Can I buy a car and lease it to my California S Corporation?

Question

Here is the problem: I have no debt but my credit score is only 605. This is a good enough score to buy a car but not to lease; so I lose out on the tax advantage. Instead, I would like to purchase a car and lease it to my corporation for the same price as my monthly payment so there is no personal income from the lease. Is this against federal or state tax law? I am 50% owner of the S Corp.

The problem is that there is a much better tax advantage when leasing as opposed to buying. If my s corp buys the car I can only write off depreciation. By purchasing the car and leasing it to my s corp for the same exact amount of the payments I have 0 profit, which is below the threshold of a schedule C I thought.

Answer 1

What good would that do you? You're likely to have a taxable event on your personal return due to the transaction; you can't just pass through the payment, it doesn't work that way. To level the playing field, you're going to have to capitalize the vehicle as a Sole Proprietor and then depreciate it, claiming any payments from the S-Corp as income. You'd have to do the same thing in the S-Corp with a purchase by the S-Corp anyway, so keep it simple and just have the S-Corp buy it and claim the actual expenses.

The IRS looks at these things using the "arms length" concept. If they smell a scam, they'll disallow it.