Scorp - Can company purchase cars for owners to help lower taxable income?

[Grindstone1]

Hello Everyone!

Our profits have risen this year and need some expenses..... Can the owners/employees have the company purchase cars and make payments, most of the owners drive too much for a lease.... any red flags here? Can the cars be driven on own time? (Im guessing answer is your not supposed to but everyone does....)

I will discuss this with my accountant but I wanted to do more research.

Thanks!

[Evan]

The company certainly can do this. Of course any personal use is going to be a taxable benefit to the employee for all personal miles driven. Further, the company will need to keep a log of all mileage to support that as well. Though it may just may make more sense to claim the mileage deduction and not have the vehicle in the company's name. Keep in mind as well, if it's in the name of the company, you'll need to insure it as a corporate vehicle (and register it as such), and if you're in an accident, surely you're business will be sued. And if you're doing it on personal time, they may sue you too...

[Grindstone1]

I guess someone is always gonna get sued!

We do mileage currently with our personal cars but was looking for a way to increase the expenses through company cars.... is there a way?

[MyITGuy]

Of course any personal use is going to be a taxable benefit to the employee for all personal miles driven. Further, the company will need to keep a log of all mileage to support that as well. Though it may just may make more sense to claim the mileage deduction and not have the vehicle in the company's name.

Since this was brought up and there are some knowledgeable people in this forum, what if the vehicle is covered with a wrap or has other advertising features? Would the personal use still be a taxable benefit or could it be considered business due to the advertising?

[Grindstone1]

How do car allowances work? Ive known of employees who recieve $300/month towards their car. It doesnt fluctuate.

[huggytree]

your going to lose money by having the company buy the car for you.....your going to be better off collecting the 55 cents per mile

my work van gets 8mpg and used to cost me $2,000-$3,500 a year in repairs.....it was barely better off when i calculated it for the business to own it...i bought my new van through the business this year....yea i get a $40,000 deduction....and all that gasoline to deduct.....but i no longer get $10,000 a year in personal mileage

i always did my insurance through the company....whether i owned the van or my business...it was driven business only

[Evan]

Since this was brought up and there are some knowledgeable people in this forum, what if the vehicle is covered with a wrap or has other advertising features? Would the personal use still be a taxable benefit or could it be considered business due to the advertising?

Yes, it doesn't matter if you worked for Oscar Meyer and were driving the Oscar Meyer Weinermobile -- if you're driving it for personal use, it's still a taxable benefit to the employee.


I guess someone is always gonna get sued!

We do mileage currently with our personal cars but was looking for a way to increase the expenses through company cars.... is there a way?

Mileage often works better, especially for mixed use. If the S-Corp owned the vehicle and in year 1 you had used it 80% business, and year 2 it dropped to 40%, you run into a myriad of problems. Notably, your depreciation rates are different for an item with 40% use versus 80%, and next if you took bonus depreciation, you'll have to recapture that as income. IN addition, the personal use still needs to be accounted for and reported on the employee's W-2.


How do car allowances work? Ive known of employees who recieve $300/month towards their car. It doesnt fluctuate.

All of those payments are taxable to the employee. The employee can offset this income by deducting the related expenses on their personal tax return ASSUMING they can itemize their deductions, and their expenses are in excess of 2% of their AGI. So if your AGI was $50K, you'd have to have auto expenses above $1K in order to be able to deduct one dollar. Therefore, more likely than not for nearly every single employee, this is never advantageous.

[huggytree]

how heavily is the vehicle used for work?

[Freelancier]

Would the personal use still be a taxable benefit or could it be considered business due to the advertising?

If you drive somewhere for your personal use, yeah, it'd still be a taxable benefit to you. The revenue from the advertising is revenue to the corporation.

I talked with over with my CPA a while ago and decided it was easier to track business trips at 55 cents/mile than to track all the personal trips in a log and compute the personal taxable benefit later. If you use the car almost exclusively for work, you could probably get away with it, but if you're just thinking "that's cool, I can buy myself a car with the business' money", then you are heading for headaches if you get audited.

EDIT: have you opened a company-funded SEP-IRA already?