I have two important questions for you today:

1) Are you operating your business as an S or a C corporation?

2) And, are you driving a vehicle with a title in your own name instead of the business?

I wanted to highlight these questions because…

There have been important changes to The Tax Cuts and Jobs Act (TCJA) that are in effect from 2018 to 2025.

You see, before the TCJA changes, you had to pay attention to the use of your personal vehicle for corporate business in order to avoid losing deductions to the 2% miscellaneous itemized deduction rule and the alternative minimum tax.

But now, because of the TCJA, you face a narrow road during tax years 2018-2025 if you want tax benefits for the corporate business use of your personal vehicle.

Some key things to understand about the TCJA and your vehicle:

1. The personal vehicle used for corporate business is considered a business vehicle when used by the corporation.
2. If you don’t want to lose your tax benefits from that business use, your corporation must reimburse you – and do so using the IRS standard mileage rate or actual expenses.
3. When you trade in or sell that vehicle you used for corporate business, you will report a taxable gain or claim a deductible loss on IRS Form 4797.
4. To obtain your reimbursements from your corporation, submit expense reports under the accountable plan rules.

Don’t forget to do THIS!

The most important thing is to keep a regular mileage log. This mileage log defines the dollar amount of the corporate reimbursement—regardless of whether you seek reimbursement using (a) actual expenses or (b) the IRS mileage method. The mileage log could save you in the event of an IRS audit! I recommend using a mile tracking app such as MileIQ. I even have a 20% discount code for you: JRAM320A

You also need an Accountable Plan

Because your corporation is reimbursing you for your personal vehicle, using either IRS mileage rates or actual expenses, it needs an accountable plan.

Reimbursements from the Corporation

A corporation can reimburse an employee for all expenses allowable under sections 161 to 199 of the tax code—which includes Section 179 expensing and Section 168 bonus and other depreciation.

Here’s what happens when your corporation properly reimburses you for the expenses:

1. You, as the employee, receive the cash reimbursement from the corporation but do not have taxable income from the reimbursement.
2. The corporation gets the full deduction for the reimbursed expenses.
3. If the corporation is an S corporation, then those expenses reduce the corporate income and the corporation passes that reduced income to you—say, as the sole shareholder of your S corporation.

If you use a personal vehicle for corporate business but don’t fully understand every point I just made and IRS rule I just listed, don’t worry – simply make an appointment with my office using this link so we can go over it in detail – and make sure you are covered.

Sincerely,

Jose A. Ramirez