Auto Expenses For S Corporations
How auto expenses are calculated for a business (other than a sole proprietor) depends upon whether the business owns the vehicle, or the vehicle being used is a personal vehicle.
Who Owns the Vehicle?
In order for a vehicle to be treated as a business vehicle, the title of the vehicle must be in the business name. If the title of the vehicle is not in the business name, then it is a personal vehicle.
Personally Owned Vehicles
If a vehicle is owned personally and not by the business:
- Neither the cost of the vehicle nor any loans should be recorded on the books of the business
- The business should not pay any actual auto expenses incurred. Actual auto expenses paid by the business will be treated as a Shareholder or Partner Distribution or a Receivable from the person who charged the expense to the business.
- The owner of the vehicle must request reimbursement on an expense report.
- The amount of the reimbursement will be based on the mileage driven multiplied by the IRS approved per diem rate.
- The business MUST write a check to reimburse the business owner.
Business mileage starts from the primary office. If it is a home office, the business mileage begins at the home. If the primary office is a business office, the business mileage begins at the business office.
Vehicles Owned by The Business
If the vehicle is owned by the business:
- The cost of the vehicle will be reflected as an asset on the Businesses Balance Sheet. Any corresponding loans (assuming the borrower’s name is the Business) will also be included on the balance sheet.
- Tax deductions for depreciation will be expensed on the income statement.
- The business should expense all actual expenses incurred through the usage of the vehicle.
- Each driver of the business vehicles must maintain a mileage log.
- Personal usage of the vehicle must be documented. The company must report personal use by an employee—as an example, they drive the car to and from work—as taxable compensation on the employee's W-2
You must keep a mileage log. A mileage log must contain:
- Record of the date,
- Business location,
- Names and relationships of clients,
- The business purpose for each trip.
Deductible Auto Expenses
Types of expenses that can be deducted under the actual expense method:
- Gas and oil
- Repairs, maintenance, tires
- Insurance and licenses
- Car loan interest
- Car lease payments
- Parking fees and tolls
The rules governing vehicle deductions are full of exceptions and limitations. To be certain you use the method that’s right for you, please discuss with us. We can review your situation and your options with you.