By If your S or C corporation owns a vehicle that you also use personally, there are important tax rules you need to follow—and smart planning can help you save significantly.
Let’s say you use a corporate vehicle 80 percent for business and 20 percent for personal use. The IRS doesn’t allow “free” personal use. You either
- include the value as W-2 income, which increases your tax burden; or
- reimburse the corporation, which often results in lower taxes and no payroll tax implications.
Here’s why this matters: if structured correctly, your corporation can deduct 100 percent of the vehicle’s costs, including depreciation, fuel, insurance, and maintenance—even with some personal use. But there are conditions.
If business use falls below 50 percent, your corporation loses access to accelerated depreciation methods such as Section 179 and bonus depreciation and must use straight-line depreciation instead.
To value your personal use on vehicles that cost more than $61,200, your corporation must use either the IRS’s lease valuation table or a fair-market lease equivalent—plus the actual cost of fuel.
Failing to handle this properly—especially if you wait until after year-end—can create tax headaches, including amended W-2s or non-deductible dividends.
The good news? We can help you get this right. From computing personal use to setting up year-end reimbursements and ensuring full corporate deductions, we’ll make sure your vehicle is a tax asset—not a liability.
If you want to discuss your personal use of your corporation’s vehicle, please call me directly at 408-778-9651.