1120 form

[cobra1965]

Can I deduct car mileages on 1120 form?

[tagteam · Accepted solution]

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.

[Opus 17 · Accepted solution]

The above is a very good answer.  I just want to add/clarify a couple of points.

For an employee-owned vehicle, the corporation can reimburse the employee for business use of a personal vehicle.  The reimbursement is always a business expense for the corporation, but it is only tax-free to the employee if the business has an accountable expense plan.  This is explained in chapter 4 of publication 463.  https://www.irs.gov/pub/irs-pdf/p463.pdf. 

If the business does not have an accountable plan, then the employee reimbursement is considered a form of wages and must be included as taxable wages on the employee's W-2 and is subject to employment tax and income tax withholding.  

For a company-owned vehicle, the company can deduct ordinary and necessary business use.  However, if the employee is allowed to take the company vehicle home and use it for personal use also, the value of that personal use must be included in the employee's W-2 taxable income.  There are a couple of ways to calculate this.  (And there is an exception if the vehicle is so distinctive and specialized that it can't reasonably used for personal use.  For example, a school bus driver who drives the bus home so they will have it first thing in the morning, will not be taxed on personal use even if they stop at the grocery store on the way home once in a while.)