S Corp Car ownership

[Steve M]

A new client is filing 2006 S-Corp. He purchased a van in 2006 which he uses 90% for business. The problem is he never transferred ownership to the S-Corp; it is registered and titled in his personal name.

Is there any way he can get depreciation on the Van? Since Corps can't use milage, is there any way he can use the actual expnses? Your ideas would be greatly appreciated.

Steve M

[OldJack]

Sure..

1. He can file form 2106 flowing to 1040 Sch-A and claim business mileage or 90% of actual expenses, including depreciation, for the business use and/or

2. He can also submit mileage or actual expenses to the S-corp for tax-free reimbursement under the theory of an accountable plan. Of course if he wants to also claim the expense on form 2106, the reimbursement is shown on the form 2106 as income netting the expenses.

3. He can immediately title the vehicle in the name of the S-corp and claim that it was a mistake when financing to title it in his personal name. Of course this is questionable and up to the owner/shareholder to justify if questioned. There is also an argument that could be made that a shareholder is allowed to hold title for the S-corp as a straw party or agent of the S-corp and the S-corp is the true owner making the payments (check with a lawyer). Then, the S-corp could claim the reimbursed expenses and depreciation, but the corporation must add the 10% personal use according to the IRS auto chart as a benefit to the user's W2 gross income.

[veritas]

Wait till he finds out what the car insurance will be if he titles it in the Corp. I find there is usually three resaons autos are not titled properly. First low or no interest for personal auto loans are not available for business loans. Secondly the insurance agent tell you that it's going to cost you twice as much. Three the owners of corporations think like a sole proprietors.

[OldJack]

What veritas says is true. Frankly, if the vehicle is, or has been, treated as a S-corp asset I intentionally don't bother to check to see what the title says.

[kcjenkins]

Vertias hit it right on the head. Which is why OldJack's option 2 is a much better option, in most cases.

[Steve M]

A new client is filing 2006 S-Corp. He purchased a van in 2006 which he uses 90% for business. The problem is he never transferred ownership to the S-Corp; it is registered and titled in his personal name.

Is there any way he can get depreciation on the Van? Since Corps can't use milage, is there any way he can use the actual expnses? Your ideas would be greatly appreciated.

Steve M

Appreciate your input on my question of Auto expenses for client owning S-Corp. Can I still file for him under an accountable plan since there would not be any checks issued to him for the auto exenses? Seems like the IRS would want a paper trail. Again, thanks for your input.

Steve M

[Laurie P]

Hi Steve,

To add to this if the vehicle is converted to personal use down the road you have to deal with selling the business asset and tax impact.

I like the mileage the method best. You have the best of both worlds...tax write-off for the corp and the payment to the SH is not taxable as income.

Laurie

[kcjenkins]

You could book the expense and cross account could be a payable to the client. Then let them pay him this year that payable, and also reimburse him this year and in future.

[Steve M]

Hi Steve,

To add to this if the vehicle is converted to personal use down the road you have to deal with selling the business asset and tax impact.

I like the mileage the method best. You have the best of both worlds...tax write-off for the corp and the payment to the SH is not taxable as income.

Laurie

Thanks everyone, you gave me some great answers.

Steve M

[ACS41]

Thanks everyone, you gave me some great answers.

Steve M

Some very good information. My S corp (1 shareholder) client made very little in '07 from this business that he did not take any W-2 salary. He personally owns his car. How can he claim mileage? It seems it hard to have ann accountable plan when you are not technically an employee (no W-2). Seems the same issue with 2106.

I appreciatte anyone's help.