New vehicle use for sole owner who ones two S-Corps and one LLC (passive rental income) guidance.

[D2018]

A client purchased a new truck in 2018 that is used for all three of his business's. The vehicle is 100% business use and client owns other personal vehicles. The truck was mainly purchased for rental properties (llc), however the use rate is about 10% (S-corp 1), 30% (S-Corp 2), and 60% (LLC-rental schedule E filer). Client purchased truck with personal funds and title is in clients name, not corporation. I'm trying to figure the best way to allocate this vehicle with my current option listed below; it seems the most straightforward. Any additional comments or ideas by this knowledgeable community would be greatly appreciated!

Option 1- Keep vehicle in clients/LLC name and section 179 the asset (truck qualifies), basically LLC 100% use. Then have the two S-Corps reimburse the owner for actual vehicle use via accountable plan. 

[qbteachmt · Accepted solution]

This is not true: "The vehicle is 100% business use"

Because you also told us this: "that is used for all three of his business's"

The person is an Employee of the S Corps. That means this is Personal Vehicle used for the business of the Corporation, not His Business, for two of three entities.

"the use rate is about 10% (S-corp 1)"

He submits a Mileage report to his employer under the rules of An Accountable Plan and gets reimbursed at the Mileage rate. Not Percent Shared Usage. And that means, for the other entities, this missing share is Personal, not business.

"30% (S-Corp 2)"

He submits a Mileage report to his employer under the rules of An Accountable Plan and gets reimbursed at the Mileage rate. Not Percent Shared Usage. And that means, for the other entities, this missing share is Personal, not business.

"and 60% (LLC-rental schedule E filer)."

Which means 40% is Personal, from the perspective of the LLC.

"Client purchased truck with personal funds and title is in clients name, not corporation."

Employees turn in Mileage reports and get reimbursed under the terms of an Accountable Plan.

"I'm trying to figure the best way to allocate this vehicle"

Only the LLC gets to report the Vehicle.

The S Corps both have Mileage Expense paid to the Employee. They don't have a vehicle.

"Option 1- Keep vehicle in clients/LLC name and section 179 the asset (truck qualifies), basically LLC 100% use."

It's not 100% LLC use. You have a Mixed Use vehicle.

"Then have the two S-Corps reimburse the owner for actual vehicle use via accountable plan."

Reimburse the Employee.

[D2018]

Thank you for your quick response! After reading your answers I realized how this should be. I shouldn't have used % use for example. Basically yes, corps will reimburse employee for business use via a standard mileage rate.

The client purchased the vehicle solely to be used for his LLC 100%. Client then thought it would be easy/convenient to use vehicle for S-Corps as well if needed, where client (employee) could be reimbursed. Per your correct responses, this assumption would make vehicle mixed use.

The best option should be re-phased like this: LLC will report the vehicle use at 100% use; client should then use another "personal" vehicle for S-Corp business and get reimbursed via accountable plan.

Does this sound better? Thanks again.

[qbteachmt]

"LLC will report the vehicle use at 100% use; client should then use another "personal" vehicle for S-Corp business and get reimbursed via accountable plan.

Does this sound better?"

Not really. You report based on reality, not, "Let's just call that 100% LLC." You stated Factually this is a mixed use vehicle. Mixed Use = the amounts for the S Corps are Personal use and there is not 100% LLC. You seem to be trying to report that the Difference between the three businesses makes LLC 100%, but that isn't what you have.

S Corp 1 perspective = Employee used Personal Vehicle.

S Corp 2 perspective = Employee used Personal Vehicle.

LLC Perspective = there is Some Use of the mixed use vehicle that applies to the LLC, and it obviously isn't 100%. You told us there are the other two Uses.

[D2018]

I see what your saying, however, i would advise that the new vehicle not be used for any S-Corp or personal activity at all and only be used 100% for LLC; no mixed use. Client should use another personal vehicle for S-Corp use to be reimbursed. The listed percentages prior were used for illustrative purposes to find the right fit for this situation. It appears having new vehicle be a mixed used vehicle would not yield the best results. Does this clarify? Thanks again for your input.

[qbteachmt]

I don't understand. Are you trying to advise a client not to use a vehicle they just bought except for some limited functions, only? And you think there is a tax regulation that makes this advantageous?

"It appears having new vehicle be a mixed used vehicle would not yield the best results."

You do what matches the Reality.

Why would someone buy a new Truck and then let it sit around and not be used, when that is why they bought that vehicle?

[D2018]

Thanks again for your input and the correction if my thinking is way off base, i do appreciate the feedback. It appears i should have reworded the original question a little. I am new to posting questions and put down an idea that may have not been totally accurate. Question should have sounded more "if" than "Reality" as you say, and not past tense. I tried to use basic details for the situation to figure best outcome, more details may be needed but the general idea still is as follows:

1. Client owns three business; 2 S-corps and 1- LLC (schedule E).
2. Client originally purchased new truck for LLC.
3. What is the best way to allocate/truck in operations?
   a. Client owns several other personal use vehicles.
   b. One S-Corp does have vehicle, however, vehicle is to be sold; as it is not being used enough (new
        detail)
   c. Client had idea of spreading out new vehicle among all business and wants to know how that would
      work.

Your comment

    "Why would someone buy a new Truck and then let it sit around and not be used, when that is why they
      bought that vehicle?"

Not sure what you mean. Lets go with truck was solely purchased for 100% use in the LLC, Even if its not used much is irrelevant, its a business vehicle. There are other vehicles for personal and currently one S-corp (new detail).

     "And you think there is a tax regulation that makes this advantageous?"

In short, yes. Our tax Regs most certainly give us some flexibility in legally setting up or choosing different aspects that provide the largest benefit for the taxpayer. Standard vs actual expense; choice of entity; accrual vs. cash, Lifo or Fifo;...having corporation reimburse owner/employee for business use of personal vehicle via accountable plan to name a few. It appears this situation would be no different.  The general question should be broken down into the two main points:

1. Should the new truck be used 100% for LLC and other personal vehicle be used for S-corp use
        (reimbursed via accountable plan).
2. Should the new truck be mix use among all; S-corps, LLC, "personal"

Of the two points, which provides the greatest legal benefit?

If i am drastically missing the point and am blatantly overlooking something please advise, i value input and not scared to admit when i am wrong, that why i posted in the first place. Thank you again for looking at my question!

[qbteachmt]

1. Client is the Employee to two different S Corps. The person also happens to be a Shareholder. This is Moot to the question. We know this is falls under Business Use of a Personally Owned vehicle. That takes away any Further business perspective for the LLC. By Definition. You cannot Split a vehicle and end up with 100% anywhere else.

2. Meaningless. The person bought a Vehicle. We don't care about their rationalization or justification. We care about Reality. Plans and "meant to" do not apply to Taxes or Reality.

3. Per Reality.

"Even if its not used much is irrelevant, its a business vehicle."

No, it's not. You need to read your own descriptions. Look at item 1 again.

"Should the new truck be used 100% for LLC and other personal vehicle be used for S-corp use"

They should use what needs to be used for getting done what needs to be done. If I bought a truck for the LLC, that means I intend to Carry Stuff. That means I use the Truck for the LLC. It doesn't matter what I use for the S Corps, other than, if I need to haul stuff, I need to use the Truck.

"If i am drastically missing the point and am blatantly overlooking something please advise"

Vehicles are Functional Tools, not tax shelters.

You really are overthinking this.

[D2018]

Thanks again. You may be right in me overthinking, however, i am still a little confused on what your saying.

The truck is not being split, it will be used 100% for LLC. Another personal vehicle, not truck, will be used for S- corporations. It appears your responses are all geared toward the truck being used for all separate entities; if that is taken out shouldn't the answer change?  

Basically your saying regardless of the intended use of truck, it could be used as personal vehicle for S-Corp, as such, truck will be considered mixed use. Am i correct? and reported like below:

LLC should report vehicle, but not at 100%
S-corp 1- reimburse employee for personal use.
S-corp 2- reimburse employee for personal use.

I thought this question to really be an expansion or slight modification of another often approached question pertaining to S-Corps; which is, "should i put vehicle in my name and get reimbursed" or "put vehicle in that of the company". This is a very common question, and we run the cost/benefit of each. One benefit in the reimbursement scenario is the favorable effect on reasonable compensation.

I appreciate your time in all your responses. Thank you!

[qbteachmt]

"You keep stating that because a truck is present it will be used for all things."

I keep asking why in the world would anyone be advised not to use a Truck they own, when the truck is Owned, and a Truck would be used? What tax regulation tells us it is Advantageous to buy a Truck and not use it? How does tax guidance change my use of Vehicles I bought intending to use as vehicles are used? And if the LLC "owns" the Truck, that is the same as Personal. So, this point is Moot. The only real separation is if a corporation owns that vehicle.

For this: "Your basically saying no sole owner or owners of a business can possibly say their "business" vehicle is used 100% for business, that doesn't make sense."

I teach the word Discoverable. As in, if you turned in mileage for that same vehicle to each S Corp, there is no possible way the LLC has it also as 100%, because this is Discoverable = entries were made and reimbursements for mileage were made. Proof is required under An Accountable Plan. Once you provide that Proof, it's sort of hard to also state otherwise, elsewhere.

[D2018]

Thank you greatly for all your input/advice! I understand your thoughts.

[qbteachmt]

This isn't stated correctly: "One benefit in the reimbursement scenario is the favorable effect on reasonable compensation."

Because reimbursement under an accountable plan is Not part of payroll and has no impact on Compensation or taxes. That is the point of An Accountable Plan. It's no different than me buying printer paper on my way to the office; you get the receipt and the paper and Reimburse me. That has nothing to do with Payroll. And if that trip to Staples was out of my way, I decide to also make you pay Mileage for my extra side trip. It's all just repaid to me. Accountable Plan = I proved it to you, so you can just pay me and it isn't part of Payroll.

Here's the issue for this part: "I thought this question to really be an expansion or slight modification of another often approached question pertaining to S-Corps; which is, "should i put vehicle in my name and get reimbursed" or "put vehicle in that of the company". This is a very common question, and we run the cost/benefit of each."

Because any Personal use of that vehicle, such as the Truck is in the name of S Corp 1, and the person uses it for S Corp 2 and for the LLC and for Commuting, makes all of this other use Personal and taxable through Payroll as a Fringe Benefit.

So, for instance, S Corp 1 owns and pays to operate a vehicle. Your Employee of S Corp 1 gets taxed on that value for all the Personal use, all the S Corp 2 use and all the LLC use.

All you are doing is Hiding the marble under a different cup. If I bought a Truck to use for the LLC because I need a Truck to do what I need to do, why would I park it and not use it for other things when I need a Truck to do what I need to do for the other things? That is what you seem to be stating is your advice.

[D2018]

It does/can effect reasonable compensation. Reimbursement via an accountable plan is an expense to the company, thus reduces income, which in turn possibly decreases salary paid (compensation).

You keep stating that because a truck is present it will be used for all things.

"if I bought a Truck to use for the LLC because I need a Truck to do what I need to do, why would I park it and not use it for other things when I need a Truck to do what I need to do for the other things?

Answer: you would not use it for other things because you are not supposed to! It is a business vehicle to be used only for that business. you have other vehicles to use for the other things you need to do.

Just because it can be used doesn't mean it is. Your basically saying no sole owner or owners of a business can possibly say their "business" vehicle is used 100% for business, that doesn't make sense. If a owner has other means of transportation (personal vehicle) and a business vehicle for business, only used for business, then 100% is allocated to business use. This is documented on tax forms. If a vehicle is classified as 100%, client must not use it for anything personal, if so, your absolutely correct! it is to be documented and reported as a benefit and included in wages.

Do you know of any applicable tax law that i'm missing stating that a vehicle cannot be taken at 100% use because the possibility it can be used for personal reasons? or where this scenario is outlined. If so, please advise.

In summation: Your point is the vehicle cannot be 100% because it may be used for other purposes.

I greatly appreciation this discussion, it has definitely made me think and reevaluate the circumstance.