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Ask Lane Your Own Question

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4063
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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If I own a vehicle that is paid off and my company wants to

Resolved Question:

If I own a vehicle that is paid off and my company wants to lease my car from me (for $500 a month) since I will be using it for business, do I have to pay taxes on the lease amount that my company gives me every month?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Lane :

Hi,

Lane :

You're an employee of this company?

Customer:

I just became an employee of the company - yes - I am a salary employee

Lane :

get's knd of convoluted.... but you SHOULD report thia as income, but then if they are not going to reimburse you for the expenses of USING the car, you can use for 2106, to deduct the costs of using the car ( again, those that you have to pay yourself and are not reimbursed for)

Lane :

IRS will say it's income

Lane :

but anything out of pocket for you that's not reimbursed you can add to your 1040 as a 2106 item

Customer:

so if I am leasing my car to them but they own it at the end of the lease, then why do I have to pay taxes on the $500/month if I already paid taxes on the vehicle when I purchased it?

Customer:

By them leasing to own the vehicle, they will cover all expenses on the vehicle - give me a gas card and pay for insurance on the vehicle plus cover any expenses in the future on the vehicle.

Lane :

A lease is income, a purchase of a personal use Item is a different story .. you should ask them how they are actually handling the contract

Lane :

If they are reimbursing everything ... ahhh wait... Is your company a c_corporation?

Lane :

If so then they're doing this as a non-taxable fringe benefit (use of a company car)

Customer:

The company is a corporation -

Customer:

They want to be able to write off the $500/month as a lease but yet pay me for my vehicle. What does that mean - non-taxable fringe benefit (use of a company car)?

Lane :

IF they are a C-Corporation (as opposed to an S-Corp) there there is a fringe benefit available that lets this be a non-taxable item to you

Lane :

It's just one of the tax incentives of C-corps

Customer:

how do I find out if they are a c-corp versus a s-corp? This is a contractor (construction company)

Lane :

I can get you some documentation ... but again, it's one of the reasons (the plan to do those kinds of things) that one would incorporate as a C-Corp, as opposed to an S-Corp, lLLC or p[artnership

Lane :

They can tell you,,, andy of the accountants, owners, etc

Customer:

ok - so what should I do. Should I lease my vehicle to them or make them provide me with a company vehicle? Which way would be better for me?

Lane :

As long as they are actually buying the car (again you'll want to ask them if they're handling this as a purchase) then either way works, neither is taxable to you

Lane :

From the articl I linked for you:

Lane :

A C corporation is a company that is legally viewed as an entity distinct from its members, allowing the company to be taxed instead of those who run it. One advantage of C corporations is that members and employees can receive fringe benefits. Many benefits are tax deductible for the corporation, creating an incentive to offer fringe benefits.

Lane :

then a little later down the page:

Lane :

Transportation



Company-owned cars or other vehicles are sometimes offered as a fringe benefit by C corporations, though this benefit is often reserved for management or other high-level employees. In cities where public transportation is common, corporations may also offer public transportation vouchers or other transport passes.


Customer:

after reading that - yes, I would say that is a c-corp fringe benefit for sure. They are also paying for my entire families health insurance/dental insurance 100%. So if this is the case, would it be better for me to have them lease my vehicle from me, or should I have them lease me a vehicle and sell mine?

Lane :

financially? Sell yours there's no tax either way, and you keep the money from the sale of yours

Lane :

honestly, it;'s probably about a wash as I think about it AS LONG AS they are handling the lease of your car as a fringe benefit

Lane :

you'll want to compare the present value of the lease to what you can get out of your car

Customer:

Ok, so if my company is willing to lease my vehicle for 2 years at $500/month which would equal to $12,000 and I could only sell my car for $9000, you would still sell it and have them lease me a car?

Lane :

Yep, with that much difference that's one's pretty clear (as it gets close you might want to add in what return you could get on your money if you sold it pretty quickly and could invest that money somewhere)

Lane :

If you don't think they'll shoot straight with you about this being handled as a purchase contract? (where ther's could be sme chance that you could be taed) I'd definitely add weight to selling your car

Lane :

(sorry for the typos) "where there's some change that this would not qualify as a non-taxable fringe benefit to you) then selling the car becomes much more attractive

Lane :

make sense?

Customer:

I still don't quite understand. So if I set up a lease agreement for $500/month and then they owned the vehicle at the end of the lease, does the company get a 100% tax deduction. If this is the case, do I have to pay taxes on that $500/month?

Lane :

Again it completely depends on whether the contract they have with you is being treated as a deferred purchase contract or an actual lease (a lease ... a pure lease where you keep the car ... would be taxable to you) But there's a way that they can handle the paperwork where this can be considered a non-taxable fringe benefit to you..... you need to ask them that question ... believe me they will know whether this is being provided as a fringe benefit or not .... my guess is that it is (because of the buyout t the end of the lease)

Lane :

If you use the car for company use only it will not be taxable

Lane :

Let me look up the actual reg for you

Customer:

Ok, so if it's a fringe benefit, then they get the tax benefit and I don't have to pay taxes on it?

Lane :

That's exactly right

Lane :

What it really comes down to is whether you use it for MORE than regular business use ... there are taxable fringe benefits and non-taxable ... (just found the reg) As long as you use it only for business you do not pay tax and they get the tax write off

Customer:

It is also my personal vehicle, so it wouldn't be just for business

Customer:

So if that's the case, am I better off selling my vehicle and having them provide me a company vehicle?

Lane :

Ahhh, there it is....

Lane :

YES

Lane :

Sorry it took is so long to get there

Customer:

Ok - thank you!

Lane :

See this:

Lane :

Business vs. Personal Use



Using a company car for business purposes is not considered a taxable fringe benefit, while personal use is a taxable fringe benefit


Lane :

You're welcome

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4063
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 2 other Tax Specialists are ready to help you

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