Question

Tax ramifications for a company owned or leased vehicle

Forum|Forum|4 years ago
October 27, 2021
1 reply
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I am thinking of buying or leasing a car in my company name (an S Corp). What are the tax ramifications for it?

Hi! I'm a CPA with TurboTax Live. Essentially, the purchase or lease of a vehicle will be allocated between personal and business use with the personal mileage being non-deductible and business being deductible. Generally, you will have the option to take actual expenses (which will likely give you a larger deduction up front with depreciation) or the standard mileage rate (which will tend to give you more in deductions over time). It is important to remember that only job site to job site trips will be deductible (no commuting) so if you have a home office as well, you will tend to have more deductible mileage.

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T

tom775Author

Thanks. I assume the monthly payments would be made by the company. How is depreciation handled? Is it better to lease it or purchase it with monthly payments? I assume if it is leased it is a straight expense without having to depreciate it? If it is bought and then sold how is revenue from the sale handled? I'm just not sure which way is simpler/better.

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anyoneelse

Following up with you tom775, one thing to keep in mind is the percent of business use. This is why it is important to choose before you start reporting between Standard Mileage and Actual Expenses. Once you start reporting you cannot switch.

Standard Mileage Rate –

1. is based on the business miles driven. The fixed amount of depreciation is built in

in the standard mileage rate.

2. business used percentage change won’t impact the users who use the standard

mileage rate.

OR

Actual Expenses –

1. Includes section 179, bonus depreciation and/or normal depreciation. Note, if the

customer says they have bonus (special) depreciation, it is strongly

recommended to move them to TTD. See further comments below on this.

2. Business used percentage change may change the depreciation basis

What this means is that it will make it much easier to do reporting and selling if you do standard mileage, but you may lose out if you end up spending quite a bit on repairs.