Employee use of Company Car for personal

[akgind]

We have a small business (S-corp) and our sales person has been using her own car for company work. She paid all expenses for the car and we reimbursed her 58c per mile.

Recently her car was totaled, so we have bought a new car fully paid by the company. She will obviously use it for personal use as well. Can we continue to pay her 58c per mile for business use, and she continue to pay for all running expenses including insurance? Do we deduct the depreciation of the car from the 58c per mile reimbursements? Would this pass muster with IRS?

[Critter]

First who owns this car ? What name is on the title ? Hers or the business ?

[Hal_Al · Accepted solution]

 Q. Would this pass muster with IRS?

A.  No, not without detailed accounting.

If the corporation allows personal use of the vehicle, it is required to impute a value for that use and report it as taxable income on her W-2.  To reimburse her for cost would also require detailed accounting (an accountable plan), separating business and personal percentage.  You cannot just pay her 58 cents a mile, without reporting that as income to her. Yes, you can claim depreciation on the car, but the personal use portion has to be adjusted for (somehow included in the imputed value).

[Critter]

My first issue was the statement that the business bought her a car and she will pay the insurance but the business wants to depreciate it ... this is not "kosher" ... so back to my original questions ... WHO owns the car ? 

[Anonymous]

assuming company owns car.

for 2019 i would only reimburse her $ .32 per business mile.  the reason being $.26 of the $ .58 standard mile rate is for depreciation.  since she doesn't own it you shouldn't be reimbursing her for it.   in addition, for the personal mileage you probably should be adding $ .26/ mile to her W-2.  the irs requires that employees pick up as compensation such personal use.  but since she's paying all cash expenses, i would only add the amount for depreciation.   this amount needs to be grossed up for social security and medicare.  

if you transferred title to her you have given her compensation = to what you paid for the vehicle which would need to be added to her W-2.   you can't depreciate what you don't own.     in addition any amount paid to her for her personal usage would also have to be added to her W-2    again gross up for social security and medicare are required. 

here's some business advice. if you own the vehicle, does the insurance shes carrying cover the company?     if not, tomorrow morning talk to your company's insurance agent and ask him/her if the company needs to have insurance to protect it if she's in a wreck while on company business.    I would be shocked if the agent said no and the agent would probably advise you to have insurance in case she lets her insurance lapse.     

[akgind]

Thanks folks for the questions. To clarify, the title is in my name, (the business owner). Only she will be the driver and the car will be parked at her place for the night. That is why insurance is in her name. She will declare part business use to the insurance company.

[Critter]

How can she have an insurance policy in HER name if SHE is not the OWNER of the vehicle ?   What insurance company would do that ?   This situation makes no sense ... if the car is owned by you personally then you have to take out insurance on the vehicle since you are the liable party.  It really should be in the businesses name  or her name if you give her the car in some way.  I highly suggest you seek local professional assistance to get this situation done properly  ... as it stands now if she has another wreck  YOU personally are on the hook for any damages and you are not insured  and I am sure you did not mean to do this. 

[Hal_Al]

It's been a few years ago, but I was once in a similar situation.  My liability insurance covered me, but my insurance co. would not cover damage to a car  I did not own.  I agree with Critter, you need review the details of this arrangement thoroughly. 

[akgind]

Interesting feedback. We had called the insurance company and they advised that the insurance goes with the driver, not the vehicle. Since I will not touch the car at all, insurance in my name will not cover any damage caused by another driver who has the car all the time. The policy needs to be in the driver's name - needs to be underwritten based on the driver's driving history. Will call the insurance company again.

[Critter]

If I was in an accident caused by your car my attorney would sue the OWNER of the car and the driver ... this situation needs improvement.