Personal vehicle used for business - S Corp

[patmag]

Hello. I am filing S Corp and personal tax return myself this year. Me and my spouse are both shareholders. We run an office in home. We have two cars titled and registered as personal (not business), one car is mainly used for business related trips (over 90%). It was financed until mid 2019 when we paid it off, the loan was under our names, not the company. 

I am not sure what to select under Business Info -> About Your Business in Vehicle Expenses

1. Company X owned or bought vehicles for the business during the year.
2. Company X reimbursed shareholders for use of their personal vehicles.
3. Company X leased a vehicle for the business during the year.

Under these answers, there is a note saying

"Corporations can't deduct the expense of personal vehicles used for business unless a reimbursement plan exists. Individuals using their personal vehicles for business may be able to deduct vehicle expenses on their personal returns."

What should I select in this case? 

Should I add vehicle deductions such as payments, insurance, fuel on 1120S or should I do it on personal return?

On my previous tax returns this car was listed as "Auto and truck expenses" on US 1120s form and on Form 4562. Schedule L on form 1120S was left blank. 

[ThomasM125 · Accepted solution]

I don't know of any way of entering the un-reimbursed expenses of an S corporation owner on your personal tax return.

You once were able to do that as employee business expenses, but that was outlawed in 2018. A partner in a partnership can enter the expenses on schedule E, but it is different for an S corporation shareholder.

So, you would have to choose option 2, since the corporation did not own the vehicle. By "reimbursement plan" what is meant is that you have to document the business use of the vehicle. 

So, you should report the vehicle expenses on the corporate tax return, but make sure you have documentation to support the business miles driven. 

[patmag]

Thank you very much.

I would appreciate if you could help me with one more business related question.

I am at Deductions - Business Asset Summary (Form 4562). I has a vehicle listed as an asset with 100% business usage. I used the car more like 80-90% for business related trips, but I want to add it as 70%. If I change the percentage, it changes all numbers for previous years (Depreciation and AMT). 

How should I do it?

Also, the recovery period is 5 years but I fully paid off the car in 2019. Should I still leave it as 5 years?

[ThomasM125 · Accepted solution]

You shouldn't claim a higher percentage of business use than what is actual, so it would be better to change it than leave it at 100%.

The payoff period of time has nothing to do with depreciation, so the recovery period of 5 years is correct.

[patmag]

The car was purchased for $11833 on 03/2017. So for example, my 2018 asset details are Current Depreciation $3787, Current AMT $3017 and for 2017 it was Depreciation $2367 and AMT $1775.

But when I change the percentage to 70% it changes prior amounts as well. Should I then move to the next step and select the option saying that the numbers do not match my records and then type in the amount of all prior years depreciation as $6154 (2017+2018 depreciation numbers)

If I do that, it would bring my current depreciation down to $852. With 100% it would be $1775 .