Can a S Corporation reimburse shareholders for actual auto expenses?

[codeblue123]

For a vehicle owned personally by a S corporation shareholder, can they be reimbursed for actual auto expenses instead of using the standard mileage rate?  Is reimbursing at the standard mileage rate the only way to expense vehicle costs for a S corporation that does not own the vehicle?

[TaxGuyBill · Accepted solution]

Yes, they can reimburse using Actual Expenses.  The Standard Mileage Rate is definitely easier, but Actual Expenses can be used if it gives a better result.

[codeblue123]

Could they be reimbursed for depreciation/car loan payments?  What about the personal use of the vehicle?

I have a new client who had the S Corporation pay for all of their auto expenses even though they owned the vehicle personally.  Can these payments the corporation paid be used as reimbursements?

[TaxGuyBill]

Yes, depreciation can be reimbursed.

No to the car payment, but vehicle interest might be reimbursable (I would need to double check that though).

The corporation can reimburse vehicle expenses for corporate business.  The corporation has no business paying for anything personal.  When a corporation pays for personal expenses, it is wages or a distribution to the shareholder.  It also may "pierce the corporate veil" of protection, so the shareholder may not be protected if the corporation gets into trouble.

It may still be able to be considered a "reimbursement", but if an Accountable Plan was not done (which includes being reimbursed within 60 days of the business expense), then any reimbursements are taxable wages to the employee.

[codeblue123]

Since the vehicle is also used personally, how would you determine how much of the actual expenses to reimburse for?  

[abctax55]

The percentage of business use, derived from that "contemporaneous business mileage log" that "ALL" our clients maintain. /S

[TaxGuyBill]

As Anna said, the employee/shareholder is required to keep track of all mileage.  Corporate miles (including destination and business purpose) and total miles.  If the corporation reimburses actual expenses, it would be business percentage compared to the total miles.

[abctax55]

And to clarify...there *should* be a written, accountable plan in place and the employee needs to submit the amounts for reimbursement.   "Just" like would need to be done for any other employee who isn't the shareholder.