Many new business owners think one of the many perks of being a business owner is that they can have their business buy them a new car for business and personal use.
TERRIBLE IDEA!
The IRS rule is simple, the business owner must include in his income the value of his/her personal use of the car. In other words, that value needs to be calculated and included in the business owners W2!
Due to ignorance and the hassle of doing so, almost no small business owner does this, at least that we have seen. So those business owners are subject to IRS audit adjustments and penalties and interest. If asked, most small business owners would say. ‘I really only use the car for business,so there is no personal use anyways.’ But if you ask a follow-up question, ‘How do you get from home to work?’ the response would be ‘I drive the car.’
BINGO, commuting is personal use not business use, so you now have unreported income!
Best to buy your car personally and keep track of business miles using some kind of smart phone app.
Take the 55 cents/mile deduction and don’t be greedy.
11/18/2019
By: Gary Grottke, CPA, Quality Back Office LLC
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