I have a client who is thinking about having his S-Corp purchase a car. Would he recieve a bigger deduction having the S-Corp buy the car or him purchasing the car himself and having the S-Corp reimburse him for the mileage (about 20,000 miles/year). How do you handle this for your S-Corp clients? Thanks in advance.
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It’s the same deduction either way. If the S corp owns the car, the S corp takes a deduction for the cost which is reflected in the net profit or loss passed through to the shareholder on the K-1. If the shareholder owns the car and pays the expense and has the S corp reimburse the expenses, the same deduction is taken on the S corp tax return and is reflected in the net profit or loss passed through to the shareholder on the K-1.
The difference is if you want to use the standard mileage rate and not bother keeping track of all the receipts. Under the standard mileage rate, you get X cents per mile, regardless of what the actual cost was to drive that mile.
Only individuals can take the standard mileage rate. If the S corporation owns the vehicle, it has to use actual expenses (Prev. Proc. 82-61). So if you want to use the standard mileage rate, you have to have the shareholder/employee own the car and submit mileage logs to the S corporation for reimbursement at the standard mileage rate. The S corp then takes a deduction based upon those reimbursements and the shareholder/employee excludes the reimbursements under the accountable plan rules. -
Smr
Boy, I wasn't aware that only individuals can take SMR. Thanks, for banging on my head and make me aware of the obvious.Comment
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Car Expense-S Corp
BeeKnees responded:
"If the shareholder owns the car and pays the expense and has the S corp reimburse the expenses, the same deduction is taken on the S corp tax return and is reflected in the net profit or loss passed through to the shareholder on the K-1".
Would you expound on this comment. If the sole shareholder maintained ownership, wouldn't the only method of reimbursement be under an accountable plan using mileage?
Seems to me if he billed the S-corp for actual expenses plus depr he would be in the car rental/leasing business.
What am I missing?Comment
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Submitting actual receipts, along with a depreciation schedule does not put you in the rental business. You are not asking for a profit over and above actual costs.
Yes, I think it would be silly to try and reimburse auto expenses using actual receipts rather than the mileage method. But the rules do not require the mileage method. Rev. Proc. 2004-64 says: “Use of a method of substantiation described in this revenue procedure is not mandatory and a taxpayer may use actual allowable expenses if the taxpayer maintains adequate records or other sufficient evidence for proper substantiation.” This sentence was in the context of describing BOTH the rules for deducting expenses, as well as for substantiating employee expenses for reimbursement under an accountable plan.
The accountable plan rules simply state that an employee must substantiate expenses by providing receipts or other documentation to the employer within a reasonable period of time. Theoretically, the employee could calculate the allowable depreciation and substantiate it by submitting a depreciation schedule to the employer for reimbursement, along with gas receipts, insurance, etc.
But I do agree that reimbursing the shareholder/employee based on the standard mileage method is the most practical way of doing it.Comment
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Thanks
Thanks for all of your help.Comment
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