unreimbursed mileage by S corp shareholder/employee

[jgcpa]

Can the S corp deduct unreimbursed mileage incurred by the s corp shareholder/employee and treat it as Paid in Capital? There is an accountable plan. However, the company needed to retain its cash to pay vendors. The shareholder/employee has a written mileage log. Can the s corp deduct the mileage using the standard mileage rate and then increase  Paid in Capital? Will it hold up to say that the S corp in substance reimbursed the shareholder, however the shareholder said keep the money, and let's treat it is Paid in Capital? Or, are those miles non-deductible by the S corp since there was no cash payment to the shareholder/employee?

[Jim-from-Ohio]

What if the sharehoder bought some supplies for the company on his personal credit card?  I have seen this and I made a journal entry on the company books, debiting supplies and crediting either loan payable - Shareholder or just crediting S Corp distributions (assuming there was a suffiicent balance in the general ledger account so not to go negative.)  If this was my account I would do siometing similar, but debiting vehicle expense.  The credit could be paid in captal but I normally credit the other accounts mentioned above.  

[qbteachmt]

"The shareholder/employee has a written mileage log"

This is their personal vehicle, right? Not corporate owned.

[jgcpa]

Thank you for your replies. Yes, this is a personally owned vehicle.

[BobKamman]

The question that should have been asked in August 2023, not August 2024.  How much salary was paid to the owner last year?  If it was $40,000, it should have been $35,000 and $5,000 for expenses.  That would have saved both some payroll taxes.  Or is this a situation where the company is losing money and can't even afford a paycheck?  Then the last thing you want to do is call it paid-in capital.  Call it a loan.  Then you can get it back out if the situation ever improves.  (Likely, not.)  

[jgcpa]

The company is owned by Husband and wife. Although I tell them each year to take a salary, they do not. They have no distributions due to low funds. They are using the cash in bank to pay vendors and not themselves. I asked them if they want to be paid back, and they said no. They are the only owners, and the wife is ok with paid in capital. One day when they close the business, any cash that is remaining will be all salaries. 2023 is the first year that they had a loss. The first three years had profits. But in 2023 they lost the ability to sell on Etsy.

[TaxGuyBill]

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@jgcpa wrote:

There is an accountable plan.

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An Accountable Plan has strict requirements for reimbursements.  Did the employee/shareholder submit the miles to the corporation in a timely manner for reimbursement?

https://www.irs.gov/publications/p463#en_US_2023_publink1000266091

[jgcpa]

The shareholder says yes, that the log was maintained during the year and submitted, but not paid.

[TaxGuyBill]

In my opinion, as long as the Accountable Plan expense was submitted, if there was an "agreement" that it was to be reimbursed, then either a loan to shareholder or a Capital Contribution would be reasonable.

[Taxes-by-Rocky]

Just out of curiosity, is the S-Corp. a cash basis taxpayer?

[jgcpa · Accepted solution]

Yes, the S corp is a  cash basis taxpayer . Does this make a difference? Can I still record the shareholder paid expenses as Loan to shareholder and/or to Paid in Capital?

[qbteachmt]

One correction: it's Loan from Shareholder, a liability.

Once again, someone made an S Corp for all the wrong reasons, apparently.