Officer Buying Company Car.

[DMICPA]

I don't know if it is Summer doldrums or age but I am pondering this question.

C-Corp owns an auto. Cost $60,000, Depr. $15,000, FMV $32,000

Sole shareholder wants to convert auto to personal use. How can this be done?

1. Compensation of $32,000 to shareholder.

2. Shareholder writes personal check to Corporation for $32,000 to buy the car.


So, even though both methods get the deisred result, isn't method 2 a LOT more expensive to the shareholder? Compensation to the shareholder would only cost the shareholder the income taxes. Paying a check to the corporation would cost $32,000!!!


Is this some kind of loophole? The shareholder would only pay the taxes of est. $14,000 and gets a car valued at $32,000. Is this correct?

How about the Company side? Do you debit wages $32,000, Credit income for sale of car?
What about the net check to shareholder? There will be taxes taken out. Shouldn't this be a Gross-up check of say $40,000 and deductions and a "sale of Auto" and the net check would be zero. That would make the compensation $40,000 rather than $32,000.

I know property received is compensation but the gross compensation can't seem to be $32,000 as the whthholding taxe (FICA, Medicare) would effect the computation.

dazed and confused.

[ChEAr$]

The absolutist, most simple way to do it is for shareholder to buy the car for cash. No phony income grossed up for taxes. And nothing says the corporation can't sell him the car for 1/5 each year for 5 years, at an acceptable rate of interest of course.

On the down side, you have a related party transaction, and the car with book value of , what?
45,000$ and sold for 32,000 is a net loss of 13,000? Guess what happens to that loss?

[DMICPA]

Car Deal going flat

I agree that the best way by far is to have the shareholder write a check
and be done with it. The shareholder wants this done quickly so no five year payments.

However, which method would be less cost to the client? The income inclusion of $32,000 costs far less cash to the shareholder. I try not to have a "phony gross income" and gather several car evaluations to arrive at the Fair Market Value.

You are correct that the loss on the "sale" of the car would be a non-deductible item. I am greatful that you mentioned that.

Bob

[DMICPA]

Employee Buying Company Car

So in the above situation the loss would not be a deductible due to related party.

There is a former shareholder who also wants to buy the Company provided auto and in this case, the same rules would apply as to grossing up the sale price BUT any loss would be deductible as this person is a officer-employee and not a shareholder or related to a shareholder. Has not been a shareholder for four years.

In both cases, the tax treatment to the individual are the same but the tax treatment to the Corporation concerning any losses upon sale are different.