Is it possible for an auto used by the owner to use the mileage for her personal car when their is no car on the books of the S-Corp? Does she use 2106 on her person return or is there a way to put it on the S-Corp return?
I have found the best solution to these circumstances is for the corp. to reimburse the shareholder/employee under an accountable expense reimbursement plan using the standard mileage rate.
That makes Three of us the accountable plan would be justifiable and stand up
Isn't it too late to do for 2010? How should my client claim it for 2010? 2011 and forward I would agree with Larry.
There would be no deduction in 2010. The 2106 option would only benefit the shareholder/employee if they itemize in 2010; and, then the deduction would be subject to the 2% reduction of miscellaneous itemized deductions; and, they might be exposed to the AMT.
Larry,
Could the business expense not be recorded as an advance to the corporation by the shareholder, and get it into the proper year? Or a contribution to capital? If the corporation is cash basis it couldn't be accrued as an open account payable.
Scott
Isn't there a limitation for a shareholder, based on if the shares held are >10%, or maybe it is >2% owned?
I asked this of a "old school" CPA but he said the corporation can elect to pay the shareholder anyway.
I'd love some guidance on this.
Perhaps in the case of Wilhar's client, the S-Corp owner can now fill out an expense report for the months of 2010 when they used their car on S-Corp business, and can ask for reimbursement at the 2010 standard mileage rate. The corporation can pay them now, in March 2011, and it will become a 2011 expense of the corporation.
Hereafter, it would behoove the employee/shareholder to fill out timely (maybe monthly, maybe quarterly) reimbursement requests of the corporation, so that the corporation can reimburse in a timely manner as well.
Every time the government changes the mileage rate, I not only inform all my clients of what the new rates are (informing them about medical, moving and charitable, as well as business, miles) but I include an "employee business expense reimbursement request" Excel worksheet, with each tab for various years representing the applicable business rate.
Ok. here's the elephant in the room. Lacerte does have the ability to take unreimbursed expenses for the S corporation, including mileage, on the 1040. The IRS has won some cases rejecting the deduction of unreimbursed expenses. I'm not recommending, just telling you of the capabilities. You might want to do some research and see where your facts and circumstances take you.
I'm personally unaware of any circumstance in which that would be a winner for mileage. Which is why Lacerte produces the diagnostic you've paraphrased, essentially saying "You're doing it wrong."
Interest expense incurred to carry the investment in the S-corp is properly reportable as a Sch E pg 2 item. While I personally enter that in Screen 20 as an other non-passive item, and accompanying adjustment to basis, a Screen 30 entry would get you an arguably proper tax treatment (although a substandard presentation).
That's my take as well, that's why I didn't recommend it. My point was just unreimbursed expenses can be recorded in Lacerte, including mileage.
That is a good observation, that means we can force the software to report the information we want it to report. That's a good thing, the preparer makes the determination what is proper and what is not, but we rely on the software to do the calculations correctly once we enter the information. But, it doesn't mean that a line on Schedule E is an acceptable way to report the business mileage expense.
In a partnership setting, it could be done if the partnership agreement requires the partner to pay specified expenses. The same doesn't hold for S Corporations though as far as I know.
Scott
Rev. Rul. 71-36, 1971-1 C.B. 51 says pretty clearly: "...the sums advanced by him were expenses incurred in carrying on the business of the corporation, the business to which these expenses pertained was not the taxpayer's business, but that of the corporation. Accordingly, the advances made by the taxpayer are not deductible [on the shareholders return] in the years paid as ordinary and necessary business expenses under section 26 USC 162 of the Code."
Instead, the amount of the payment is treated as a loan by the shareholder to the corporation if the parties intended the payment to be treated as a loan and there is an obligation on the part of the corporation to make repayment. Edward Katzinger Co. v. Comr., 44 BTA 533, aff'd, 129 F.2d 74 (7th Cir. 1942).
Otherwise, the payment is treated as a capital contribution. In either case, the shareholder has made the economic outlay required to increase basis. See Rose v. Comr., No. 07-12245 (11th Cir. 4/24/08) (Remanded to Tax Court on question whether shareholder's payment of S corporation's debt had economic substance where shareholder satisfied corporation's debt by forgiving debt owed him by creditor of S corporation).
Footnote 16 in 336 U.S. 422 - National Carbide Corporation v. Commissioner of Internal Revenue says it again - and cites an article: Levy and Simonds, "Stockholder Advances to Corporations . . . Are They Loans or Capital Contributions?" 25 Taxes 127, 128, state that 'intention to lend and expectation of repayment are necessary to the existence of a valid debt.' The fact that no interest ran on these 'loans' is, of course, further indication that they are capital contributions. Berry Motor Car Co., 43 B.T.A. Memo. Op. 1209, Jan. 25, 1941.
(Disclosure: the first three paragraphs here were lifted nearly in their entirety from http://www.traderstatus.com/partnershipagreement.htm))
I hope this helps,
Scott
if the shareholder took any distributions during 2010 you could adjust distributions by the mileage reimbursement and consider it paid in 2010. However, this will only work if there is only one shareholder. Otherwise your distributions won't be the proper percentage.
