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Lev
Lev, Tax Advisor
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Experience:  Taxes, Immigration, Labor Relations
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My client wants to lease a vehicle. He wants to put it into

Resolved Question:

My client wants to lease a vehicle. He wants to put it into his personal name to keep the insurance down. If he leases the vehicle to the business, the lease payments made to him from the business become taxable income. Is this correct? Also, what expenses will the company have? and what expenses will he have to offset the lease income?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
Can you specify how the company is structured fro tax purposes?
Is that an LLC? C-corporation, S-corporation? Other?

Customer:

The company is an S corporation

LEV :

So - I assume that your client is an employee of the S-corporation. If so - the S-corporation may provide reimbursement for business use of the car. If such reimbursements are made under accountable reimbursement plan - that will not be taxable income for your client - and will be deductible business expenses for the S-corporation.

Customer:

My client is an employee and only shareholder. So would a portion of the car payment be considered an expense, and insurance?

LEV :

As long as the car is used for business purposes - the business portion would be deductible business expense.
You may choose - either deduct using standard mileage rate or actual expenses - whatever is more beneficial.

Customer:

Ok thank you

LEV :

Again - I assume your client is an employee of the S-corporation. The fact that he is also a shareholder is not relevant for reimbursement purposes and for deduction purposes..

LEV :

See for reference IRS publication 463 - www.irs.gov/pub/irs-pdf/p463.pdf‎
To be an accountable plan, your employer's reimbursement or allowance arrangement must include all of the following rules.


1.Your expenses must have a business connection — that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer.


2.You must adequately account to your employer for these expenses within a reasonable period of time.


3.You must return any excess reimbursement or allowance within a reasonable period of time.
Also -


Revenue Rule 2012-25 clarifies that an arrangement that recharacterizes taxable wages as nontaxable reimbursements or allowances does not satisfy the business connection requirement of the accountable plan rules under § 62(c) and the applicable regulations. The ruling includes three examples of programs that do not satisfy the business connection requirement of the accountable plan rules because they impermissibly recharacterize wages. It also includes an example in which the reimbursement arrangement satisfies the business connection requirement of the accountable plan rules because the employer’s plan only reimburses employees when a deductible business expense has been incurred in connection with performing services for the employer and the reimbursement is not in lieu of wages that the employees would otherwise receive.
See for details - http://www.irs.gov/file_source/PUP/businesses/RR201225.pdf

Customer:

Thank you. I will look into it some more. It's always easier to just put the vehicle into the company name.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 23198
Experience: Taxes, Immigration, Labor Relations
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