Do you operate your business as an S or a C corporation?
Do you drive a vehicle titled in your personal name for corporate business?
Beware. The Tax Cuts and Jobs Act (TCJA) changed the rules for tax years 2018-2025.
Before the TCJA, you had to pay attention to the use of your personal vehicle for corporate business in order to avoid losing deductions to the 2 percent miscellaneous itemized deduction rule and the alternative minimum tax.
But now, because of the TCJA, you face a narrow road during tax years 2018-2025 if you want tax benefits for the corporate business use of your personal vehicle.
- The personal vehicle used for corporate business is a business vehicle to the extent of corporate use.
- If you don’t want to lose your rightful tax benefits from your business use, your corporation must reimburse you for your business use.
- Your corporation may reimburse you using the IRS standard mileage rate or actual expenses.
- When you trade in or sell the vehicle you used for corporate business, you will report a taxable gain or claim a deductible loss on IRS Form 4797.
- To obtain your reimbursements from your corporation, you submit expense reports under the accountable plan rules.
Make Sure to Do This
You need a mileage log. The mileage log defines the dollar amount of the corporate reimbursement—regardless of whether you seek reimbursement using (a) actual expenses or (b) the IRS mileage method. The mileage log saves you in an IRS audit.
Because your corporation is reimbursing you for your personal vehicle, using either IRS mileage rates or actual expenses, it needs an accountable plan.
Reimbursements from the Corporation
A corporation can reimburse an employee for all expenses allowable under sections 161 to 199 of the tax code—which includes Section 179 expensing and Section 168 bonus and other depreciation.
Here’s what happens when your corporation properly reimburses you for the expenses:
- You, as the employee, receive the cash reimbursement from the corporation but do not have taxable income from the reimbursement.
- The corporation gets the full deduction for the reimbursed expenses.
- If the corporation is an S corporation, then those expenses reduce the corporate income and the corporation passes that reduced income to you—say, as the sole shareholder of your S corporation.
Source: Bradford Tax Institute