# If you own an S-Corp and Rent Vehicles... do renters deduct mileage while you do actual?



## Nuber driver (Oct 7, 2015)

I've seen a lot of threads about people renting cars where the owner pays all the maintenance and even the commercial insurance. Some of them have the weekly renter pay gas, and car washes, but some even cover those expenses as well, meaning only the weekly rent is due.

Regardless of whether or not that is a good deal, tax wise, can the owner and renter deduct differently for auto expenses on this set up?

I would imagine that the owner is using the actual cost method (usually required to if owner is a corp), keeping track of all maintenance and counting that against rental income.

Does the renter still get to deduct the standard mileage rate even though the driver isn't paying for maintenance or depreciation (directly)?

I would think that the owner could do actual expenses while the driver/renter could do mileage, but I wonder if it matters whether or not the drivers don't have ALL the expenses associated.

I would like to open an S corp or C-corp to buy a car and rent to myself, and am trying to figure out how much I can have the corporation cover (with actual expense deductions) and still be able to rent the car and deduct using the mileage discount for myself as a driver.

Ideally I would have the corp pay gas, maintenance, repairs, car washes, car note, etc. and charge a rent that provides for a profit (so that the business is legitimate and to set the framework for expanding to other people driving other than me). 

Then, as an employee of my S corp or C corp, I would deduct based on standard mileage since I am still paying a fair rent--probably 1200 a month, so would need to drive at least 2400 miles for this to be more beneficial than just deducting the actual expense of the car rent. However, if I drove closer to 5000 miles a month that would allow me to shelter some income just like all the Prius drivers (who spend far less than 57 cents a mile in upkeep).

I'm positive that I could buy the car myself and get actual cost reimbursements from the Corp, or get .575 per mile reimbursement from the corp tax free, except that actual expenses wouldn't be sufficient to cover all the depreciation in the car (Cadillac XTS) and neither would the mileage reimbursement, but if I structured it the way above than I would at least come close to covering the actual expenses (even doing this tax maneuvering I still don't cover the actual expenses because of the damn cap on depreciation for "luxury" vehicles). 

Does anyone who owns a fleet or rents from one know if the renters are able to use the mileage method while the owner deducts actual expenses?

And yes I know, this comes out to deducting twice for the same vehicle, but it also produces income twice for the same vehicle, so I'm positive that both parties using the actual expenses method is above-board, I'm just not sure on having one use actual expenses and one use standard mileage, especially when it is a closely held corp.

Any business owners out there that can help?


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## makinthemagic (Oct 8, 2015)

Only the vehicle owner can claim the mileage costs. Whether they use the per mile flat rate or actual expenses is an accounting decision for them to make. Your idea to double up on the deduction will not work.


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## Nuber driver (Oct 7, 2015)

So you're saying that when other people lease a vehicle from those guys who offer weekly rates, they aren't allowed to deduct mileage? I was pretty sure you could deduct mileage when leasing, even if only week-to-week. 

But if thats the case then I guess I'll just buy the car under my name and have the corp. reimburse me for business mileage, then have the corp take the majority of fares in return for a guaranteed wage. 

If the corp reimburses me for business mileage, can I still have the corp pay for commercial insurance and TCP licensing to deduct that as a business expense without having to include that as income as the employee side?


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## makinthemagic (Oct 8, 2015)

Nuber driver said:


> So you're saying that when other people lease a vehicle from those guys who offer weekly rates, they aren't allowed to deduct mileage? I was pretty sure you could deduct mileage when leasing, even if only week-to-week.
> 
> But if thats the case then I guess I'll just buy the car under my name and have the corp. reimburse me for business mileage, then have the corp take the majority of fares in return for a guaranteed wage.
> 
> If the corp reimburses me for business mileage, can I still have the corp pay for commercial insurance and TCP licensing to deduct that as a business expense without having to include that as income as the employee side?


Yes, exactly. When you lease the vehicle you can deduct the lease payment but you don't get to deduct mileage. You can deduct the cost of any fuel you put into the vehicle.


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## StarzykCPA (Aug 6, 2015)

Nuber driver said:


> So you're saying that when other people lease a vehicle from those guys who offer weekly rates, they aren't allowed to deduct mileage? I was pretty sure you could deduct mileage when leasing, even if only week-to-week.
> 
> But if thats the case then I guess I'll just buy the car under my name and have the corp. reimburse me for business mileage, then have the corp take the majority of fares in return for a guaranteed wage.
> 
> If the corp reimburses me for business mileage, can I still have the corp pay for commercial insurance and TCP licensing to deduct that as a business expense without having to include that as income as the employee side?





makinthemagic said:


> Yes, exactly. When you lease the vehicle you can deduct the lease payment but you don't get to deduct mileage. You can deduct the cost of any fuel you put into the vehicle.


Agreed. The difference here is with renting vs owning/operating a vehicle.


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## observer (Dec 11, 2014)

makinthemagic said:


> Yes, exactly. When you lease the vehicle you can deduct the lease payment but you don't get to deduct mileage. You can deduct the cost of any fuel you put into the vehicle.





StarzykCPA said:


> Agreed. The difference here is with renting vs owning/operating a vehicle.


From what I have read, incorporating yourself as a sole driver offers no protection for liability.

So, what are the tax benefits of incorporating?

Do they outweigh the costs of incorporation?


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## Nuber driver (Oct 7, 2015)

The tax benefits get much bigger the more money you make. 

I would say that earning any less $40,000 in fares for the year would be unlikely to save you any money and would end up costing a lot of time. Whether or not you benefit may also depend on your state, for example California charges a 1.5% tax on S corps income (minimum $800). 

Take as an example if your total annual fares was $100,000 after Uber commissions and Safe Ride fees (this would almost certainly mean you are Uberblack or Uberlux) and you drove 50,000 business miles.

SOLE PROPRIETOR
If you do the normal sole proprietor route you use your mileage deduction and get $28,750 as a standard mileage deduction. You also deduct car washes and bottled water for the year, as well as the BUSINESS PERCENTAGE USE of interest on your auto loan (car note interest is in addition to mileage). Lets say all this came out to another $1,250 totaling $30,000 in deductible business expenses. The first 2% of your AGI is not deductible, so you can only get $28,000 of this deducted, the other 2,000 is lost.

Lets also say you spent $5,000 for the year for your own medical insurance and another $5,000 for medical expenses beyond your insurance premiums for things like co-pays, medications, vitamins, medical equipment, deductible, etc. 

As a sole proprietor you get to deduct the $5,000 for premiums, but the other $5,000 in medical expenses you cannot deduct because it does not exceed 10% of your AGI.

You can set up a solo 401k plan for retirement purposes and set aside ~$18,000 tax DEFERRED with this (or pay taxes if you do a ROTH version).

In this scenario you have ~$49,000 taxable income. From this you pay 15.3% SE tax or 7,497. BUT You also pay $2,754 SE on the 401k payments, this is not exempt from SE/FICA taxes, only income taxes. Total SE tax of $10,251.

You do NOT get the standard deduction, only the personal exemption, because you itemized your own taxes. Your personal exemption is $4,000. Your final taxable income is $45,000.

In addition to the 10,251 in SE tax you paid, you will have to pay 5,156.25 on the first $37,450 of taxable income, and 25% tax on the remainder (congratulations, you are in the 28% tax bracket which along with SE tax means the 43.3% tax bracket). The remainder at 28% is $2114. Total income tax is $7,043.75.

Total Taxes are $17,491.25 plus you had to spend $18,000 on your 401k that you cant touch until you are 59 1/2.

S - Corp

Same as above except now you set up an accountable reimbursement plan.
You let you S corp take all Uber fares and any other fares and pay yourself a reasonable salary or hourly pay.

Under the accountable reimbursement plan you turn in your mileage log at regular intervals to your S-corp (yourself) for tax free reimbursements to you and fully tax deductible payments from your S-Corp. Here the S corp pays you $30,000 for vehicle reimbursements and deducts this completely from its income, you do not report it on your individual taxes. 

The S-corp pays your medical insurance premiums, it deducts this expense fully and you do not pay taxes on it. You also set up an HRA from which the S-corp can reimburse you for medical expenses not covered by your health insurance (you could also open an HSA or FSA depending on your insurance plan but there is a maximum yearly contribution). For simplicity sake all your medical expenses are deductible by the S-corp and not taxable to you. This part you will definitely need to consult a professional CPA to set up the wording of the plan so that it passes muster with the IRS.

The S-corp and you can fund a 401(k) plan and the S-corp can also contribute up to 25% of you salary to your 401(k) tax DEFERRED.

Lets say your reasonable salary is $12.00 per hour plus applicable overtime and you worked 50 hours a week. Lets say you worked 50 weeks and took a two week "vacation" to strike against Uber fares and no tipping policy, or instead went to Hawaii and enjoyed yourself, either way.

This comes out to $33,000 in wages. You pay $2,524.50 in FICA wages, your employer (your S corp) pays the other 2524.50 but is able to deduct this as an expense, just like your wages.

You pay $18,000 of your wages through payroll deduction into your 401K and your employer puts in $8,250. You still pay FICA/SE taxes on this amount... sorry.

In total your S corp deducts $30,000 for auto reimbursements, 10,000 in medical reimbursements and 35,534.50 in employee wages leaving plus 8250 for 401(k). This totals $83,784.50 in deductions leaving $16,215.50 in S-corp income that you pay as income tax but do not have to pay SE tax on.

Your income was $33,000 - $18,000 for retirement leaving $15,000 in potentially taxable income wages plus 16,215.50 in income from the S corp, totaling $31,215.50

You still get a Personal exemption of $4,000 and since the S corp paid all the business expenses you DID NOT itemize deductions, so you get the standard deduction of $6,300. Your taxable income is reduced to $20,915.50. You pay 922.50 on the first $9225 dollars of income and are in the 25% tax bracket for the remaining $11,690.50 or $2,922.63
Total income tax is $3,845.13

Total taxes paid are 8,894.13 for all federal taxes. (I'm not about to do this for state taxes as well).

BUT WAIT, you still have to pay 1.5% S corp tax in California (I believe on the 16,215.50 income) or a MINIMUM of $800. So add 800 and you've got $9694.13 in total taxes.

Compare this to the $17,491.25 in taxes as a Sole Proprietor. Also note that here you saved $26,250 for retirement that you cannot touch until you're 59 1/2 (several exceptions apply but that's beyond the answer here).

At first glance this looks like you saved $7,797.12 by filing as an S-corp, or just about the amount of extra money you put into retirement (so none of it is in your pocket today). But unfortunately this is not the end of the story, you still have to pay a CPA and possibly a tax attorney to set up some of this your first year and do your first tax return (highly highly highly suggested for at least the first year). You would probably pay around $2,500 to $4,000 in fees between the CPA and Tax attorney to get this all set up and file your tax returns the first year. In addition, you would have to do a few hours more of accounting each year to satisfy the accountable plans and HRA plans to get those deductions. Finally, this requires a whole lot of fiscal responsibility to set aside so much of your income to a 401(k) plan.

If you earn less than $100,000 in fares, I don't know how much this small amount of savings will be worth to you, but if you earn this much or more, it is probably worth it. Also, in the second year and thereafter, you really should be able to do your own taxes and save that money (don't forget to deduct this year's tax preparation on next year's taxes).

It is definitely a lot of extra work to run an S-corp but can save you a lot of money down the line, and really help you to save up for retirement.

Also, you will notice that while my post was REALLLY long, I still left out a lot of small additional tax loopholes and benefits that could help you out. Some include Cell phone deductions, some small office deductions (hard to justify unless you book fares outside of Uber), Cafeteria plan benefits to yourself, like paying for a bus pass for yourself, paying for half of your meals occasionally if you can justify it, sending yourself to conferences to learn about your trade (say a Chauffers or Limosine company conference in Hawaii). 

Get creative, but make sure to run it by a CPA. A lot of these deductions I found out about taking a law course in Business Taxes and even as an attorney (who does not practice Tax Law) I struggle to make sense of all of this. I did get an A- in my Business Tax Law course, but you should definitely consult a paid attorney or CPA who works SPECIFICALLY on these issues on a regular basis. I am totally open to the possibility that some of what I have said here may be mistaken (but I doubt it). As a fair warning, I have seen CPA's completely ignore some preferential tax treatment and poorly advise others to take deductions that are not allowed. If you do pay to have your taxes done, you may want to use a tax firm that provides insurance against a future claim of underpayment. I got my taxes done by H&R block once and paid for the "Peace of Mind" coverage. Two years later I found that they gave me a deduction I should not have received, H&R block ended up paying around $4,000 for that mistake, not me, was well worth the several hundred dollars I spent that year. 

Unfortunately, I think that places like H&R block have really pulled back on trying to find every tax advantage for customers because of this plan, and will often miss deductions you could have taken so as to avoid an audit if they are unsure. If you undertake something like this on... pay for a professional, and make sure you ask them about any deduction you have heard about that they have not included, preferably pay that extra amount for insurance against their mistakes.

* Edited to correct a tax bracket mistake on Sole proprietor (would be 28% rather than 25%).


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## observer (Dec 11, 2014)

Nuber driver said:


> The tax benefits get much bigger the more money you make.
> 
> I would say that earning any less $40,000 in fares for the year would be unlikely to save you any money and would end up costing a lot of time. Whether or not you benefit may also depend on your state, for example California charges a 1.5% tax on S corps income (minimum $800).
> 
> ...


Thanks, lengthy but interesting, I'll have to read it later when I have more time to digest it slower and in parts.


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## CowboyMC (Aug 26, 2014)

Nuber driver said:


> If you do the normal sole proprietor route you use your mileage deduction and get $28,750 as a standard mileage deduction. You also deduct car washes and bottled water for the year, as well as the BUSINESS PERCENTAGE USE of interest on your auto loan (car note interest is in addition to mileage). Lets say all this came out to another $1,250 totaling $30,000 in deductible business expenses. The first 2% of your AGI is not deductible, so you can only get $28,000 of this deducted, the other 2,000 is lost.


For a "normal sole proprietor" you take the expense on 1040 Schedule C. There is no 2% reduction.


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## UberTaxGeek (Nov 10, 2015)

Not correctly on everything. but theoretically the S Corporation do save on taxes if you have great gross income.


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## CowboyMC (Aug 26, 2014)

Nuber driver said:


> The tax benefits get much bigger the more money you make.
> 
> I would say that earning any less $40,000 in fares for the year would be unlikely to save you any money and would end up costing a lot of time. Whether or not you benefit may also depend on your state, for example California charges a 1.5% tax on S corps income (minimum $800).
> 
> Take as an example if your total annual fares was $100,000 after Uber commissions and Safe Ride fees (this would almost certainly mean you are Uberblack or Uberlux) and you drove 50,000 business miles...


Unfortunately you have made some mistakes in your analysis.
"The first 2% of your AGI is not deductible, so you can only get $28,000 of this deducted, the other 2,000 is lost." These expenses are taken on Schedule C and NOT subject to 2%.
"As a sole proprietor you get to deduct the $5,000 for premiums, but the other $5,000 in medical expenses you cannot deduct because it does not exceed 10% of your AGI." While this is correct, you can get around this by opening an HSA plan. Putting that $5,000 in it and then paying the medical expenses from that account. You will then be able to deduct the $5,000 on your tax return NOT subject to 2%. Anyone can set-up an HSA plan, if the medical plan is a high deductible one, which most are.
"You do NOT get the standard deduction, only the personal exemption, because you itemized your own taxes." In doing the above, you do not have to itemize, so you would still get the standard deduction. So it looks like the S-corp is not better, but worse.
Looks like UberTaxGeek is NO tax geek. I would change your name.


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