Corporation was paying directly to vendors for car actual expenditures for business use during the year. However, truck was owned by the employee, shareholder 100% owner.

1. How should I treat these payments? What about depreciation of the car?

2. Can accountable reimbursement plan reimburse employee for actual auto expenses plus depreciation or you need to use standard mileage allowance method?

3. Should shareholder sell truck to corporation or transfer for stock?

Reply to this post | Go to top

>>1. How should I treat these payments? What about depreciation of the car? <<

If the Corp was paying direct for actual Corp business expenses I don't see why it makes any difference who owned the vehicle that incurred the expenses. I assume proper documents that justify business expense document the payments. If the Corp is making car loan payments that would be personal expenses being paid and if S-corp charged as property distribution (cash) or C-corp as taxable (1099DIV) dividend.

>>2. Can accountable reimbursement plan reimburse employee for actual auto expenses plus depreciation or you need to use standard mileage allowance method?<<

Sure reimbursement to the owner can be for actual expenses accounted for or mileage accounted for.

>>3. Should shareholder sell truck to corporation or transfer for stock?<<

Probably not since he will probably trade it this year. Also, he is probably not going to follow the rules of proper personal use reporting so his W2 gross can be added for the personal use benefit.

Only an owner can depreciate a vehicle. Exception for certain vehicles that are leased.

Reply to this post | Go to top

Trying to understand.

1. Personal, corp employee car is used 80% in corporation business. Corp pays directly for 100% actual car expenses like repairs, gas, parking fees. Do I understand correctly that it is then taxable event but only to the extent of 2o%?

Why then use accountable reimbursement plan if employee can use corporation checks or credit card for actual vehicle expenses?

2. Accountable Reimbursement Plan.

You claim that only owner can depreciate a vehicle. OK. If actual expenses are accounted for then according to you corporation can not take deduct depreciation for employee vehicle. However,if standard mileage allowance method is used and accounted for then SL depreciation is imputed and corporation get depreciation for vehicle, which it does not own?!

3. Could you explain more third point about proper personal use reporting? Is it when corp pays employee for expenses and it is properly accounted for?

Otherwise it has to be included in W2

Reply to this post | Go to top

Item 1: The corporation can pay for actual business expenses direct, however, cost such as repairs are the owners expense and not the corporation business expense. The corporation business expense may be for gas, etc, assuming the gas was used for business and not for personal (business like a long distance travel). Obviously you have questioned in this client that portions of those expenses are personal and therefore this is not the appropriate method to use. Yes, the expenses would be better reported under an accountable plan and reimbursed tax-free to the shareholder.

Item 2: I don't "claim" that only an owner can claim depreciation, that is a fact, see Pub 946, depreciation, page 4, quoted below. Exception is a "financial lease" vehicle that has been capitalized and treated as owned. For leased vehicles under a financial lease see Quickfinder Depreciation Handbook, page 1-2 and pub 946, page 4 at the bottom of the page.

quote pub 946,pg4:

>>To be depreciable, the property must meet all the following

requirements.

* It must be property you own.

* It must be used in your business or income-

producing activity.

* It must have a determinable useful life.

* It must be expected to last more than one year. <<

A corporation paying mileage as a reimbursement deducts the payment as a 100% business expense and is not allowed to claim depreciation imputed or otherwise. However you could have a special expense account to split out the depreciation component of the mileage business expense if you like, but it is not the corporation's depreciation expense and should not be referred to as depreciation expense. It is "when" the individual owner claims a standard mileage expense deduction that a portion of deduction represents depreciation effecting the owners tax basis in the vehicle.

A corporate accountable plan can be as simple as the employer authorizing his travel and handing an "employee reimbursement form" for the employee to submit details (who, what, where, when, and why) with receipts.

Reply to this post | Go to top