Who should own your business car -- you or your corporation? The answer depends on several tax and non-tax factors. Here are some things to consider in making your choice:

Tax factors:
If the corporation owns the car, it can fully deduct car expenses, subject to dollar limits on depreciation, against its business income. If you, as an employee, own the car and use it for business, your expenses are deductible as a miscellaneous itemized deduction to the extent they exceed 2% of your adjusted gross income. And even this deduction may be further limited by the overall reduction in itemized deductions.

If you have the use of the company car, personal use is taxable compensation reported on your Form W-2. You can deduct any of your out-of-pocket unreimbursed car-related costs for the company car (for example, gas and oil that you pay for). But you cannot use the standard mileage rate (36¢ per mile in 2003) to account for these costs (you can only deduct your actual costs).

If the corporation reimburses you for business use of your own car, the reimbursement arrangement may be made on a tax-free basis by using an accountable plan. As long as you are required to adequately account for business use to the company and return any excess reimbursements, you need not report any of reimbursements for car costs. But you cannot deduct any car costs as an employee business expense - the corporation deducts its outlays to you. If the arrangement is not an accountable plan, then all reimbursements are reported as compensation to you. Then, on your personal return you can deduct your car expenses as a miscellaneous itemized deduction subject to the 2% floor.

Tax rules for business car expenses are explained in IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses, at www.irs.gov.

Non-tax factors:
For insurance purposes it may be preferable for the corporation to own the car. If the corporation owns more than one car it may obtain better insurance rates. If a corporate-owned car is involved in an accident, its rates for other cars generally are not affected. And your personal assets are protected in case of a law suit against the corporation arising from an accident.

The corporation can show the car as an asset on its balance sheet. If the corporation finances the purchase of the car, it may be able to command more favorable interest rates than you could if you bought the car yourself.

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