Tax Deductions for Personal Car Used for S Corporations
Is the vehicle you use in the S Corporation business titled in your personal name?
How about your spouse’s vehicle? In whose name is it titled? Do you or your spouse use that vehicle for S Corporation business?
If you have vehicles titled personally but used for S Corporation business, does the S Corporation pay some or all of the vehicle expenses? Should it?
You may be headed for a tax law disaster. That S Corporation is a legal entity separate from you or your spouse.
You want your S Corporation to have a clean set of records. The less dirt you have on the S Corporation books the better. Payments of personal expenses on corporate books leave an impression of dirt.
Keep Personal, Personal. If you use a personal car for corporate business, you should pay the car expenses personally. Then, you have the corporation reimburse you using either the IRS mileage method or actual expense method.
In using the actual expense method, you need a clear record of the money spent, along with receipts, if you’re going to seek reimbursement.
A mileage reimbursement is usually easier to maintain and calculate. It just requires a mileage log.
Mileage Log
Regardless of who has the title or how you operate your business – S Corporation, C Corporation, single member LLC, or proprietorship – you absolutely need a mileage log to make your vehicle tax deductions stand up to an IRS audit.
No mileage log equals no vehicle deduction.
To receive a reimbursement under the mileage rate, you need proof of miles driven for business.
Common Problems
Being a tax resolution firm, we have clients come into our office each year with a letter stating that they are being audited. We are never amazed to see even amounts of miles (such as 10,000/16,500) with absolutely no type of log to prove the deduction. The IRS always looks at automobile deductions and reimbursements. So many people are caught not only having to pay the tax when the deduction is disallowed, but also the penalties and interest added to the tax. Give us a call at (248) 524-5240 or send us an e-mail at info@franskoviakcpa.com to receive a free automobile log you can use to keep compliant with the tax law.
