S Corp and Auto

[S T]

Have a new client that is an S Corp. 90% shareholder and 10% shareholder.

Looking to initiate some type of auto plan through the S Corp. Suggestions would be welcomed. I will just give the "wish" list from the T/P.

Autos remain in the shareholder's name.

10% shareholder would like an auto allowance of $40-$50 per week charged to the Company Credit Card, then another $250 per month for partial payment of auto loan, insurance, etc. She is an Office Administrator, does banking, does some delivery to clients, post office, etc. Her salary would be about $30K per year.

90% shareholder would like all gas paid per month, car payment of approximately $400 per month, insurance paid, of course repairs if needed. His salary would be about $75K per year.

Suggestions?

Thanks,

Sandy

[Uncle Sam]

Auto in S Corp

Autos remain in the shareholder's name.

10% shareholder would like an auto allowance of $40-$50 per week charged to the Company Credit Card, then another $250 per month for partial payment of auto loan, insurance, etc. She is an Office Administrator, does banking, does some delivery to clients, post office, etc. Her salary would be about $30K per year.

90% shareholder would like all gas paid per month, car payment of approximately $400 per month, insurance paid, of course repairs if needed. His salary would be about $75K per year.

Both shareholders are looking for trouble.
Unless the corporation has set up an accountable plan (preferably in written form) for reimbursement of cash expenses, all payments made to either of them are considered taxable wages, to be included on their W-2s.
Firstly, the corporation doesn't own the cars. The corporation is not liable for paying for auto expenses for an auto it doesn't own. In order to have corporation pick up any expenses at all, first it must be titled (registered) in the corporate name, insured in the corporate name. Even then, auto use has to be documented with logs or other evidence to support business usage, and the remainder is taxable to shareholder as W-2 income subject to FICA and Medicare taxes. There are auto lease value calculations that must be made for determining the amount to be included in W-2, IN ADDITION TO auto Income inclusion to reduce the corporation's total deduction for either lease payments or depreciation.
It's preferable to have the autos kept OUT of the corporation and have the shareholders reimbursed on an accountable plan - by having them submit expense reimbursement reports either on a mileage basis or actual cash outlay (for business portion only). You cannot get reimbursed for actual auto loan payments as that's a disguised purchase of the auto that, as explained above, the corporation doesn't own.

[Jiggers]

Uncle Sam Knows!

Listen to Uncle Sam. He knows.

Also, the amounts put on the W-2 as wages are also subject to withholding, Social Security, & Medicare.

And, logs or substantiation of the business use of all vehicles are a MUST! No ifs, ands or buts about it.

I have been through too many audits and one of the first questions asked is for the business mileage logs!

[peggysioux]

S-Corp - Auto Expenses

S-Corp has an electrical business and owns several trucks that the employees (true employees, not just shareholders of company) use for company purposes. The employer has given those employees credit cards in company name to charge gas expenses for the vehicles and S-Corp pays credit card bills each month. Does the employer need the employees to turn in mileage logs to provide documentation for those gas charges? If employer is receiving the charges via the charge company, what additional documentation is needed?

[veritas]

peggysioux

Do employees take vehicles home at night?

[peggysioux]

Auto Usage

No, left in shop yard.

[peggysioux]

But,

The shareholder/employee does take him vehicle home at night. So, he should have additional wages figures into his W-2 for personal use, correct??

[veritas]

You are correct. The shareholder/employee has a taxable fringe benefit.

As to the other vans see pg2 of form 4562 and the questions numbered 37 through 41.

[peggysioux]

Augo Expenses

So as far as the gas expenses charged to corporate charge account, do employees need to keep some type of log and submit to employer for the vehicles?

[Uncle Sam]

S Corp auto

Thanks Jiggers.

By the employees having credit cards, that even excacerbates the situation even more.
The employees had better document where their trucks went each day, mileage logs and all. Customer billing invoices that note employee name and time on job at job location is one form of documentation.
The employee had better turn in the gas receipts so that traceability to truck mileage, WHERE THE TRUCK WAS GASSED UP, WHAT DAY, what was charged on the credit card should be shown.

These employees can be gassing up their own personal vehicles.

IRS is very stiff in these loose ends.

[peggysioux]

Auto Expense

The charge card breakdown would show much of that information so basically a mileage log from employees would suffice?? Also, if S-Corp receives credit card statement showing the when, where and how much by employee, would the employee also need to submit receipts??

[veritas]

No log is required for non shareholder employees in this case.

[S T]

Trying to understand

So as to understand your post, which thank you very much. I have not set up one of these plans in the past. This is a first, so I would like to advise the client the right way of doing it. I do have to say that this particular client is up to speed on record keeping and does want to maintain the adequate record keeping.

I am just trying to implement and give them the proper tools that would stand up to IRS scrutiny!. What a concept! This is planning for the S Corp for 2007 and trying to implement a policy for "autos".

Not a good idea to place the autos into the S Corp based on your post. Why would it not be a good idea to place a vehicle in the S Corp name? I know a little more record keeping, as then payroll would have to reflect the personal use value. Other reasons???

It would be better for both the 10% and the 90% shareholder to be on an auto reimbursement plan. So implement an auto reimbursement policy which would be based on a mileage log and at current cents per mile.

I am unclear on how the shareholders would be reimbursed on actual costs, since that would include loan payments, insurance, repairs, etc.

Example: If the S corp allowed the shareholder to use the credit card for gas, and the mileage log would be submitted, then the difference would have to be accounted for.

I welcome more guidance on this subject!

Thanks,

Sandy

[Uncle Sam]

S Corp and Auto

They wouldn't be reimbursed for actual costs - just mileage rate.

Since the corporation doesn't own the vehicle, they can't be reimbursed for actual costs.
And loan payments (the principal payment portion) is NEVER deductible.

[Gretel]

Partnerships vs. S-Corps.

Deductible Car Expenses should be the same for partnership and S-Corps, right. Of course, in a S-Corp. you also deal with either inclusion in W-2 wages (if reimbursed too much or not an accountable plan) or with 2106 business expenses, whereas in a partnership it goes on pg. 2 of Sch.E (if provision is in partnership agreement).

So, a partnership of mine pays for all the gas plus some repairs for partners vehicles, which are titled in individuals name. Standard mileage rate is much higher. Every year I enter the difference on pg.2 Sch.E. Any objections to this approach?

Likewise a S-Corp. should be able to reimburse mileage if documented. S-Corp. should also be able to pay more, if shareholders agree, and include in W-2, right?

This matter is not just a matter of taxes, it's also a matter of economic benefit, which will lower the total profit.

Another thought just crosses my mind: If one shareholder gets reimbursed over and above mileage rate (with inclusion in W-2), could this be constructed as distribution and jeopardize the S-Status?