@RobertB4444 wrote:
@rwaldenjr You can gift a car to a contractor or an employee but the IRS wants in. So be aware of that.
To start with - if your gift is more than $15,000 it's a non-starter. Anything over that amount counts as income to your contractor and they will pay taxes on it. The value of the gift you're giving is the fair market value at the time of transfer.
What you're doing by gifting this is transferring ownership and basis transfers. So the value you are receiving for the vehicle is zero loss, zero gain. There are no advantages or deductions to your company for doing this and the disadvantage is your assets drop by the value you transferred.
As long as the value of the vehicle is below 15K then you just transfer over the title and your contractor will have to take care of whatever transfer or title taxes are required in your area for a vehicle.
Now, IF YOU TAKE SECTION 179 DEPRECIATION for the vehicle prior to gifting it to your contractor you have to recapture that depreciation in order to give the gift. So if you take that depreciation deduction that you want because you bought the car in December then you are required to recapture that depreciation as income.
EVERYTHING of value that you give to a contractor in return for services is taxable income, there is no $15,000 threshold. The consequence to the contractor is that the fair market value of the vehicle must be included in what you report on their 1099-NEC, no matter what the value is.
In addition, the value of personal use by the contractor is ALSO part of their taxable compensation, unless it was de minimis. For example, if the vehicle is a transit van fitted out with plumbing tools and supplies, the fact that the contractor can take it home and occasionally use it for groceries or stops at the pub on the way home would be de minimis use. You need to include the value of personal use of your business vehicle on their 2021 1099-NEC form if it is not de minimis.
There is also an argument that could be made by an auditor, that if you were not requiring mileage receipts and so on, the entire value of the use of the vehicle must be reported as taxable compensation to the contractor, and then it would be up to the contractor to claim any mileage deduction on their own return. If you are allowing the contractor free use of the vehicle without adding the value on their taxes, and they are also claiming a mileage deduction, they are double-dipping.
The consequence to your business depends on how you listed the asset for depreciation at the beginning. You will report the vehicle as "sold" to the contractor for it's fair market value (the same amount you include on the contractor's 1099). This might or might not trigger a taxable recovery, based on the value, your cost, and the depreciation method used.
You may want to hire an accountant to help you avoid such complications in the future.
