Employee Retiring-Buying Company auto

[DMICPA]

President-Non shareholder is retiring from a small S-Corporation. The S owner is not related to President. Retiring President wants to take the Company car with him. FMV $30,000.


I figured two possible ways to do this:

1. W-2 compensation grossed up to $48,000 to cover taxes, net take home pay is 35 cents. $30,000 comes out as other deduction.


2. W-2 compensation of $48,000, net take home pay is $30,000.35. AND,

He writes a personal check to the Company for $30,000 to purchase the auto.


I like option 2 because it looks like a cleaner transaction. The payroll is made like normal without any unusual deductions. The car sale is documented by FMV report and a copy of the check is attached to the sale documents and this would be entirely separate from the payroll.

I believe the net result is the same.

Anyone see any problems with this?


Bob

[Roland Slugg]

How about just doing the second half of your option 2, namely: "He writes a personal check to the Company for $30,000 to purchase the auto."

What does the $48,000 of W-2 income have to do with it?

The corporation would also be well-advised to document the value of the car, and hence its selling price, with print-outs of Kelley Blue Book and/or other respected vehicle value reference authorities, along with a few photos of the car, including a shot of the odometer.

[DMICPA]

Officer Auto Purchase

The Officer is taking the car when he retires. We just can't give it to him without a recognition of compensation.

The car is to be "free" to the Officer. The officer does not want to write a check unless there is a bonus to offset the cost to the officer.

The value is determined by Edmunds Auto guide. Of course the value from Edmunds will be part of the file to show how the value was determined.

[Lion]

If the car is part of his compensation and is to be "free" of payment from him, then it should be run through payroll and either grossed up to include payroll taxes or the retiree writes a check to company for his taxes.

[DMICPA]

Auto as income

It seems to me that this could be either be "grossed up" as payroll OR, normal payroll and the outgoing employee writes a check for the car at some later date.

If it is regular payroll and the retiring employee writes a personal check for the car, it separates the transaction into a payroll and a car purchase. This method could help with the Company recording the sale and the new owner going to the Dept. of Motor Vehicles to register it. He would have a check and a bill of sale. Trying to explain the imputed compensation being grossed up to a DMV employee could be a nightmare. Showing a check for $30,000 and a bill of sale would be easier.

My question is that it would appear to be cleaner if we just gave him the payroll and he could write a check for the car.

This way it is two different transactions. What is incorrect or unclear about that? Am I missing something ?

[taxxcpa]

I see no reason why he could not be paid an amount equal to the value of the car (either grossed up or not grossed up) with him writing a check for the car's value.

This would be less difficult to explain than if it was reported as salary with no payroll check to document the salary deduction.

[DMICPA]

Missing paycheck?

There would be a paycheck grossed up to something like $48,000 to cover the taxes with an "Other Deduction" of $30,000 and a net paycheck of $1.00 so there would be a paycheck.

I feel it is better to have the paycheck to be a net of $30,001 and the retiring employee write a personal check for $30,000 to purchase the auto a couple of weeks later.

This way we have a paycheck, and we have a sale of the auto in two separate transactions.

This looks a lot cleaner especially since the retiring person has to go to the Dept. of Motor Vehicles and pay sales tax on the purchase. It would be so much better if he has a check for $30,000 and a bill of sale instead of trying to explain to a DMV employee that the sales price is in the paycheck.

Bob