Charging S Corp Standard Mileage

[equinecpa]

Client had sole proprietorship in which he has almost fully depreciated his truck. In 2010 he formed an LLC and elected S corp status. Vehicle is still titled personally. Is it OK to charge standard mileage to S corp for vehicle use? It feels like he is double dipping as he was able to claim bonus depreciation on the truck (large truck) and now can get the standard mileage?

[Nashville]

Don't Think So

I don't think you can switch from actual method to standard mileage rate on the same vehicle. Painting a corporate entity face on the situation would probably be frowned upon.

[Gary2]

That would have been my first issue, but I think the question may be a bit different: Suppose the S-Corp adopts an accountable plan for reimbursing. In such cases, the nature of the automobile isn't relevant.

I know that in such cases, the individual taxpayer would still have to maintain full documentation. They can't use the accounting to the employer as evidence that the reimbursement isn't taxable (unlike an employee who isn't related to the employer).

If this were totally arms length, I'd consider it ok. In other words, someone starts out self-employed (or perhaps working for a different employer), and takes actual expenses. Then at a later date, that person starts working for a new, unrelated employer and gets reimbursed standard mileage under an accountable plan. I don't see that the prior deductions would have any effect on the ability to exclude the reimbursements from income.

[Nashville]

Arms Length

If this were totally arms length, I'd consider it ok.

Gary, if it were totally arms length, I would as well. You make a compelling narrative. I believe the OP has this vehicle used in a proprietorship by its owner, and now has become reimbursable expense at ostensibly the std mileage rate. Same Vehicle, same owner, same driver.

The corporation may be able to deduct under an accountable plan, but I believe someone would get dinged - either the corporation or the individual. They might allow the corporation to deduct, but might cause the owner to recapture depreciation, or allocate the portion of the mileage rate attributable to depreciation. I just can't see them letting this go.

[equinecpa]

Given that standard mileage seems to smell fishy,do you think it best the corporation pay and deduct the actual expenses of operating the vehicle in the business (there is no personal use) -this is a large truck.

[ChEAr$]

Given that standard mileage seems to smell fishy,do you think it best the corporation pay and deduct the actual expenses of operating the vehicle in the business (there is no personal use) -this is a large truck.

OOps! How "large" a truck? One for which standard rates are inapplicable anyway?

[equinecpa]

One ton flat-bed.

[outwest]

A different take..

there are several replies along the line of "it smells fishy". Good reason to dig deeper, lousy way to advise a client. Let me apologize in advance, I'm kind of grumpy this afternoon and I realized while proofing before a post this might come off a little snarky. I just think we need be standing on more than a gut feeling before we shoot down a possible tax deduction.

So let's try this:

Step one: Conversion to personal use. If less than the recovery period for a listed vehicle, process the depreciation recapture and report as described in TTB 10-8. If past the recovery period, well, nothing to do; that's just the law. Now the taxpayer has fully complied with the rules on conversion to a personal car.

Step two: accountable plan reimbursement. Assuming the rules for the plan are followed as to documentation and rate of reimbursement, the rules don't set any standards on the vehicle to be used. A brand new Lexus is reimbursed at the same rate as a 10 year old Jetta. Who, how, when, where or how much you bought the personal vehicle for is simply irrelevant.

"same driver, same car, same business" --- NOT! Unless you are saying that the corporate entity recognized under statute should be ignored and is not separate from the shareholders. And I can't believe someone would incorporate solely as a scheme to double dip on car depreciation!? (Thought I've seen lot's of silly reasons or simply on a whim.)

Sure, there is a depreciation component in the mileage rate, it's simply unrelated to the actual basis of the reimbursed vehicle. That 10 year old Jetta run for 5 more years may have the accumulated depreciation built into the standard mileage rate wwaaaayyy excess of basis. That's just the way it is. My vehicle with 230,000 miles would be one of those.

The only reason that depreciation component is there is to track tax basis (but not below zero) for calculation of potential gain or loss on disposition.

The real lesson here, sometimes there are surprising little tax breaks in the rules.

[Bees Knees]

Std Rate not allowed for corps

TTB, page 10-5:

Did You Know? The standard mileage rate method cannot be used
by corporations. Only self-employed individuals (including partners in a
partnership) and employees may use the standard mileage rate method.
(Rev. Proc. 64-10)

What you should do is since the business owner owns the vehicle, have the corporation set up an accountable plan where the business owner keeps track of business miles, submits the miles to the corporation, and the corporation reimburses the business owner at the standard mileage rate. The reimbursement is tax-free to the business owner and deductible by the corporation under the accountable plan rules.

[outwest]

One last thing

I'd agree with the above, but also note the related taxpayer rules and discussion on page 8-13 of TTB.

>>
Related to employer. If the employee is related to the employer,
the employee must be able to prove expenses to the IRS even if
expenses have been adequately accounted to the employer under
a per diem or car allowance plan, and any excess reimbursement
returned. For this rule, an employee that owns directly or indirectly
more than 10% of the stock in a corporation employer is
considered related to the employer.

[equinecpa]

Step one: Conversion to personal use. If less than the recovery period for a listed vehicle, process the depreciation recapture and report as described in TTB 10-8. If past the recovery period, well, nothing to do; that's just the law. Now the taxpayer has fully complied with the rules on conversion to a personal car.


"same driver, same car, same business" --- NOT! Unless you are saying that the corporate entity recognized under statute should be ignored and is not separate from the shareholders. And I can't believe someone would incorporate solely as a scheme to double dip on car depreciation!? (Thought I've seen lot's of silly reasons or simply on a whim.)

Sure, there is a depreciation component in the mileage rate, it's simply unrelated to the actual basis of the reimbursed vehicle. That 10 year old Jetta run for 5 more years may have the accumulated depreciation built into the standard mileage rate wwaaaayyy excess of basis. That's just the way it is. My vehicle with 230,000 miles would be one of those.

OUTWEST-Thanks this is the step I was missing that made it seem odd - I totally missed the conversion to personal use because in my tunnel vision I was seeing a truck used in a business still being used in a business.

The taxpayer isn't trying to double dip in any manner - I was just trying to figure out how to claim the vehicle expenses this year.

Carolyn

[outwest]

I learn a lot from your posts as well..

and I'm guessing that one ton flat bed pulls a gooseneck trailer?