Corporate taxes: deducting for business mileage and reimbursing yourself

[graceshan]

My husband and I have a small LLC that's being taxed as an S-Corp (web development business). We are 50/50 members. We give him all the paychecks (to keep it clean and easy--and since I have another job) and we split any dividends between us. For the past several years our accountant would take our business mileage driven and but it on Part V (listed property) of 4562 (depreciation and amortization) and under Section B - Information on Use of Vehicles. Then the deductible amount was then placed on Form 1120S under "Other Deductions" as automobile and truck expense. Our accountant then told us that we could write a check to reimburse ourselves for that mileage. We did this every year from 2008-2012.

Now this year we have a new accountant who is telling us that we cannot both deduct business mileage and reimburse ourselves for it--that we would be double dipping.

I've exhausted the web for info about this and cannot find any conclusive answers. I tried to ask my old accountant and basically he said I'd have to hire him to get his opinion.

So I ask my humble forum participants... what do you think? I don't want to break any tax rules!

Thanks for any help or guidance you can provide.
Sincerely yours,
Grace

[graceshan]

In case anyone is reading, I thought I'd update. Now the accountant tells me it's fine to reimburse (after causing me 2 days of stress) but reimbursing in 2014 for mileage taken in 2013 causes problems with QB since we are on a cash basis. Our past accountant had no problem with it. This new one apparently does. She says everything in QB must equal the tax return. I think there has to be some allowance for reimbursing expenses after Dec. 31 of the year they were used/purchased. Can't I just put a note in QB and if we got audited, that would explain what's going on? It's like QB is the IRS or something, but it's just an accounting program. Does it sound like I'm being too lax about this? I'd love to know what others do... thanks for your time!
Grace

[Freelancier]

So I went back to my own tax returns and checked.

I have mileage listed under 1120S and broken out onto a separate worksheet explaining the total. Looking at all the items in the list, those were all things I reimbursed myself for (like computer software, that kind of thing, along with mileage). And indeed those came off the total income.

So that makes sense: you have an expense, the company pays you back for it (which makes it an expense in QB and a deduction on your tax return).

So to your question: what you don't want to do is to create a situation where you're writing yourself an expense check this year for something that will break your past tax return. You see that, right? When you enter the expense in QB post 12/31, you're putting the expense on THIS YEAR's tax return, but you claimed the deduction last year. So what you would have to do if you really wanted that money was to date the check 12/31/2013. But then that gets your checks out of order, so that could raise a question later in an audit.

Note: IANAA! Check to see if you can do this with your accountant. But that's how I'd probably end up handling it with my accountant's blessing.

[Business Attorney]

Your second accountant is right. You and your LLC are two separate entities. If the LLC is on a cash basis, it should only be deducting amounts PAID in 2013. If it doesn't reimburse you until 2014, that is a problem if you wanted the deduction in 2013. On the other hand, it should be able to take the deduction in 2014 even though the reimbursement is for expenses that you personally incurred in 2013.

Obviously, the best thing in the future is to calculate the expenses near the end of December and cut yourself the reimbursement check prior to the end of the year.