Author Topic: Optimum method for handling business use of personal vehicle  (Read 1370 times)

studentoflife

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Optimum method for handling business use of personal vehicle
« on: January 03, 2016, 09:24:31 PM »
Hello,

Our family has recently purchased two vehicles. Both will see a mix of pleasure, commuting, and use in service of my business. I am the sole shareholder and employee of this business, which is incorporated and has elected to file as an S corporation. Due to the diversity of business tasks I perform - a mix of long distance travel and heavy duty local work - we have decided it is more advantageous for us to own two diverse vehicles personally rather than have the business own one. This saves us from having to purchase commercial auto insurance and allows me to choose which vehicle to use on a given day or week based on my needs. My wife commutes a short distance in whichever vehicle I am not using. Both vehicles are reliable, purchased used cheaply for cash, and as fuel efficient as can be based on the tasks each performs.

Last year, when fuel was more expensive, our older cars were less fuel efficient, and I did less traveling, I paid for fuel using company money when I was conducting business using the vehicle and deducted this expense.

This year, I have over 10,000 miles of guaranteed business travel for which the client will pay my business the govt reimbursement rate (57.5 cents/mile). I will also log thousands of unpaid miles, I am sure. I am looking for the optimal legal way to get that travel reimbursement into my personal pocket.

Please note that we have always come out way ahead taking the standard deduction, so I don't think it will be advantageous for me to claim mileage on our personal tax return, even if the deduction totals over $5k  I file an 1120s for the business.

Please comment on the appropriateness of my idea and provide feedback as helpful:

- Any mileage reimbursement received by the business flows through as a reimbursement to me personally
- Fuel for client-reimbursed business related travel is paid out of the business account (but not deducted). I still pay income tax on these purchases, but not payroll taxes.
-Fuel for unreimbursed business related travel is paid out of the business account and deducted
- I claim no personal deductions for any mileage or costs associated with maintaining or insuring either car. All maintenance and insurance is paid for personally.

FWIW, fuel cost at $2/gal is 5 cents per mile for one car and 12.5 cents per mile for the other.

Seems like buying fuel through the company is a gray area, but I hate to be on the hook for this expense personally if I can't get any credit for it, and I think I'm in the clear morally and legally as long as I don't deduct fuel purchases for which I was reimbursed by a client.

dleavitt

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Re: Optimum method for handling business use of personal vehicle
« Reply #1 on: January 03, 2016, 10:15:06 PM »
I am a tax accountant, working towards my CPA, with 7 years of experience working with small business clients.  That said, I should still recommend you seek the counsel of a competent tax professional in your area.

Disclaimer out of the way, here is how I would handle it:

1. Client pays S-Corp mileage, this gets included in income.  EDIT: If there is a gross receipts tax in your state, I would not include the reimbursement in income, but instead post it as a credit against Auto Expense (or wherever you post your mileage reimbursement).
2. S-Corp pays you, the owner/employee, a mileage reimbursement for the miles you have driven for business at the proscribed IRS rate.
3. Pay all vehicle expenses personally.  Fuel, repairs, maintenance, insurance, etc.  Any business use gets reimbursed by the S-corp at the IRS proscribed rate.

You basically have two options for deducting vehicle expenses in a business: Actual costs or mileage reimbursement.  A vast majority of the time the mileage reimbursement results in a better deduction, as well as less strenuous record keeping and reporting if it is a mixed use vehicle.

If you wanted to deduct your actual costs the vehicle would need to become an asset of the corporation, and all expenses run through there.  At the end of the year you would do a calculation to determine the monetary value of the personal use of the corporate automobile, which would be included in your W-2 wages and subject to FICA.
« Last Edit: January 03, 2016, 10:17:33 PM by dleavitt »

studentoflife

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Re: Optimum method for handling business use of personal vehicle
« Reply #2 on: January 04, 2016, 07:52:23 AM »
Thanks for your input. You have confirmed what I suspected was true, but hoped was not. I had read up on the two different methods - mileage and expense - for calculating vehicle usage. My hope was that if I didn't deduct the expenses for which I was not paid outright, I could still purchase fuel through the company, instead of from wages which are effectively taxed at 35% once payroll taxes are considered.

Oh well, guess I should be happy with to be able to pass that $5k plus through tax free. I'm sure that will be the method that most reduces my overall tax liability.

Thanks very much, and I will consult with a professional as needed!