off personal use as a biz expense, I just want to get my actual expenses as a deduction.

Head hurt yet?

Sounds like he's billing by the hour to come up with something that convoluted. I disagree with your accountant, you can use actual expenses for reimbursement. I'd merely have the corp. pick up the expenses and credit you for out of pocket reimbursements.. From here on, just have the corp. pay all the expenses (like everybody else does!) and exclude the personal portion at year end/add to W2, etc.

I noted in this chat that Ahe72 & JR1 discuss home office expense deductions for 1120S filers. I was under the understanding that a S Corp home office was not handled the same way as a Sch C filer since their is no home office form and the home in most cases if not all cases is not owned by the corporation but by the individual. Rather the S Corporation should pay a FMV rent to the home owner/shareholder. This rent is reported on 1120S as rent expense. The homeowner/shareholder would then report this rent income on 1040 Sch E. The allocated business useage for the home office expenses & depreciation would go on Sch E as well. Another words this home office basically becomes a rental property for the business allocated percentage. Warning: be sure that a lease agreement is drawn up between the leasee and leasor. Susan

car home in the evenings for protection purposes. Will these miles be business or commuting for the owner.

"S Rept No. 99-313 (PL 99-514) p. 84 . Where such a lease arrangement exists, the only deductions that are allowable are those that would be allowable in the absence of any business use, e.g., mortgage interest, real estate taxes and casualty losses. 16 However, under these circumstances, only otherwise deductible personal” casualty losses are deductible. The rule discussed above bars any deduction for business casualty losses, as well as trade or business expenses and depreciation, with respect to any portion of a taxpayer's dwelling unit rented by the taxpayer to his employer, and used by the taxpayer to perform services as an employee for the employer."

I know some S owners use accountable plans to reimburse for their use of home, but I have always wondered how someone would prove that 16.6% of their utilities were used for business.

My thought would be, just because the corp resolution states that the car should be driven home, the IRS will still treat as non-business use. What about the miles to drive the car back? :o) I don't think that would fly. We'll see what the more experienced preparers say......

Obviously if it's a situation where a work truck (or perhaps a tool truck that would not have to report commuting miles) I would recommend something different.

Just my two cents.

This all make so much sense to me! I fail to understand why business owners want to complicate things. So there it is, the vehicle, in order to be listed as business property, I feel should be titled to the business. Therefore, as you say, if it is titled to the business, technically a commercial auto policy should be in place.

Where do I look in the tax publications to find the law?

Lani

Since the business usage is 100% and documented, there is no $ amount on W-2. Should the S-Corp issue a 1099-MISC to employee for the rents paid to employee for the lease of that vehicle from the employee? If so, where would the employee deduct the expenses that offset that income on tax return (the depreciation and interest expense)?

What is the correct way to handle this for tax purposes? What is the best way to handle this (actual expenses do and will always exceed standard mileage rate)? Please help have to get taxes filed. Thank you.

In a previous post I see a mention of using a due to/from shareholder account, would that be more appropriate?

John Huddleston Seattle Bellevue Tax Accountant