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Dear Tax Talk,
If an S corporation leases a vehicle for use by a shareholder, can the monthly expenses be deducted if the vehicle is driven to a fixed place of business (office)? I understand that you can’t deduct the cost of commuting to your regular place of work. Thank you. — Nasser
Dear Nasser,
Generally, an S corporation can deduct as a business expense the cost of a vehicle provided to an employee. The employee is taxed on the value of the vehicle provided, multiplied by the personal-use percentage. The value is considered additional wages to the employee on which income, but not FICA, taxes are due.
If the employee only uses the vehicle to commute from home to work, 100 percent of the value is includible in his wages. The table on page 20 of Internal Revenue Service Publication 15B, Employer’s Tax Guide to Fringe Benefits, shows the amount to be included in the employee’s W-2. The annual lease value table includes the amount paid for insurance and maintenance, but not fuel. Fuel is valued at 5.5 cents a mile or actual reimbursements and is includible in the employee’s W-2 also.
If the employee uses the vehicle for work purposes such as visiting clients, the amount included in the W-2 is reduced by the business use of the vehicle. The employee needs to report to the employer the amount of business use of the car so that the inclusion can be reduced accordingly.
Alternatively, if 100 percent of the value is included in the W-2, the employee can claim a deduction for the business use of the vehicle on his or her individual return.
Ask the adviser
To ask a question on Tax Talk, go to the “Ask the Experts” page and select “Taxes” as the topic. Read more Tax Talk columns.
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