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View Full Version : Paying yourself 50 cents mileage vs. taking as deduction on personal taxes



Grindstone1
04-30-2010, 07:09 PM
Hello my fellow entrepeneurs,

I part own a S-corp with 4 equal owners.

Is there any difference between paying the owners 50 cents a mile during the year and taking it as a deduction on our personal taxes if not paid during the year.

Is there any loss of money and where?

If there is no difference it would really help because 1 owner never drives (at office) and 2 drive a lot. When actual costs were calculated gas, tires, oil changes, car washes, only came to 19 cents a mile. Repairs and car miles comes to less than 10 cents. Insurance didnt increase. So why should owner that never drives pay 50 cents when others would make money on driving, when acutal costs are around 29 cents. It would just be clean if we took mileage on personal taxes and stop all debating.

Thanks very much !!!! :)

Evan
04-30-2010, 10:39 PM
Mileage also factors in depreciation as well, amongst other things. The standard is to use is the IRS mileage rate, and I have not seen a company that uses another rate in practice.

If you do not reimburse for mileage, the net income of the S-Corp is higher, which means the relative portion of net income to that specific shareholder will be higher.

He can claim the mileage on his individual return ONLY if he itemizes his deductions (if not, NO deduction). Whether he is entitled to ANY benefit of that deduction is another thing. If his AGI was $100,000, he needs to have over $2,000 (2% of the AGI) for him to receive even a dollar benefit tax wise.

If you reimburse him 50 cents, that 5 cent difference could be claimed by him individually, again only if it exceeds the 2% threshold.

If you just reimbursed him the 55 cents, the overall net income of the S-Corp is down, thereby saving everybody tax dollars, and there is no potential loss of a deduction for a shareholder who doesn't itemize or doesn't meet the threshold.

Also, there seems to be some disagreements amongst the shareholders about how to handle these expenses. If you're fretting over a 55 cent per mile deduction, I do question the length this corporation would exist.

An LLC may have been a better option, taxed as a partnership. In those, you can have unreimbursed partnership expenses which directly offset the income that is attributable to that partner, so there is no 2% haircut. But the partnership agreement or operating agreement would need to specifically say that certain expenses won't be paid by the LLC/partnership.

As you are an S-Corp, you have different rules to play by. So no unreimbursed S-Corp expenses to directly offset S-Corp income. Those would be reported on Schedule A, subject to that 2% haircut.

Steve B
05-01-2010, 06:18 AM
I would challenge your calculation that your repairs etc. only comes to 29 cents per mile - I'm guessing you're not taking into account the rare but expensive major repairs (transmission replacement, valve job etc.). The folks that figure that gov't. rate have been doing it a long time and probably know what they're doing. With that said, it is, of course, an average so if you're driving something that gets great gas mileage than your daily routine expenses are going to be less.

My other reaction was hit on by Evan - if your corporation is worried about something relatively minor like this you might have some bigger problems. I can't imagine being worried about this if I was in this situaion.

Evan
05-01-2010, 04:49 PM
The other thing is, if an owner drives a Toyota Prius, sure their total cost is probably less per mile than someone that is driving a Ford F150 truck. Those answers also vary if one drives a 2010 Toyota Prius versus a 1999 Ford F150 as well...

Again, the point of the mileage rate isn't to provide a precise science, but to provide a reasonable method for reimbursement.

huggytree
05-03-2010, 08:07 AM
i get 8-10 miles per gallon and spend $1-4k a year on repairs...the .50cents is almost a tie.

if you have a low mpg car and low repair rate the .50cents is probably always better. for me its 50/50 depending on the year...i argue with my accountant yearly about the .50cent reimbursement he pushes me into.

Evan
05-04-2010, 01:30 PM
if you have a low mpg car and low repair rate the .50cents is probably always better. for me its 50/50 depending on the year...i argue with my accountant yearly about the .50cent reimbursement he pushes me into.

Depending on the entity, the actual cost vs mileage rate may vary. If you use it for personal use, most people want 100% of it to be deductible, but it isn't. Of course you can elect to have it 100% deductible if you also increase your wages by the value of your personal use.

But once you choose a method, you're also stuck with it.

Grindstone1
05-05-2010, 04:02 PM
Thank you so much everyone, you've given a lot of ideas to think about !