Have a Tax Question? Ask a Tax Expert
Hi my name is XXXXX XXXXX I will be helping you today with your tax question. You would have to transfer the title to the name of the business, basically sell the truck to the business and have the business take over the loan/lease. You will still be the one that is legally liable as far as the bank is concerned, but the truck will be titled to the business, you can then depreciate it if you own it or amortize the lease. If you do not want to sell it to yourself then you can just keep a mileage log and deduct the mileage you incur during your business. You get about 56 1/2 cents per mile
Would I have to put an amount and a bill of sale and pay taxes and all that or just do a corporate lease?
I don't have the title also as I am paying a loan for it through the bank
You could setup a lease where the company leases the truck from you and then deduct the cost of the lease.
So right now my payment is $399 a month I pay to the bank, I could set up a lease for $399 and have the company pay straight to the bank from a company check?
I would setup the lease, physically draft the paperwork and have the company pay you directly then you pay the bank from your account.
So it wouldnt be included as income for me then right?
Yes you would have to but you can deduct the cost of the vehicle
through depreciation on your personal return
Using a schedule C
I also suggest establishing a Dunns and Bradstreet number for your business so that you can begin to build credit, this way next time you can just purchase the vehicle in the name of the business which will be much easier
The Dunns and Bradstreet number will help you get what is equivalent to a business credit score
that sounds like too much trouble lol, without the title there is no way I can just transfer it to the company and let the company pay ythe note and take me out of the picture?
You can still sell it to the business, even though you have a lien on the title and therefore the bank is holding the title you can still transfer the title to your business and then the business will have the obligation. People sell vehicles all the time when they have a lien on them. The only difference is that the lien usually is paid off, but in this case it would just stay on the title. If the business pays the loan directly without you selling the truck to the busines sif you are ever audited the IRS may disallow the deduction because the business is not legally obligated to pay.
Therefore you will need to do a bill of sale to transfer the title to the business, and have the paperwork drafted to say that the business is legally liable to pay the loan. Make sure the paperwork is specific and gives payment due date, amount of the loan, interest rate, etc.
so i wouldnt have to pay any sales tax or anything for that? Also, where can I get a good template to do this?
There would be sales tax because you have to sell it at fair market value if you are going to be able to depreciate the cost under the business. Neither situation here is ideal, I would recommend just taking mileage for the use of the vehicle that is going to be the easiest way. If you drive 800 miles a month you will get back the $400 that you are paying for it.
That is going to be the easiest way, otherwise you will have to sell and pay sales tax or do the lease option and book it as income on your 1040
Yeah I dont do that much mleage but maybe half that, ok thats what I'll do, how do I find out exactly how much per mile I can expense and pay out to myself each month?
It is 56.5 cents per mile
ok thats what I'll do then, thanks for the help, do you answer other items via email etc?
If you pay yourself that amount each month you need to book it as a distribution to shareholder, the mileage rate is a deduction, so if you don't physically take the money each month that is okay, when you do the K1 on the 1120S it will lower your income by total mileage x 56.5 cents. Therefore it has the same affect as paying yourself directly.
I do not answer by email, but I am on here a lot and you can recommend me and I will answer your questions through this site, we are not allowed to exchange personal information unfortunately
so basically i should wait till end of year and just calim the total mileage?
Correct, you take it on the 1120S as a deduction, then on your K1 which you use to report the income on your return personally you will have less income because of that deduction, so it is like you are reimbursing yourself.
You can distribute the money to yourself each month, you just need to account for it through a shareholder distribution like any other time you withdraw money from the S Corp
When I started the business I reimbursed myself for some of the startup costs, wrote myself a check for those, so I couldnt do it like that then, right?
Yes its effectively the same thing, you pay tax on all the profit each year whether or not you take it out of the business, you just need to account for distributions because it affects your basis which comes into play when you sell the business or incur losses. For example, lets say you paid yourself back for all startup costs so the basis in the business is $0, but if you have $100,000 profit one year and only withdraw $50,000, you now have a $50,000 basis in the business. It is important to keep track of any contributions by shareholders or withdraws so that you always know what your basis is.
sounds like i need an accountant lol. I had $2400 worth of sartup expenses and training that I paid personally before I bought the business a month ago. I wrote myself a check for the whole amount to myself for that amount. I'll still have to claim that as income when tax time rolls around or not?
Yes you should hire an accountant or just a part time bookkeeper, or your other option is to take a course on how to use Quickbooks and get that. You need to keep track of this stuff all year long because if not, at the end of the year to have your taxes done the accountant is going to have to create everything by analyzing bank statements and receipts which is going to take forever and be very expensive, it is much better to have your accounting done at least each month. For your second question, no you do not have to claim the startup cost distribution as income. The way an S Corp works is every year, whatever the profits of the business are then that is what you claim as income whether or not you take the money out of the business. If you leave the money in the business it increases your basis because you already paid tax on that money personally. If you take more out of the business then you had profit, it will decrease your basis. An S Corp is a pass through entity, meaning it pays no tax, you pay tax on the net income personally on your 1040.
ok thanks, XXXXX XXXXX to look into quickbooks.
Okay they offer courses that are relatively cheap. You can also read up online and then ifyou have any questions come back here and I can work with you to point you in the right direction and clarify.
ok sounds good, I appreciate all the help.
Not a problem at all, thank you for the opportunity to assist you. I know this all can be tough when you first start out but you wil learn.