Tax Reduction Podcast

Episode 27. Write off Personal Car in S-Corporation

• Boris Musheyev • Episode 27

Share episode

Interested in Tax Strategy for your Business? Send us a message with your email address and we’ll help you get started!

Did you know you can write off your personal car as a business expense? Many business owners miss out on this deduction because their accountants don’t suggest it, or they aren’t aware of the benefits. In this podcast, I’ll break down step-by-step how you can claim your personal car as a tax write-off through your S-Corporation.

I've put together this FREE resource for you:

7 Write-Offs Every S-Corporation Business Owner MUST Know
🆓 Download FREE PDF here: https://7taxwriteoffs.com/

Ready to start saving money on your taxes?
☎️ Schedule your FREE Tax Advisory Session: https://taxplanningcall.com/

🤩 If you are looking for easy-to-use payroll software, I personally use and recommend to my clients Gusto Payroll Software - https://gusto.com/r/boris466

P.S. When you sign up for Gusto, you get a $100 Visa gift card

*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, ...

Speaker 1:

If you use your personal car in your business, especially in your S-Corporation, well, guess what? Irs allows you to claim that vehicle as a tax write-off against your business income, even though the car is under your personal name. Now, a lot of accountants don't really know how to do this properly and they disallow and do not let their clients that are profitable business owners to take this deduction. They say, no, the car is under the personal name. I'm not really sure how we're going to take this deduction and you're not allowed to. I'm going to show you exactly how to use this tax strategy, even if you're using your personal car for your business, your S corporation, and at the end I'm going to give you a tax strategy that you can literally just take it to your account and be like, hey, this is how you do it and let's take this tax deduction. Ready, let's get started.

Speaker 2:

Welcome to the tax reduction podcast for money-making entrepreneurs with Boris Mushaev. Boris has helped entrepreneurs across the United States collectively save millions of dollars in taxes with the power of tax planning and advisory. The only way you, the business owner, can save money on taxes is by using proactive tax strategies, and this podcast is all about saving you money on taxes. Boris will share with you in-depth and easy to understand tax reduction strategies that you can implement in your business within 30 days or less. Let's jump into today's episode.

Speaker 1:

All right, perfect. So we're going to talk about how can you write off your personal car that you use that is, under your personal name against your S corporation. Before we continue how you can do that, we really need to understand what is an accountable plan, because an accountable plan is something that is allowed by the IRS. It's a mechanism that you can use to reimburse yourself personally from the business for the use of your car, including other expenses that you incur personally but for the sake of the business. Now, accountable plan is a piece of document that is not filed anywhere with the IRS or your tax return. An accountable plan is basically just a document that is filed with your files and, based on the accountable plan, it says that the business, your S corporation can reimburse you the business owner, who also happens to be an employee of the business for any expenses personal expenses that you incurred on behalf of the business.

Speaker 1:

Now, when you have a personal car that you use for the business, you obviously incur a lot of expenses. You've got gas that you pay for, maintenance, repairs, insurance, interest if your vehicle is financed, or lease payments. So whatever the business usage percentage is of your business, you can every month reimburse yourself. Literally, you just write out a check from the business and you get that as a business tax deduction and it goes to your personal account completely tax-free. That is an accountable plan. This is one of the main ways that you as a business owner can actually write off a personal vehicle that you're using for the business. Because when you try to put the personal vehicle, the title of the vehicle, under the business, it gets expensive, especially with insurance. So a lot of business owners they don't want to do that. They're using their vehicle maybe 20%, 50% or even 70% of the time for their business and they want an easy way out. Just paying for these expenses directly from the S-corporation won't be a deduction for you, but if you use an accountable plan in which you reimburse yourself for the business usage of that vehicle, that becomes a tax deduction.

Speaker 1:

Now I'll tell you a little bit about how we handle things in our firm, our tax advisory firm. For our clients Majority of clients that use their personal car for the business less than 70% business use we use an accountable plan, no question about it. We track their expenses. We even calculate the depreciation to make sure that we include it all and every month the business owner gets a tax-free check from the business for using the car and the business gets a write-off. Now it gets a little bit tricky when you've got a car, a personal vehicle that you use for your business. That is more than 70%.

Speaker 1:

So in our firm, what we usually do we do not use an accountable plan at this point we basically place the vehicle under the business, not the title of the vehicle, but basically for tax purposes. You can do that. You can record this vehicle as an asset investment by the business, even though the owner bought it. Now this is where you need your tax advisor, because your tax advisor will know exactly how to do that. And again, when we place it under the business, we don't deduct 100% of expenses, but what we deduct is whatever the business usage is. So let's say the business uses this vehicle 80% of the time for the business, then 80% of the expenses from the business will be deductible and there's a way to record it, including that depreciation. So it's really, really important to understand that if you've got a car that is under your personal name, you can absolutely deduct it as a business expense. Now, right after this break, we're going to talk about how can you claim depreciation on this personal vehicle in your business right after this break.

Speaker 2:

If you have a tax preparer and you do not have a tax advisor, the only way you can save money on taxes is by using proactive tax planning strategies that only a tax advisor can give you. Boris put together a free PDF for you, the business owner Seven tax write-offs every S-corporation business owner must know. In this PDF, you can find seven tax strategies that you can start using in your business to instantly start saving money on taxes. Click on the link in the description below for a free download.

Speaker 1:

All right, perfect and welcome back. Let's talk about how can you claim depreciation of your personal car in your business. Before we talk about depreciation, I want to bring your attention to two types of methods that you can reimburse yourself, or really I should say, two types of deductibility methods of your vehicle. So there's something that's called standard mileage deduction, meaning to say the IRS says look, instead of you using the actual expenses of your business, what you can do is just reimburse yourself. Again, using the accountable plan that we spoke about earlier, reimburse yourself for every business mile that you drive. So how much is the reimbursement? 67 cents per each mile, okay. So a hundred miles, that's a $67 reimbursement. A thousand miles and you can do the math. Okay, so the IRS says look, let's keep it simple. You can reimburse yourself 67 cents per mile.

Speaker 1:

Generally, what we do in our firm for our tax advisory clients, we use the standard business mileage rate given by the IRS if the business owner uses the personal vehicle less than 50% for the business. In most cases and I'm not saying in all the cases, right, that's why you have to make sure you're working with a tax advisor In most cases the standard mileage rate of 67 cents per mile works better than actual expenses. If the car is being used less than 50% for the business and when you're using the standard mileage rate, there is no depreciation. You're not taking any actual expenses, you're just really reimbursing yourself for the mileage that you use for the business. Now the second method are actual expenses, and that is again where you can use the accountable plan and reimburse yourself for actual expenses, including the depreciation. Now the question really becomes when should your accountant report this vehicle that you bought personally and now using it for the business? When should your accountant really report it under the business books? So I'll tell you again what we do for our clients and we try to you. Right now. You're most likely overpaying in taxes every single year, not by this much, but by this much. What you need is a tax advisor. You need somebody that uses tax planning strategies, but not only tax planning strategies, but using those strategies and properly reporting it on your taxes.

Speaker 1:

Now, in this particular situation now coming back to what we do for our clients, if the client uses the car less than 50% for the business, in most cases we use standard mileage rate If it's between 50% to 70% of the business. This is where we kind of do some analytical. We basically get some analytical thinking going and do some calculations and see, hey, which is the better, the standard or the actual Over 70%? That becomes very interesting because what happens in most cases? Actual expenses are more beneficial because if the car is new and it was expensive, then you can also use a really nice depreciation deduction. Now, again, with an account plan, you can reimburse yourself from the business for that depreciation or you can literally take this vehicle and record it on company's books and your company can basically carry an asset, a vehicle, on the books, but again, only for the business usage percentage. It is absolutely allowed by the IRS as long as you keep track of what you use the car for, keep track of your business mileage. So IRS says look, if you want to deduct your car for the business, that's not a problem, we will allow you because that's how the tax code is written. But you've got to stay in compliance. You've got to make sure you have a documentation of how many miles you used. What did you use the vehicle for? For the business? And guess what? All of the usage of the vehicle, of your personal vehicle for your business will be tax deductible.

Speaker 1:

Now we're going to talk about what is it that your accountant can do to help you better take advantage of this tax strategy? First of all, if you do not know what account plan means, speak to your accountant, and your accountant is probably not doing it, so just drop them. Get a tax advice. That's my advice. But what you need to do is make sure, if you love your accountant, if your accountant is your uncle or your aunt right, you're like I'm not leaving them again. Okay, no problem, tell them hey, I want to implement an account plan so I can properly reimburse myself for the use of the vehicle. Now, remember what I told you.

Speaker 1:

Okay, if your car is being used less than 70% for the business, you really need to figure out and make sure your accountant can do some calculations. Should you do the actual expense reimbursement or mileage expense reimbursement If it's over 70%? What we do and your accountant can do this also is bypass the account for a plan, record the company vehicle on company's books, even though you paid for the car personally. I get this question a lot. Well, boris, how do I pay for this car if it's going to be under my personal name?

Speaker 1:

The truth is, it's best to pay personally, because then this vehicle can be recorded on company's books as an owner contribution. You, the owner, contributed this asset to your S corporation and whatever that business percentage is that you use, and remember you've got to have a documentation of how much you use the vehicle for the business. Then you can record it. You can take depreciation expenses for the business usage of the vehicle gas expenses, maintenance, insurance, finance charges, lease charges, whatever that may be. All of this will be tax deductible for you in your business. Two things again. Let's kind of review Either implement an account plan or, if you're really using the vehicle majority for the business in our case, for our firm, that rule of thumb is about 70% then we put the vehicle as a business asset under the S-corporation. Now I just want to say thank you so much and until the next time.

Speaker 2:

That's it for today's episode. Be sure to check out the description below for some free tax reduction resources that Boris put together for you. If you're ready to work with a tax advisor on your tax planning, be sure to schedule your call by heading over to wwwtaxplanningcallcom. That's wwwtaxplanningcallcom. And be sure to subscribe to our podcast to be notified when the next strategy is released.