Auto expense-S corp

[gman]

S-corp purchases auto. Is smr and actual expenses method available?
What about personal use?

[Bird Legs]

Car Exp. & S Corp.

The car should have been purchased in the individuals name, not the corp.
Since it was purchased in the corp. name the stockholder owner must maintain
a log of personal miles. And the fair market lease value based in the percentage of
personal use to total miles must be added to W-2.

[Harvey Lucas]

smr and s-corps

The rumor is that smr is only available to sole propiertor owners and is not available to "corporations"....if that meant corporations and scorps i was never definative.

There used to be language to this effect in quickfinder, and master tax guide, and other publications....

when i researched the issue recently, i found this language to be missing..

I think the consensus is that if it is corp owned you have to use actual expense and depreciation...and I agree with birdleggs, you have to allocate a portion for personal use and tax him on it on his w2 form.

HarveyLucas

[S T]

for planning purposes

So then would you say it is better for the Shareholder to set up a reimbursement plan with the S Corp, rather than have the S Corp own the vehicles (that is if it is used for personal use at any time ).
If vehicles are work vans or trucks 100% service vehicles that would be okay to have the S Corp own them and take the appropriate deduction for actual.

You can answer after 4/17/06.

Sandy

[OldJack]

So then would you say it is better for the Shareholder to set up a reimbursement plan with the S Corp, rather than have the S Corp own the vehicles (that is if it is used for personal use at any time ).

It is definitely better for the S-corp to own the vehicle as all expenses are deductible 100% as long as personal use is added to the W2. Expenses such as insurance, repairs, tires, gasoline, and of course depending upon the vehicle possibly code §179 and regular depreciation. Depreciation may or may not be limited depending upon the classification of the vehicle. As was said the only catch is personal use is added to the W2 but that is a chart value plus 5¢ per mile gas and not that unreasonable. You can write-off those big SUV's under §179 up to $25k.

However, if you are thinking about taking the current vehicle out of the S-corp be aware that a distribution/sale to the shareholder has to be at FMV not the original cost or net book value with the S-corp recognizing gain but no loss allowed.

Edit added: Note that with a S-corp or C-corp depreciation is calculated upon the full cost basis as the personal use does not reduce the depreciation basis like it does if you are doing a Sch-C. My 2¢±¼

[Bees Knees]

The rumor is that smr is only available to sole propiertor owners and is not available to "corporations"....if that meant corporations and scorps i was never definative.

There used to be language to this effect in quickfinder, and master tax guide, and other publications....

That language was based on Rev. Proc. 64-10 which was the very first Rev. Proc. that introduced the standard mileage rate. It goes as follows:

"A simplified method for computation of deductible costs of operating a
passenger automobile in a trade or business or for the production of
income by self-employed individuals or employees. This method may be used
to determine such costs for periods after December 31, 1962.


REV. PROC. 64-10 <<ENDNOTE 1>>

To relieve individuals from the necessity of maintaining certain
detailed travel expense records, the Internal Revenue Service will accept
the use of the simplified method set forth herein for determining
deductible costs of operating a passenger automobile in a trade or
business or for the production of income (hereinafter referred to as
"business purpose").

Subject to the conditions and limitations set forth herein, a
self-employed individual or an employee may choose to compute the
deductible costs of operating his passenger automobile (owned by him) for
business purposes by use of a standard mileage rate of ten cents per mile
for the first 15,000 miles of business purposes and seven cents per mile
for business purposes in excess of 15,000 per year. Use of this method is
optional on a yearly basis.

1. A deduction computed under this method shall be in lieu of all
operating and fixed costs of the automobile allocable to business
purposes. Included in operating and fixed costs are such items as gasoline
(including State and local taxes), oil, repairs, license tags, insurance,
and depreciation. Parking fees and tolls attributable to use for business
purposes should be deducted as separate items. Gasoline taxes allocable to
use for nonbusiness purposes (and allowable under section 164 of the
Internal Revenue Code of 1954) may be deducted in addition to the
deduction computed under this method.

2. The use of the simplified method is limited to a self-employed
individual or an employee who operates one automobile for business
purposes. Where a person alternates in using different automobiles on
different occasions for business purposes, the standard mileage rate
applies to the total business mileage of such automobiles, as if they were
one, to arrive at a deduction. Similarly, if an individual replaces his
automobile during the year, the total business mileage for the year of
both automobiles must be used, as if they were one, in applying the
standard mileage rate.

3. This method is not available (A) to compute the deductible costs of
vehicles used for hire, such as taxicabs, or (B) for a taxpayer who uses
in his business two or more automobiles simultaneously, such as in fleet
operations.

4. In any year in which the simplified method has been used,
straight-line depreciation will be considered to have been allowed. The
allowable depreciation will act to reduce the basis of the automobile in
determining adjusted basis as required by section 1016(a) of the Code.

5. This simplified method is not available for use where depreciation
has been claimed in the past on an automobile by use of a depreciation
method other than straight line, or where additional first - year
depreciation has been claimed.

6. This Procedure is not available to an employee who claims a
deduction for automobile expenses in excess of reimbursements or
allowances received from his employer for such expenses. If an employee
receives an employer - granted mileage expense allowance in an amount less
than the amount computed under this method, the expenses reportable by an
employee under this method are limited to the lesser amount. For the
reporting requirements of employees see (A) in the case of local
transportation expenses, section 1.162-17 of the Income Tax Regulations,
and (B) in the case of travel away from home, section 1.274-5(e) of the
regulations.

7. To make use of this method of computing automobile cost, a
self-employed individual or employee is required to establish his business
mileage (A) for local transportation, in accordance with regulations
section 1.162-17(d), and (B) for other travel, in accordance with
regulations section 1.274-5. The provisions of such regulations relating
to substantiation in the case of the amount of an expenditure are
inapplicable to deductions computed under this Revenue Procedure.

8. The simplified method set forth in this Revenue Procedure may be
used by self-employed individuals and employees to determine deductible
automobile costs for periods after December 31, 1962.


<<ENDNOTES>>

1/ Also released as Technical Information Release 537, dated Jan. 20,
1964.

<<END RULING>>"

[Harvey Lucas]

Thank You BeesKnees

That language was based on Rev. Proc. 64-10 which was the very first Rev. Proc. that introduced the standard mileage rate. It goes as follows:

"A simplified method for computation of deductible costs of operating a
passenger automobile in a trade or business or for the production of
income by self-employed individuals or employees. This method may be used
to determine such costs for periods after December 31, 1962.


REV. PROC. 64-10 <<ENDNOTE 1>>

To relieve individuals from the necessity of maintaining certain
detailed travel expense records, the Internal Revenue Service will accept
the use of the simplified method set forth herein for determining
deductible costs of operating a passenger automobile in a trade or
business or for the production of income (hereinafter referred to as
"business purpose").

Subject to the conditions and limitations set forth herein, a
self-employed individual or an employee may choose to compute the
deductible costs of operating his passenger automobile (owned by him) for
business purposes by use of a standard mileage rate ....

Thank you so much BeesKnees..very conclusive...very helpful.

HarveyLucas