S-Corp Purchase of Auto

[WhiteOleander]

I have tried to sort this out and I keep ending up in a circle.

100% S-Corp shareholder wants a new auto. She hikes it down to the friendly dealership. She purchases a new auto. Dealership tells her it would be a good idea to have the corp buy it. I don't know why they told her that. That's what she did. This is her personal vehicle. So, she says she will pay the corp $170.00/month to re-imburse for the personal use. I don't know where that came from. The note on the auto is approx. $52000.00 for 60 months.

So, am I correct that she has to include into her W-2 the value of the use of the vehicle? If so, can you point me to the info to calculate the amount? Is it subject to FICA?

Thanks. All the info I have found talks about employer provided vehicles. But she is also the "owner" of the corp.

[mlinderEA]

Purchase of auto

Why doesn't she just re register the car in her own name?Did she make a down payment and where did that money come from?Did she have a trade in?

[WhiteOleander]

Why doesn't she just re register the car in her own name?Did she make a down payment and where did that money come from?Did she have a trade in?

Well, she still thinks that she wants the corp to own the vehicle. She traded in her personal vehicle. She also paid additional down payment. The check was written from the corp account. So, a personal asset was used to purchase a corp asset.

[Gretel]

I am not sure that a personal vehicle can legitimately be owned by a corporation since their is no business connection. The inclusion in wages is supposed to be for company vehicles with some personal use. Besides this, your client just opened up herself to unlimited liability since she treated her corporation like her personal wallet.

[Burke]

There is a formula for a leased auto purchased by the business in which the Corp has to issue a W-2 (can do separately or include in regular) showing FMV of the auto. It's in the IRS pubs. It is subject to withholding and FICA, is reported as wages. This is pro-rated annually over term of lease. Not sure if this same theory applies to purchased vehicle used by employee for her personal use exclusively. I agree with mlinderea. Car needs to be in client's name and reimbursed under accountable plan for business use by Corp. She needs to reimburse Corp for part they paid, or it's income to her.

[mlinderEA]

Purchase of auto

Plus she will pay more insurance if it is a business car.This is what happens when clients receive tax advice from every one but us.

[ChEAr$]

As of now, it all depends on how vehicle is titled; in name of corporation or personally?

If the former, the die is cast. Corporation pays all expenses, to include enhanced premiums for insurance since it's to them a business vehicle.

If the latter, no problem, but any funds paid by corporation are distributions to the owner.

Of course if the former there will be imputed income for the W2 end of year depending on percentage of personal use.

[Jiggers]

Remember that the business use of the vehicle must be substantiated. Any personal use must be computed and added to the W-2, with all the associated payroll taxes withheld.

[kpangelinan]

Remember that the business use of the vehicle must be substantiated. Any personal use must be computed and added to the W-2, with all the associated payroll taxes withheld.

Not necessarily......I've done this research before, but if you max out on the taxable value as described earlier, no personal use needs to be substantiated. There are also charts on leased values, etc.

And it can be a huge tax savings, if in fact her corporation owns the vehicle outright and allows her to use it as a taxable fringe benefit. You'd have to do the math, but in my experience, the additional insurance and what not doesn't outweigh the corporation expensing all of the vehicle's expenses and depreciating it as well.

[Roland Slugg]

Dealership tells her it would be a good idea to have the corp buy it. I don't know why they told her that.

You don't? Some of the most widely-held, incorrect beliefs in this country concern automobiles. "Have your business buy it, then write the whole thing off." "Leasing a car is better than buying it." In almost all cases the advice is bad and the advice is wrong, but it's repeated by the tax-ignorant masses so often that they all believe it ... and tell others.

Somewhat related to this is another interesting fact about human nature: As soon as people find out I am a tax consultant and preparer, many of them then give ME tax advice. I've been gratuitously offered tax advice by auto mechanics, realtors, various people in the construction trades ... carpenters, painters, plumbers, electricians ... and even the woman who cuts my hair. I always smile and say "Thank you, I didn't know that."

If the car in question is really a personal vehicle, it should be removed from the corp ASAP, with the corp reimbursed for 100% of all funds paid by it so far. Also, the loan should be changed into the driver's name, and so should the insurance, of course. Then if the car is used for business purposes once in a while, the corp should simply reimburse the owner at the current business mileage rate ... once a year or more often. Easy. Clean. And audit-proof assuming contemporaneous and believable logs or other paperwork is maintained.

[DMICPA]

S-Corp Auto

If the Corporation owns the auto, the personal use of the auto must be reported on the employees W-2. There is nothing wrong with the Corporation buying a car for the employees to use but the substantiation requirements should be met. The fact that the auto is titled in the Corporate name is indicative that the Company owns the auto. If so, the expenses of ownership should be paid by the Corporation and the appropriate depreciation should be recorded.

[WhiteOleander]

Thanks all for the replies. I will consider all the info given.

[kpangelinan]

If the Corporation owns the auto, the personal use of the auto must be reported on the employees W-2. There is nothing wrong with the Corporation buying a car for the employees to use but the substantiation requirements should be met. The fact that the auto is titled in the Corporate name is indicative that the Company owns the auto. If so, the expenses of ownership should be paid by the Corporation and the appropriate depreciation should be recorded.

Yes.

If the car in question is really a personal vehicle, it should be removed from the corp ASAP, with the corp reimbursed for 100% of all funds paid by it so far. Also, the loan should be changed into the driver's name, and so should the insurance, of course. Then if the car is used for business purposes once in a while, the corp should simply reimburse the owner at the current business mileage rate ... once a year or more often. Easy. Clean. And audit-proof assuming contemporaneous and believable logs or other paperwork is maintained.

No. See above.

[ChEAr$]

Yes.



No. See above.

It's your second reply I'm puzzled by. Why "no'? Seems like a perfectly logical thing to do.

Once upon a time a dealership type up the paperwork on a plumber's truck to one of the two owner's.
Upon my insistence the truck was retitled in corporate name, since it was used 100% on the jobs.

[kpangelinan]

It's your second reply I'm puzzled by. Why "no'? Seems like a perfectly logical thing to do.

Once upon a time a dealership type up the paperwork on a plumber's truck to one of the two owner's.
Upon my insistence the truck was retitled in corporate name, since it was used 100% on the jobs.

The post I said no too, about removing the vehicle form the corporation and doing a reimbursement isn't the only option, not from a tax standpoint anyways, and from the original point of the thread. As long as a few proper steps are taken, the vehicle can be a corporate vehicle.

BTW, business use isn't required (under certain conditions) for a corporation to deduct a vehicle and provide it as a taxable fringe benefit to one of the owners in your scenario above. It can be titled in the corporations name and have only 10% business use and still be deducted by the corporation.