Business & farm

A vehicle used for business may be owned by the corporation or by an employee (even a shareholder-employee). The method of claiming the deduction will differ depending on the ownership of the vehicle.

Vehicle owned by the employee

If the employee (or 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.

For tax years prior to 2018, if the employee is not reimbursed for business travel expenses, the employee,

• Claims an unreimbursed employee business expense deduction as a miscellaneous itemized deduction on Schedule A of Form 1040.
• Can use the actual expenses or standard mileage method to calculate the deductible amount.

Beginning in 2018, unreimbursed employee expenses are no longer deductible.

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 a compensation expense.
• The employee's income for the 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.

Business Use of Vehicles  - This link has more information on this topic and also has links to Section 179 and bonus depreciation methods as well as the tax implications of these different options.