Giving Employee Personal Use Vehicle

Technical topics regarding tax preparation.
#1
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I am pretty sure this plan the client has will not end well for the business or employee but in case I am missing something I would like some thoughts from others if possible.

S-Corp owned 50/50 by two people. They have an employee (who is not an owner) that they are wanting to purchase a vehicle for. Per my understanding this will be solely for the personal use of the employee.

Can the company write off the cost of the vehicle as well as the repairs, maintenance, insurance, and other ownership costs as normal if they include the value of the personal use in the employee's W2?

If they can write off the vehicle expenses, can they take section 179 on it?

I am waiting to hear back on details as to why they want to go this route as the only information I have currently is that they want to do this for one of their employees.
 

#2
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Additional information I have now.

Employee does have current transportation but the vehicle is older and not reliable. Part of the purpose is to make sure the employee is able to reliably get to work.

Employee would pay for gas and the company would pay all other costs.
 

#3
sjrcpa  
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porterj5 wrote:Can the company write off the cost of the vehicle as well as the repairs, maintenance, insurance, and other ownership costs as normal if they include the value of the personal use in the employee's W2?
Yes
 

#4
makbo  
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porterj5 wrote:They have an employee (who is not an owner) that they are wanting to purchase a vehicle for.
[...]
I am waiting to hear back on details as to why they want to go this route as the only information I have currently is that they want to do this for one of their employees.

Who is "they" purchasing the vehicle? The corp, or the two shareholders?

Why don't they just give the employee a raise or a car allowance (same thing)? Much simpler all around, 100% write-off for company, no need to calculate depreciation or FMV for the employee, and so on.
 

#5
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They being the corp. Sorry.

makbo, I agree. But they think they can benefit more from it so I am looking into it. Have never had a client want to basically make a company vehicle 100% personal for an employee.

sjrcpa, would we just list all the expenses as normal for the vehicle including deprecation?
 

#6
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It should be deductible if purchased by corporation and is included on employee's W2. Can become a PITA...and how is the employee going to afford the increased taxes if they cannot afford reliable transportation? Or will the entity cover those, too, through increased compensation?

Section 179 now applies to used assets, so in theory, yes, but I have not dealt with depreciation on a vehicle acquired for an employee's exclusive personal use.

I understand why they might want to buy the vehicle vs. increased compensation to cover cost of car. I would still lean toward modifying compensation to keep it simple, but then there is no guarantee the employee will actually use the funds for intended purpose. Thus, I would give a bonus to buy the car. Pay additional routine compensation to cover operations. All included on W2. Have them write up a compensation agreement that it is all contingent upon X and will be repaid through compensation deductions or other means as required if X is not carried out.
 

#7
JR1  
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And what happens when the ee leaves?

For the third time in a week, which is starting to tick me off, I agree with Mak. Just comp it out and kiss.
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Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
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#8
CathysTaxes  
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Other issues, employee parks illegally, doesn't pay a toll or gets red light violations caught on canera. Employer gets the tickets. Employee gets into an accident, employer gets sued. So not worth it.
Cathy
CathysTaxes
 

#9
sjrcpa  
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porterj5 wrote:sjrcpa, would we just list all the expenses as normal for the vehicle including deprecation?
Yes
 

#10
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Porter - here you go. IRS Pub 15B https://www.irs.gov/pub/irs-pdf/p15b.pdf

Employer's Tax Guide to Fringe Benefits - For use in 2018

3. Fringe Benefit Valuation Rules

Will tell you how to handle this if the corp really wants to buy the vehicle and treat it as 100% personal use for/to the employee.

ps - agree with CathysTaxes
 


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