Recording the loss from a business vehicle that was traded in.

[AnmarieA]

When a business vehicle is sold for a loss which we already established is a deductible business loss based on a previous chat. I just found out that the vehicle was on only used 90% for business and 10% personal but the entire asset was recorded on the 1120S books. Is only 90% of the loss deductible as a business expense? The Proconnect software does not appear to be calculating the loss correctly from my review. I am having difficulty making the business loss work as reported on the Shareholder's K-1. I don't like overriding the software whenever possible. 

Thanks in advance for your assistance. 

[TaxGuyBill]

I think it is a 100% business asset because the 10% personal miles should have been added as taxable income to their W-2.

[AnmarieA]

This is a new client for me and their W-2 that is prepared but another organization did not report the 10% 

personal on their W-2 as it only reflects their wages and health insurance as a S-Corp medical. This being the case should I only record 90% of the loss as business expense as it all gets reported on the K-1 and flows through their personal return from what I can see in Proconnect.

Do you think differently?

[TaxGuyBill]

Just because thing were previously reported incorrectly doesn't change the fact that it is a 100% business asset.  I would report it as a 100% business asset.

Advise the client that prior W-2s are wrong, and ask if they want to hire you to amend them and any applicable 1040s that have already been filed. 

[qbteachmt]

"This being the case should I only record 90% of the loss as business expense as it all gets reported on the K-1 and flows through their personal return from what I can see in Proconnect.

Do you think differently?"

Well, the IRS certainly does.

Look at the ownership. If that is the corporation, then it is the corporation's asset. 100%. There is no sharing of the ownership of the vehicle.

There is a sharing of the use of the vehicle. The corporation owns and operates the vehicle. Anyone getting to use that corporate asset for personal is supposed to be taxed on the value of that use. That's why it goes on the W2. The IRS has the rate to charge, even.

Your shareholder/employee can pay for that use, of course, instead of it being a taxable addition as fringe. If you enter 100% of costs for the corporation, and then you offset that by some amount charged to the employee (say, 10%), you are ending up with Net 90% under vehicle expense and the other 10% under taxable fringe benefit.

Not reporting it at all would be an error of omission.

Just because someone else did something wrong, don't ride along on that wave.