Hey guys & gals I have a question dealing with a Corp

[Tax Prep by Deb]

I have a client who I will be doing their personal taxes this year, however they have a corporation © which will be handled by a CPA. The question centers on the handleing of a vehicle.

Because the corp was brand new when they went to purchase a vehicle for the business they could not get financing because the corp had no credit history. So they bought the vehicle under their name, but it is being used exclusively for the corp. They are currently paying the loan thru their personal account, but would like to be re-imbursed for it from the corp.

What would you all recommend? The gal she is dealing with from the CPA's office has given some info, however she herself seems to be confused, and keeps changeing her mind.

Any imput from you all would be appreciated.

Deb!

[ILLMAS]

Have you considered letting the CPA deal with it?

[Lion EA]

Suggest the corporation put in place an accountable plan expense account covering reimbursements for employee's business use of their personal vehicles. Employee turns in expense accounts based on standard mileage rate or actual operating expenses, monthly or whatever; corporation reimburses. Business miles only; commuting is not a business expense. Deduction for corporation; not income to employee.

Until such time, Form 2106.

[Tax Prep by Deb]

Have you considered letting the CPA deal with it?

Yes, and that was the plan until the story got changed. Originally my client was told that she would be rented the vehicle to the corporation. The payments made by the corporation would be to her directly, then she would report the income and the depreciation, ect.... on a schedule C. First I doubted the schedule C, I would think it should be E, but then she changed her mind and decided that the payments would be handled as a loan from the corp to my client, until the vehicle is paid for then my client would give the corp the vehicle to satisfy the loan.

So, with both of these scenerious, I am just a bit hesitant for my client, and was hoping that some of you might have a suggestion.

Deb!

[OldJack]

@Deb >>. First I doubted the schedule C, I would think it should be E,<<

Per Sch-E Instructions:

Personal property. Do not use Schedule E to report income and expenses from rental of personal property, such as equipment or vehicles. Instead, use Schedule C or C-EZ if you are in the business of renting personal property. You are in the business of renting personal property if the primary purpose for renting the property is income or profit and you are involved in the rental activity with continuity and regularity.

If your rental of personal property is not a business, see the instructions for Form 1040, lines 21 and 36, to find out how to report the income.

[jainen]

>>accountable plan expense account covering reimbursements for employee's business use<<

It's not clear from original post that there even is an employee relationship, as opposed to an owner or investor. In any case, an employee can not be reimbursed for actual monthly payments except as a taxable fringe benefit. Even depreciation would not be allowed unless she is in the business of renting personal property with a profit motive. I suggest she call an emergency Board meeting to clarify in writing the existing accountable plan, and submit her mileage records (excluding commute if the car was kept at her home) by the end of the year.

Seriously, she needs to do her tax planning in advance.

[Uncle Sam]

Without the corporation owning or leasing the vehicle - your client cannot be paid anything without it being

treated as taxable income. What needs to be done is have the CPA enter a bookkeeping entry recording

the car cost and offsetting it with a liability for the loan. Have the auto reregistered in the corporate name and

insurance it as a business vehicle. Then the car can be depreciated/expensed, and have the corporation

make the payments for the loan. At that point some written record should be made from the shareholder

(your client) to the corporation of the assignment of the vehicle.

[OldJack]

>>Then the car can be depreciated/expensed, and have the corporation

make the payments for the loan.<<

>>assignment of the vehicle.<<

The vehicle has to be "sold" to the corporation at fair market value (with title transferred) in order to create tax basis for the corporation to depreciate. The vehicle would not qualify for Sec.179 depreciation under the rules of anti-churning.

[Tax Prep by Deb]

To clarify,

My client is an employee of the corporation, (had he not incorporated he would be the owner). He receives a substantial monthly payment with all payroll taxes taken out.

The vehicle title cannot be transferred to the corporation because of the loan on the vehicle. I knew when I posted this that this was not going to be easy. My concerns really are the different idea's this CPA's office has floated. If you have any more idea's please keep them coming.

Thanks,

Deb!

[joanmcq]

The best way to do it is to set up an accountable plan that reimburses the owner/employee at standard federal mileage rates. The employee submits mileage logs to the corp, the payments from the corp to the employee are non-taxable, but the corp gets to deduct the expenses. Win-win all around: no 2106 to deal with, lower insurance rates per a corp owned vehicle, and since you can't transfer the darn thing anyways due to the loan, the only way to go.

Currently, the only thing your client can do is deduct the expenses per the 2106. Hope s/he has a mileage log! And ditto to jainen's advice about advance tax planning.