@beachbum420
I'm not following, so I think it would help to review the rules.
The business can reimburse members under an accountable plan, or a non-accountable plan. This is covered in IRS publication 463, but basically, an acceptable plan requires that the business keep reliable and timely records of the business expenses and only reimburse expenses that are adequately proven. (I'll discuss the records required in a minute.)
https://www.irs.gov/forms-pubs/about-publication-463
If the LLC does not have an accountable expense plan, all reimbursements are taxable income, no exceptions. The member may or may not be able to deduct them on their personal tax return.
If you have an accountable plan, expense reimbursements are non-taxable and are not reported on a W-2, 1099 or K-1, assuming you follow the rules and don't reimburse more than is allowed.
For vehicle expenses, you and the members have the option of using the standard mileage method or the actual expense method. With the standard mileage method, the member keeps a diary or logbook showing the date, time, business purpose of the trip, and the mileage driven. They can be reimbursed up to 64.5 cents per mile tax-free. The LLC is allowed to reimburse less, but if it reimburses more than the IRS rate, the difference is taxable income. The standard mileage rate includes allowances for fuel, insurance, maintenance, wear and tear, and repairs. The only thing not covered by the standard mileage rate is parking and tolls.
With the actual expense method, the member must keep track of all their vehicle mileage, and all their expenses (fuel, maintenance, insurance, repairs, and depreciation). They can be reimbursed on a percentage basis. For example, if 30% of their mileage is for business, they can be reimbursed tax-free for 30% of the total vehicle expenses that they can prove. Remember with an accountable plan, if the expense can't be proved, it can't be reimbursed tax-free.
What this means is that, if a member chooses the standard mileage rate, and provides the LLC with a mileage diary showing their business travel, the LLC can reimburse them tax-free. If the LLC also provides a gas credit card to buy gas, or if the LLC pays for repairs, that must be reported as taxable income, because it is more than allowed under the standard mileage rate. Or, suppose the member chooses the actual expense method, and submits a mileage diary that 30% of their car miles are for business. If the business direct pays 100% of the cost for a repair, or gives the member a gas credit card, etc., then 70% of the cost must be included in taxable income, because it is more than the amount of expense allowed under the accountable plan. And if the LLC does not ask for and keep the required proof, then all reimbursements AND all direct pays are considered taxable income to the member.
Key point: If you are paying directly for repairs on a car not owned by the LLC, and don't have an accountable plan, that is still taxable income to the member, employee or contractor and must be reported as such on their W-2, 1099 or K-1.
In general, it is usually better for the member's finances and taxes to be reimbursed tax-free under an accountable plan, but this does make more work for the LLC.
Hope this is clear.
