Can I purchase a vehicle under my S Corp as an asset?
Client has a Youtube and social media channels dedicated to cars. All running under the umbrella of an S Corp and this is the primary income. He creates car content videos. (think reviews, test drives, social media entertainment). He plans to buy a car in 2024 which will be used primarily to create content about it. The content will generate revenue but it's unclear how much is directly related to that particular asset. Should he buy the car under the S Corp as an asset? Are there any red flags for the IRS? Are there any advantages? This is a car that costs around $120K.
Best Answer
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Hi florentinapojar1, thanks for writing in!
The question of whether a client should or should not buy an asset for business is subjective, and of course, facts and circumstances dependent. Our focus here at FreeTaxUSA is to provide our customers with IRS rules and guidelines to help in the decision making process on whether to include or not include information for tax preparation purposes. Here are a few things you might like to consider for this type of vehicle purchase.
Is a $120,000 car an ordinary and necessary expense for the business? If your client is making $3M in gross revenue from his social media channels, that might make this size purchase defensible should the IRS examine the purchase more closely. If he's making $100,000 gross revenue, maybe not.
How will the company purchase the vehicle? Financed, cash, etc., because it can't be in the client's name. The company needs to own it. If the client is taking a combination of a personal loan and business loan for instance, in order to purchase/finance the vehicle with the intention the company will pay back the business owner or something similar, the IRS could very quickly disallow this as a business expense.
The Tax Cuts and Jobs Act (TCJA) in part, significantly changed what business deductions are allowed regarding entertainment. If the vehicle is to be used for entertainment purposes as you mention, that could be problematic. A thorough review and understanding of (this technical link) Section 274(a) is likely in order. Under this section, "the final regulations address the elimination of the deduction under section 274 for expenditures related to entertainment, amusement, or recreation activities, and provide guidance to determine whether an activity is of a type generally considered to be entertainment." Here is a link to an article in the Journal of Accountancy that may be helpful.
