qbteachmt
Level 15

"If it deducts 100% of the vehicle cost AND deducts wages"

That's not how it comes out. I teach payroll, so let me explain this year end benefit:

The value of the use is Added to the paycheck, so that taxes compute, as part of Gross. Then, that same amount is Subtracted from the paycheck as Net (reducing takehome), to avoid paying it out as real dollars. The two activities Wash away each other in the Fringe Benefit account, so there is no increase in Wages. Some people take that Reduction in the account from their Vehicle Expense account, leaving 80% as vehicle cost and the 20% as Fringe Benefit cost.

$1,000 wages + $1,000 benefit = $2,000 taxable. Let's go with $500 total taxes for that employee. That leaves $1,500 takehome; deduct the $1,000 Benefit = $500 takehome.

"In my example the 20% personal use of the vehicle expenses is neither tax deductible for the S Corp nor the employee-shareholder. It looks similar whether the employee-shareholder owns the vehicle and does not request expenses reimbursement from the S Corp. Nobody takes income or expenses."

But that's not the right comparison. Not requesting to be reimbursed and not filing it is a Choice, but not the facts.

"My point is that personal use of a company vehicle is not qualified business use, even though the company properly reports employee-shareholder."

The 20% of the use that is personal is a Business Expense as Taxable to the employee because it is a "free benefit" otherwise. The IRS requires it to be taxed. Asking us why Not to do so, isn't really a valid question.

Here's the original question: "Must the value of personal use be included on employee-shareholder’s Form W-2, Box 1?"

Yes, it Must, per the IRS.

 

If they don't want to do it right, why allow this vehicle to be used personally? Park it at the office all the time and only use it for Business.

*******************************
"Level Up" is a gaming function, not a real life function.