Can I write off the lease payments of a business car if I leased it under my name (not partnership’s), and pay for it with the business CC?

[EthanH]

I am paying the monthly payments with the business, and will only deduct the business percentage use portion (for example 90% of the lease payments)

[Carl]

My screen shows you're using the Home & Business version, which can not be used to file a 1065 partnership return.
If you paid with the business CC then the business gets to write it off. Since you have 10% non-business use that the business paid for, that would mean the business compensated you by making 10% of those payments on your behalf for your personal use. That 10% would be taxable income to you, and should be included on  your K-1 in box 1 or box 11.
@TaxGuyBill feel free to jump in. 🙂

[Opus 17]

I agree that if the business pays for the car, the business writes off the expense.  The taxpayer can't write off ANY expenses unless the entire amount is reported as taxable income on their K-1.  And if the car is only used 90% for business but the taxpayer gets 100% of the expenses covered, then the other 10% is taxable income.

[Carl]

To reinterate "the other 10% is taxable income *to the benefiting partner*" So there is no deduction here on the partner's personal return. In fact, it's exactly the opposite and is reported as taxable compensation by the business, that was paid to the partner. The fact the partner used it to pay for 10% of the cost for their personal use is irrelevant, and is not tax deductible on that partner's personal return.

[EthanH]

Thanks for the replies folks!
I read on articles related to Section 179 that the car's title needs to be under the business name in order to write off lease payments.
And wanted to make sure I can still do it while having my name on the title/lease contract instead of the LLC's.

[EthanH]

I may be a little confused about terms of writing it off "personally" or with the business.
To put it in other ways, can I deduct those lease payments as business expenses (the business use portion), while the car is under my name, and paid by the business CC?

[Carl]

Is this for a 2017 tax return? Or are you inquiring for 2018 taxes which you will complete next year?

[Carl]

Those expenses are considered to have been paid by the business "on your behalf". So everything paid by the business concerning the vehicle that is in your name, is reported by the business as paid to you. It's included in your owner's draw. Now weather or not you can claim those expenses on your personal tax return under "job related expenses" depends on what tax year we're talking about here.

[Opus 17]

Starting with 2018, you can't deduct work-related car expenses on your personal tax return unless you have a schedule C business.

Generally speaking, if you lease the car, you can't deduct work-related use starting in 2018.  The partnership can reimburse you, but it would be considered part of your taxable income (your draw).

Or, the partnership can lease the car.  In that case, any business use is a deduction for the partnership.  Any personal use is part of your compensation.  So if you drive a "company" leased car 90% for work, the partnership deducts 90% of the car cost as a car expense, and the other 10% is reported as part of your taxable compensation (which is another deduction of course).  The 10% personal use represents taxable income to you and you can't deduct any expenses against that 10% income.

[EthanH]

Carl> Yes it is for 2018

[Opus 17]

I made a big mistake above.

I said "Generally speaking, if you lease the car, you can't deduct work-related use starting in 2018.  The partnership can reimburse you, but it would be considered part of your taxable income (your draw)."

This is not the only option.

If you own or lease the car in YOUR name, there are 3 ways the partnership could reimburse you.  All of these are deductible expenses to the partnership.

1. Non-accountable expense plan.  The partnership simply pays you for the use of your car without requiring proof, documentation or receipts.  This is gross taxable income to you, and deductible by the partnership as part of your salary (draw).  And as of 2018, you can't deduct the expenses on your tax return as an itemized deduction.

2. Accountable expense plan using the standard mileage rate.  The partnership reimburses you for business use of the car at the standard rate of 54.5 cents per mile.  You must keep a mileage log, diary or app that shows the date, business purpose, and mileage of each trip, and you must submit this as proof to the partnership on a "timely" basis to support your payments.  The partnership can pay you in advance but you must "true up" the mileage at the end of the year and return any excess.  In this case, the reimbursement is not taxable to you.

3. Accountable expense plan using the actual expense method.  The partnership reimburses you for your actual business use expenses.  You must keep the same mileage diary, plus you record ALL your expenses for the year (gas, maintenance, insurance, depreciation, lease payments, repairs) and you record your total miles drive for business + personal use.  At the end of the year, you figure your percentage of business miles, and you get reimbursed for that percentage of your total proven expenses.  Again, the partnership can reimburse you in advance but you must "true up" the expenses at the end of the year and return any excess.  In this case, the reimbursement is not taxable to you.  The standard mileage method is more lucrative for most people and has less paperwork burden.

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Or as mentioned, option #4 is for the partnership to lease the vehicle in its name, and you can pay for gas and repairs with the company credit card too.   In this case, you should also keep a mileage diary of work and personal miles.  At the end of the year, you figure your true percentage of personal use.  The percentage of total car costs that are business use are deductible by the partnership as a work expense.  The percentage of car costs that are for personal use are deductible to the partnership as part of your salary, and are included on your K-1 as part of your gross taxable income.

I really couldn't tell which will be overall best for the partnership or you, except that #1 is the worst (highest total tax for you).

[EthanH]

Thank Opus for this detailed response.
It looks like Option #3 might be better for me, as this car has rather high expenses.
However, is it possible to have the business directly pay for the monthly lease payments, instead of having me personally pay, and get reimbursed monthly/yearly by the business?
 
Anyone could also elaborate of the deduction/depreciation of the drive off fees (I paid with the business CC) at the time of signing. Is it fully deductible, or depreciable over the length of the lease?
They include:
-DMV, registration fees
-Sales taxes
-Bank Fee
-First month of payment

[Opus 17]

The business can make the lease payments in advance, or pay you in advance with you paying the lender, BUT you have to keep track, and you have to "true up" or reconcile your expenses at least once at the end of the year (on or before December 31).  (It might be helpful to reconcile semi-annually or quarterly, but annually is a minimum.)

For example, the business pays the entire lease cost of $600 per month, and you pay all other costs.  At the end of year, you used the car 85% for business.  Your others costs (for gas and oil changes) were $1500.  You owe the partnership back $1,080 (15% of the lease payments) and the partnership owes you $1,275 (85% of gas and oil changes) for a net reimbursement to you of $195.

Make sure you keep really good records.

DMV and registration fees are not deductible by the business if you lease the car in your name, and not reimbursable as a business expense under an accountable plan.  That's just a personal expense to you.  The partnership could cover the expenses but that would be treated as part of your taxable wages or draw from the partnership (and deductible to the partnership as wages).

Other lease costs (down payment, bank fees, sales tax) are amortized over the life of the lease.  First month payment would just be the first month payment, and would be one of your expenses for the year, unless it is really a downpayment in disguise.


Additionally, you have to adjust your lease amount by something called an "inclusion amount."  See publication 463 here <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p463.pdf">https://www.irs.gov/pub/irs-pdf/p463.pdf</a>

You may also have taxable income (depreciation recovery) when you dispose of the vehicle.  See publication 463 also.

If you really want to use the actual expense method, you may want to have an accountant advise you.

Basically, you need to be able to calculate and determine your costs per publication 463 chapter 4, as if you were going to deduct the expenses, even though the personal deduction is eliminated.  The same rules that determine the deductible amount for the personal deduction also determine the amount the partnership can reimburse you without including it in your taxable income.

Also note, although we have not discussed it, your business can reimburse you tax-free for tolls and parking fees that are work-related, regardless of whether you use the standard mileage rate or exact expense method.  If you use a company-provided electronic toll device (E-Z Pass, Fast Pass, etc.) you must reimburse the company for personal trips, or report tolls from personal trips that were paid for by the company as part of your wages/salary.

[EthanH]

Thanks Opus for the insightful advice.
I just talked to the dealership/financial service, and I can transfer the lease (add the business as the primary lessee, me as the secondary) to my business, for a fee of $100 + $350 processing.

Will this make things easier, knowing that I do keep clear and detailed records of every trips, expenses, mileage log? Or should I keep the lease structured as is, and use the reimbursement (or business pays in advance) method you described earlier?
I do want to have the business pay for all expenses though.

[Opus 17]

One way or the other, you have to pay for your own personal use of the vehicle.  

My guess*** is that the better method is to have the lease in the business's name, the business makes the lease payments, and furthermore pays for gas and repairs with the business credit card.  Then at the end of the year, figure out your business and personal mileage, and add the value of your personal use to your K-1 statement as taxable wages.  That way, the business deducts 100% of the vehicle cost, and you pay tax on the value of your personal use, which essentially means you get personal use of the vehicle at roughly 1/3 it's actual value.  It's less paperwork than an accountable plan.

***However, I am not a professional tax advisor and random internet advice is worth what you pay for it.  You may want a professional opinion.