Totally confused on auto inclusion!

[JoshinNC]

Here's the scenrio:

Client is going to be purchasing new vehicle. He is the 50% owner of S-Corp. If S-Corp leases new auto (approx. value $50,000) and he has NO BUSINESS MILES then 100% of the lease payments are included on his W-2 subject to FICA or is it 100% of the lease inclusion amount? And, the S-Corp gets no tax deduction for the lease payments?

Please help!

[DaveO]

The lease inclusion is an income item

If there are no business miles there would be no inclusion amount. If used 50% you would include 50% of the lease inclusion amount in the income of the corporation. Page 10-8 of the TB has a discussion on the topic.

[JoshinNC]

Huh??!!

I thought that if the S-Corp leased the vehicle and the shareholder drove personal miles than the shareholder had to include the portion that was pesonal on his W-2.

Now I'm even more confused.

[DaveO]

The shareholder is reporting all the lease payments on his W-2 right? So it really isn't different from him leasing the car personally with after tax dollars. I have never really dealt with the lease inclusion on an S-Corp, just on a Schedule "C". The typical situation is the "Mary Kay" car where the lease payments are reported as income then deducted as vehicle expense. If the car is 70% business then 70% of the lease inclusion amount is added to income. For the small amount usually less than $300 it hardly seems worth the trouble. We had an auditor look at it on a return and ask what it was.

[JoshinNC]

I really don't understand this

I am basing my questions on a payroll client for whom I don't do the books or income tax returns. The accounant who does the books and tax returns sent me an email 2 weeks ago showing the amount of miles driven by the shareholder for business and personal use. Then they had me to add the lease inclusion to the shareholder's W-2 subject to FICA. What you are saying does not jive with what they had me to do.

This is why I am confused.

[abby]

confusion in terminology

I think the confusion is the use of lease inclusion

I think Dave is referring to the small amount you add back to lease expense to acknowledge the principal interest difference from an auto purchase.

For the S Corp, the S corp is giving a shareholder a fringe benefit, in this case 100% use of a vehicle. The S Corp owns the vehicle 100%.

The S corp takes normal auto expenses (and if the vehicle is leased, the inclusion is added back) and the FMV of the vehicle is used to determine what the fringe benefit is worth on the worksheets designed for that purpose, and that is added to the shareholder's wages, subject to FICA.

I think if the corp owns the car, any other method could possibly get you into an unequal distribution situaltion for the S Corp.

Hope that helps.

[DaveO]

Abby is correct

Sorry for confusing the issue.

[veritas]

Annual Lease Value

is what your looking for. It is on page 13-32 of TTB. With the value of 50k you will include $13,250 plus 5.5cts per mile driven.

Why is it in the corporation?

[JoshinNC]

For my client

it isn't yet in the corp.

For the one I do payroll for, who knows?