Leasing truck owned by individual to s corporation

[oceanlovin'ea]

My son in law just purchased a new truck and it is titled in his name. He uses the truck 90-95% business. When he bought the truck the salesman told him the best thing to do was to lease the truck to his business. He knows that lease payments would be income. He did it mainly for insurance purposes. It is much cheaper to insure a truck personally owned than owned by a business.
Can you direct me to information on how to set this up and what is deductible on the S corp return? Not expecting for you to give me all the answers but guide me to sources. Although I will appreciate all help you can give me.
Been a rough year. Had chemo treatments and still have chemo brain. Can't think or remember as well as before.

Thanks.

Linda F

[ATSMAN]

Without getting into the legal issues surrounding liability the tax deduction by the S-Corp is pretty much straight forward because it is a pass through entity.

Assuming there is an accountable expense reimbursement plan in effect the S-Corp could reimburse the truck owner for the lease payment (business portion) and then on the 1120s it deducts the lease payment and it passes through to the owner via K-1.

[Lion]

Make sure the insurance company knows the usage of the truck; make sure the truck is actually covered during business use.

[Uncle Sam]

A side issue relating to truck use- E-Z Pass. In whose name is the E-Z Pass account - individual driver or business?

[ATSMAN]

Make sure the insurance company knows the usage of the truck; make sure the truck is actually covered during business use.

A very common practice that I see all the time is to have the vehicle registered and insured as a personal (non business use) BUT used primarily in the business of the owner. In our state the registration and plates are almost double for commercial vehicles and insurance rates are obviously higher. People think that unless they get into an accident it is a moot point, even though insurance contract states the limitations and exceptions.When accident happens all hell breaks loose!

[JON]

SALES TAX??? On lease payments?

[ATSMAN]

SALES TAX??? On lease payments?

Yes there are sales tax(or use tax) on lease payments and the down payment in most jurisdictions. In my state the calculation is a bit complicated if there is a trade in of another vehicle etc.

[oceanlovin'ea]

I think we have gotten off the question I was asking.
1. He purchased a truck
2. It is titled and insured in his personal name
3. He wants to lease or rent the vehicle to his business (S corp) since it is used for business.
4. I am asking for how to set this up. Is there a source that would give me instructions?
5. What else can be deducted by the s corp? Insurance? Mileage? actual expenses?
6. The lease payments are income to the individual on Schedule E. Can he deduct the interest on the schedule E?

Thank you.
Linda F

[TaxGuyBill]

Option #1: Take tax advice from a Salesman:

1. Client charges corporation FMV lease.
2. Corporation is now the leasee. I don't see how how his personal insurance would cover somebody else that is leasing it from you. Advise the client of that.
3. *IF* the insurance does cover the corporation (which is doubtful), the corporation can have an Accountable Plan and reimburse the client for the cost of insurance.
4. Corporation deducts the cost on its tax return, just like any other vehicle expense such as if they were leasing it from the car dealer. Corporations can't use the Standard Mileage Rate, so you need to use Actual Expenses.
5. Corporation adds FMV of the personal use of the vehicle to the clients wages and W-2.
6. Page 1 of Schedule E is for renal of real estate (and royalties). Client doesn't seem to be in the business of leasing vehicles, so it wouldn't be on Schedule C. So it is reported as "Other Income", with no deductions [EDIT: Or possibly that weird entry for renting personal property ... manual entry on the bottom of Schedule 1].

Option #2: Keep it simple:

1. Client keeps the vehicle as their own.
2. Set up an Accountable Plan. Have the corporation reimburse the taxpayer for business vehicle expenses. Reimbursing using the Standard Mileage Rate would be easiest, but reimbursing using Actual Expenses (business percentage) is fine too.
3. Corporation deducts the costs it reimburses to the client.
4. Accountable Reimbursements are not taxable to the employee, so the 1040 would not show anything in regards to that.

[ATSMAN]

I will just add that for Option #2, the taxpayer will need to find out if the personal auto policy will cover business usage of the truck. Perhaps a rider is required?? Also in many states commercial plates are required on a truck that is used in business activity.

[oceanlovin'ea]

Thank you

Linda F.