S-Corp Auto Expenses

[Taxman]

I recently obtained a new client which is an S-Corp and was reviewing the financial statements and noticed that the owner pays all of his car expenses from the S-Corp's checking account and has been doing this for a while. I looked at the 2 prior tax returns and no adjustments were made on the tax returns or financials by the prior tax preparer. The car is not owned by the S-Corp but by the taxpayer who also uses it for personal use. I mentioned to him an accountable plan for the auto expense. Has anyone else run into anything like this and how did you handle it? Thanks

[veritas]

I see this all the time. And usually the required questions on pg 2 of the 4562 are not answered.

If he was my client I would have him establish his business mileage for the year and take the expenses up to that amount. Anything more would be a distribution.

[Taxman]

Thanks

for the info. I will have him create a mileage log and take the rest as shareholder distribution. It's tough getting a new client who has been doing it wrong for a long time and thinks he can run all of the expenses through the S-Corp like it's no problem. I'll try and correct his thinking on the auto expesnes going forward.

[KJ Judd]

Taxman -

I sympathize with you completely. This morning I met with a new client starting a business who also wanted to deduct all her auto expenses. Her prior employer did just as your new client had done. She wasn't happy when I told her this is what the law says.