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Can my corp pay a car allowance to a principle monthly and

Customer Question
take it as an expense...
Can my corp pay a car allowance to a principle monthly and take it as an expense. Is the car allowance taxable to the
person receiving it?
I am looking for the best outcome from a tax perspective. I bought a used suv and considered registering the vehicle to the corp but my bookkeeper said that a car allowance would be the best choice.
Submitted: 2 months ago.Category: Tax
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Answered in 6 minutes by:
9/8/2017
Tax Professional: Brian Michels, Certified Public Accountant (CPA) replied 2 months ago
Brian Michels
Brian Michels, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 162
Experience: Partner at Michels & Hanley CPAs, LLP
Verified

Hello. My name is ***** ***** I'll be the Expert assisting you today. I am a licensed CPA. I look forward to helping you with your issue today. A car allowance or mileage reimbursement can be taxable income for the employee depending on how the employer keeps track of it. With an accountable plan, companies don’t have to report these as pay. With a non-accountable plan, reimbursements are reported as taxable pay. What’s an accountable plan? It’s a plan where the reimbursement or allowance follows these requirements:

  • Has a business connection
  • Requires substantiation
  • It returns excess amounts in a reasonable time

The amount must be substantiated if challenged by the IRS. A mileage reimbursement will allow up to the Federal mileage rate for every mile driven on the car, which is currently 54 cents / mile. If the "allowance" can't be substantiated with supporting documentation such as business miles, business purpose the IRS can disallow it if challenged.

Please contact me if you have any questions.

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Customer reply replied 2 months ago
From a personal standpoint the allowance sounds great but is there a better tax advantage with the corp taking depreciation?
Customer reply replied 2 months ago
I am just looking for a generalization regarding depreciation
Tax Professional: Brian Michels, Certified Public Accountant (CPA) replied 2 months ago

If the vehicle is not in the companies name than its not an asset held by the business and can't be shown as an asset & depreciated. If you use the standard mileage rate than you can't deduct depreciation. If you depreciate the vehicle you can also deduct actual expenses for gas, oil, repairs, parking fees, tires, etc. Don't hesitate to reach out with any other questions. Keep in mind there may be limitations for depreciation on the vehicle.

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Brian Michels
Brian Michels
Brian Michels, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 162
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Experience: Partner at Michels & Hanley CPAs, LLP

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