Can I Deduct my Business-Related Auto Expenses on my S-Corp Taxes?
If you use your personal vehicle for business, you may be able to deduct the business-related auto expenses on the S-Corp tax return while obtaining reimbursement for these expenses from the corporation.
However, because unreimbursed employee expenses are no longer permitted under the new tax bill, a corporate accountable reimbursement plan is used to maximize the tax benefits of using a personal vehicle for business use. A Maryland tax attorney provides guidance on many S-Corp tax matters that impact the company and your personal tax liability, including deducting auto-related expenses.
Business-Related Automobile Expenses
The company can reimburse you for business use of your personal vehicle by using the standard mileage rate or by reimbursing you for the actual vehicle expenses. The standard mileage rate for 2018 is 54.5 cents per mile, and 58 cents for 2019. The mileage rate is multiplied by the number of miles the vehicle is driven for business.
Actual expenses are reimbursed based on the percent of use (based on miles) of the vehicle for business purposes. It is important to keep detailed records of the annual expenses you want to be reimbursed by the S-Corp. The company can reimburse you for any expenses you are allowed to take as deductions under Sections 161 to 191 of the tax code under an accountable plan.
Requests for reimbursement are submitted to the S-Corp. The S-Corp reimburses you for your actual or standard expenses under an accountable plan. The reimbursement is deducted on the S-Corp tax return a business expense. If you meet all other requirements under the tax code, the reimbursement is not reported as income on your tax return.
Some Expenses Are Not Allowable
As with other areas of the tax code, there are exceptions to what you may count as tax-free reimbursements. Interest on a car loan is one exception.
Even though interest on a car loan appears in Section 163 of the tax code as a deductible expense, you cannot receive tax-free reimbursement from the S-Corp for this expense. However, the S-Corp can still deduct the expense, and you can receive reimbursement for loan interest, but it must be done as a wage payment.
Interest payments do not qualify for tax-free reimbursement under an accountable plan. The tax code specifically states that interest paid or accrued while performing services as an employee is personal interest and is a nondeductible personal expense.
However, if you want reimbursement for the loan interest, the S-Corp must include the amount on your W-2 statement as wages that are subject to income taxes. The company deducts the reimbursement for vehicle loan interest as a wage expense and pays the employer’s share of payroll taxes on the expense.
Advice from a Maryland Tax Attorney
Taxes for S-Corps can be complex, especially with the changes in the tax laws. A Maryland tax attorney assists clients in addressing tax questions to ensure that the company and the individual are maximizing all tax benefits available under the tax code. Contact Thienel Law today to get support when tax time comes. Maryland tax attorney Steve Thienel is dedicated to assisting clients in Maryland, Virginia, and throughout the DC Metro area.