Sole shareholder of Sub S corporation wants to purchase a new truck (over 6000lb limit) for use in his business to take advantage of maximum172 write off. Business use s/b about 85-90%. There will be sufficient income in the corporation (plus his wages) to take full advantage of the write off. Suggest that the corporation buy the truck and pay for all operating expenses, and charge back the personal use as fringe benefit on his W-2. The depreciation deduction would be at 100% on the 4562, but total depreciation would need to be reduced for the personal use portion which, in effect, was taken as wages paid. I think that this be best way to handle the transaction? Anyone see a problem with this approach? Thanks in advance for your feedback.
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Yes
Art, I think all of your ideas are good and appropriate.
The worst problems I have with vehicles are with people who want to buy a truck in their own name, but then write off all the expenses as if it belonged to the corporation. The reason they do this is because insurance is cheaper if the insured is an individual. So to save $500 in premium they will cost themselves thousands in taxes.
If they do this, and pay expenses out of the corporation, I charge all expenses as a personal draw to the shareholder. Then I give the shareholder 48.5 cents for every mile he is able to substantiate as an expense to the corporation and reduce the draw accordingly.
I wish all my clients would do as you have outlined. -
I agreed with everything
except this
"but total depreciation would need to be reduced for the personal use portion which, in effect, was taken as wages paid"
there is no reduction on the corporation's return for depreciation.Comment
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Thanks Veritas
Thanks for correcting me on the depreciation adjustment. The "add back" to wages does not result in a deduction for the corporation, just additional taxable income to the employee.
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