The answer to your question is dependent upon whether you or the corporation owns the car.
Vehicle owned by employee
If the employee (including a shareholder employee) uses their personal vehicle for business on behalf of the corporation:
- The employee can submit a request for reimbursement to the corporation.
- The corporation can then reimburse the employee based on the standard mileage rate.
- The corporation gets a deduction for vehicle expenses paid.
- The reimbursement is not reportable as taxable income to the employee.
Vehicle owned by the corporation
A corporation must determine the deduction for vehicles it owns based on actual operating expenses. The corporation is also limited by the business-use percentage of the vehicle.
The corporation can deduct all of the operating expenses of the vehicle without regard to the business-use percentage, if the personal-use percentage is treated as income to the employee.
- This is typically the case when you get the use of a company car as an employee benefit.
- The corporation's deduction for the personal-use percentage is treated as an employee compensation expense.
- The employee's income for personal use of a corporate vehicle is determined based on the market value of the vehicle, not on the actual or standard method used to determine the deduction of the cost to rent a vehicle, for example.
