Tax Deductions for Personal Car Used for S Corporation Business

April 27th, 2014 at 1:04 PM

Is the vehicle you use for your S corporation business titled in your name?

Does your S corporation pay some or all all the vehicle expenses?

If this is true, then you are in murky and mucky waters of a tax law swamp.

Start With This

You want your S corporation to have a clean set of books. The less dirt the better; and corporate payments of personal expenses create dirt. The IRS is attracted to this dirt.

Keep Personal Personal

If you drive a personal car for corporate business, its best to pay all the expenses personally, and have the corporation reimburse you. To receive the reimbursement, you need a clear record of the money spent.

Mileage Log

Regardless of who has title or how you business is structured-S corporation, C corporation, single0member LLC, or proprietorship–you absolutely need a mileage log for withstand an IRS audit. No mileage log, no deduction is the result of the court cases.

Once you have a properly completed mileage log, you are ready for reimbursement from your business.

Mileage

Now that you have proof of the miles driven for business, the business entity writes a check for the proper amount, and claims a business deduction as an ordinary and necessary expense. The mileage rates for 2013 was 56.5 cents per mile, and for 2014 its 56 cents er mile. One could also opt for the actual expense method as well.

Therefore, if you drove 9,000 miles for S corporation business, your reimbursement would be 9,000 miles at 56 cents per mile, a total of $5040, in 2014. The business writes a check to you, and you receive a tax-free reimbursed business expense.

Not the End of the Story

Inside the 56 cents per mile reimbursement, there is 23 cents allocated to depreciation. Using the 9,000 business miles, the depreciation is $2070, this amount must be subtracted from the tax basis of the vehicle. Let’s say the car was $20,000, and 80% used for business per your mileage log–that’s a tax basis of $16,000 to start. Then, we deduct the $2,070 for depreciation, resulting in an amount of $13,930. This is important because this is your new tax basis for your vehicle, and when you sell this vehicle there will be a gain or loss on this business portion.

This is where an experienced CPA can be a great value in this entire process. Your business is not the owner of this vehicle, no matter how often you use it for business. The business reimburses you for the business use in a tax-free manner with proper documentation. But this is not the end of the story. There are tax consequences in the the car has a personal and business basis. On the business part, there is a gain or loss–if a gain, proper tax planning can defer this gain–if a loss, there are cash benefits to be derived from the loss deduction.