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. Big Picture 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. Whether you use the actual expense method or the mileage method, make sure you have 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 and will save 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.
With such a plan, whether using a percentage of actual expenses or the mileage allowance for business miles driven, the document will outline what will be reimbursed and how the reimbursement takes place. The document will state that the corporation allows reimbursement of certain employee expenses.
Of course, this process can get very complicated and the risks in audit of not properly documenting your process can be expensive.
If you’re looking for a firm that focuses on helping small business owners with tax planning strategies to reduce their tax liability legally or navigating IRS issues, give us a call at (972) 821-1991 or get on my calendar at https://jablonskyandassociates.com/contact/
