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Car allowance and IRS

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spettifer

Thread Starter
Sophomore Member
Joined
Jan 24, 2002
Professional Status
Certified General Appraiser
State
California
Hi all, I have several employee appraisers and want to start paying them a car allowance and bypass SS, fica taxes for that reasonable portion of their fee based on the miles traveled for the company. Is there anybody out there that has appraisers classified as employees and separate a portion of their salary as a non-income car allowance? We all know how our cars depreciate with the heavy use we put them through. If so, how do you handle it and keep on the good side if the IRS? Any suggestions or comments would be appreciated.

Thanks,

Scott
 

jtrotta

Senior Member
Joined
Jan 16, 2002
Go directly to your CPA; do not pass go - do not collect $200 - and if you screw up go directly to jail.

Seriously, you may be creating more havoc than help, but you really need to go over that with your accountant- all the tax laws changed again this year, I'm sure what was - is not :?


Good Luck 8)
 

John SRA

Junior Member
Joined
Jan 19, 2002
Our appraisers have been "employees" for years (over twenty years). We provide an allowance for the personal use of their vehicles.

The simplest thing is to simply pay them a rate per mile. As policy, we pay the maximum amount allowed by IRS. This is very clean for everyone. Straight expense to the business. No depreciation schedules, etc. Also, my CPA has told me many times that unless you drive a very expensive car, you are much better off to reimburse based on a mileage rate.

Best Wishes

JC[/img]
 
A

Anonymous

Guest
I thought I heard that for 2002
the expense per mile is 36.5 cents.

I don't know if that's right, and those
who know are welcomed to correct.

Seems the IRS finally decided to
do in the lease companies and get
a real expense number. Depreciating
cars was a pain and very unrealistic.

taking off my account hat
elliott
 

Stone

Elite Member
Joined
Feb 1, 2002
Professional Status
Certified General Appraiser
State
Wisconsin
36.5 cents per mile is correct for 2002.
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
Why hassle paying employees for mileage? If you are paying a percentage of the report, why not just have them keep a log for a month, see what the mileage is on average per report and adjuste your percentage level. If you're paying an hourly rate, adjust the hourly rate. That way you're not having to mess with all the bookeeping and payments for mileage.
 

spettifer

Thread Starter
Sophomore Member
Joined
Jan 24, 2002
Professional Status
Certified General Appraiser
State
California
Because a car allowance is not subject to payroll taxes.

Scott
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Neither is 1099 income.....at least not to you. I have quit having any employees...too much book work, too much liability. If I farm out an appraisal it is as "contract appraisal work".

Now if I can just convence the state that I am no longer an employee.
 

xmrdfghap

Senior Member
Joined
Jan 15, 2002
Professional Status
General Public
State
Florida
<span style='color:brown'>Scott, I assume your employees are all honorable people who will do whatever you ask and not abuse the system. If that is not the case, then put them down as contract labor and let them file their own Schedule C's. You are on the hook only for the amount of work they perform, that way, and you can arrange the fee split so it covers their expenses.....they can write off all actual expenses including mileage.......and 100% of your payment to them is an expense to you.

However, if you want to maximize the cost attribution to your organization and minimize the after tax dollars then I would strongly suggest you provide vehicles as well as gas and expenses. Confer with your accountant AND an attorney that specializes in income tax litigation. Your vehicles can be leased for a really nominal sum as a fleet, your employees will always drive a modern, attractive car, and the entire payment for the vehicle, the insurance, and the gas and maintainence will be paid out of pre-tax dollars. Further, as employees it is not their job to provide equipment (one of the"duck" tests from the IRS is "Does the employer supply necessary equipment."), normally, including cars, computers, cell phones, desk space, etc.

You might get your attorney to recommend a trust attorney. You can have a trust own a leasing company that purchases and leases to you all such equipment. That trust can post profits which are reinvested and are not taxed until distribution of proceeds. In fact, your basic office can be set up so it generates very little in the way of profits. All possible profits generated being absorbed by trust ownership and such expenses as those incurred by the trust.

Your own vehicle and equipment can be handled in that manner as well, allowing you to receive a "pocket change" salary. You can be driving an Escalade, live in Trump Towers, have a yacht, a Malibu beach house, and still get earned income tax credit. It is all in how you structure the company, the trusts, and your relationship with your tax attorney.

If you don't want to go that far, I would pay more than the car allowance offered by the IRS. Any job that I bill by the hour includes a provision for car allowance. I charge the client, typically, $120 per hour (with a retainer) and $.40 per mile plus incidental expenses. I record all mileage and stops for a day. Any copies are charged at the copy center billed price, including printing costs of any interim reports and the final report. In forensic appraising such "reasonable costs" are expected. The mileage and per deum charged the client should be paid to the people who incurred the expense.....your employees.....and I would require they drive a respectable vehicle.</span>
 
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