The Tax Strategy Most Business Owners Overlook
If you own an S-Corp or LLC and use your personal vehicle for business, there is a straightforward way to get a tax deduction without the business owning or leasing the car. It is called an accountable reimbursement plan, and it is one of the most underused tax strategies for small business owners.
Here is how it works: your business reimburses you for documented business driving at the IRS standard mileage rate. The reimbursement is a tax-deductible expense for the business and tax-free income for you. No payroll taxes, no income tax, no complexity of titling a vehicle in the business name.
How an Accountable Plan Works
The concept is simple:
- You drive your personal vehicle for business purposes
- You document each business trip (date, destination, purpose, miles)
- You submit an expense report to your business (monthly or quarterly)
- Your business reimburses you at the IRS standard mileage rate
- The reimbursement is a deductible business expense
- You receive the reimbursement tax-free
For 2026, check the current IRS standard mileage rate (it has been approximately $0.67/mile in recent years). If you drive 15,000 business miles in a year, your reimbursement would be approximately $10,050, all tax-free to you and fully deductible by the business.
Who Should Use an Accountable Plan?
An accountable plan is ideal for:
- S-Corp owner-employees who use their personal car for business
- LLC members who do not want to title a vehicle in the business name
- Business owners with moderate business driving (5,000-20,000 business miles/year)
- Anyone who uses their car for both personal and business purposes
It is less ideal if:
- Your business driving is minimal (the reimbursement is small and may not justify the paperwork)
- You want a large first-year deduction (Section 179 requires business ownership of the vehicle)
- The vehicle is used almost exclusively for business (direct ownership is cleaner)
Accountable Plan vs. Business-Owned Vehicle
Here is a comparison for an owner who drives 15,000 business miles per year:
Accountable Plan (Personal Car)
- Annual reimbursement at $0.67/mile: approximately $10,050
- Business deduction: $10,050
- Tax-free to you: yes
- Payroll taxes on reimbursement: none
- Insurance: personal policy (lower cost)
- Complexity: low (mileage log + expense report)
Business-Owned Vehicle ($500/month Lease)
- Annual lease payments: $6,000
- Business deduction (at 75% business use): $4,500 lease + gas, insurance, etc.
- Insurance: commercial policy (higher cost)
- Personal use: must be reported as taxable income on W-2
- Complexity: moderate (mileage log + personal-use reporting + commercial insurance)
The accountable plan often provides a similar or larger deduction with significantly less administrative overhead. The trade-off is that you do not get the large first-year Section 179 deduction available when the business buys a qualifying vehicle.
How to Set Up an Accountable Plan
Step 1: Create a Written Plan
Draft a simple written policy that states: the business will reimburse employees (including owner-employees) for documented business driving expenses at the IRS standard mileage rate. The plan should specify that reimbursements require an expense report with date, destination, business purpose, and mileage.
Step 2: Track Your Mileage
Use a mileage tracking app or maintain a written log. Record every business trip with the required details. This is the documentation that makes the plan IRS-compliant.
Step 3: Submit Expense Reports
Even if you are the only member of your LLC or the sole shareholder of your S-Corp, submit a formal expense report to the business. This paper trail is essential.
Step 4: Reimburse from the Business Account
The business writes a check or transfers the reimbursement from the business bank account to your personal account. Keep records of these transactions.
Step 5: Deduct on the Business Return
The reimbursement is recorded as a business expense (vehicle expense or employee reimbursement). It reduces the business's taxable income.
Common Mistakes
- No written plan: the IRS requires a written accountable plan policy
- No mileage log: without documentation, the reimbursement becomes taxable income
- Reimbursing above the IRS rate: excess reimbursement is taxable unless returned
- Not submitting expense reports: even sole owners need to follow the process
- Mixing this with other vehicle deduction methods: you cannot reimburse yourself at the mileage rate AND deduct actual vehicle expenses for the same trips
What Vantage Does Differently
If you are considering whether to use an accountable plan or have your business buy or lease a vehicle, the vehicle choice matters. We help business owners find the right car at the right price regardless of the ownership structure. Whether you are buying through your LLC or keeping the car personal with an accountable plan, we negotiate below-market pricing.
Get your free quote in under 5 minutes and let us know your situation. We will help you find the best vehicle deal to pair with your tax strategy. No spam. No pressure. Unsubscribe anytime.
