OVERVIEW – BUYING A COMPANY CAR FOR LLC
Like other businesses, an LLC vehicle ownership is considered a legal entity. It means that an LLC can own vehicles just like the individuals.
However, before an LLC can claim a vehicle’s ownership, it must be formed according to the rules and regulations of the LLC’s registered state. For that:
- You must outline the operating agreement for LLC that defines the functional structure of the LLC along with the name of the owners and the company.
- Once these articles of organization are filed, an LLC gets a legal existence. Therefore, it can then own a vehicle like any other business.
- Transfer of vehicle ownership can be transferred between legal entities just like it can be transferred between individuals. Generally, this transfer involves transfer documents like a bill of sale from the seller of the vehicle to the buyer.
- Once the transfer of the vehicle is completed from one entity to another, the LLC should apply for a new title of the vehicle owners with the department of motor vehicles for your county treasurer or state.
- Since the actions of members of an LLC are that of an LLC, a member of an LLC is responsible for signing applicable documents and title applications on behalf of the LLC.
- Vehicle insurance is also mandatory for LLCs, as defined in state rules of the majority of states.
LLC’S & CAR OWNERSHIP – BENEFITS AND DRAWBACKS
A limited liability company has advantages and disadvantages in every aspect. Two of the main reasons people choose an LLC are that LLC members have total access to a corporation’s similar liability limits, and the second is the “pass-through” taxation afforded to S corporation, a partnership, or sole proprietorship. So, the primary benefit of buying a car under an LLC is that it has limited liability in place if the use of a vehicle involves injury or damage to a property at any stage.
For instance, an accident can be financially catastrophic if your vehicle’s parking brake fails and the car rolls down and strikes another car. However, If the vehicle is under the ownership of an LLC, the lawsuit will be restricted only to the LLC, which means that your assets would be covered.
Similarly, owning a vehicle as your business asset instead of a personal asset comes with potential tax advantages. For example, suppose another limited liability company is selling a car. In that case, it is more beneficial to buy the LLC itself and have the vehicle included as an asset of your company. It would help to avoid sales tax on the purchase and sale of the car. The car seller in an LLC also has an advantage since he can set the ceiling for the selling price higher.
It is vital that when tax season comes around and it is time to deduct expenses of repairs and upkeep of your vehicle, you should have complete records readily available. Keep in mind that when you are setting up an LLC for ownership of luxury vehicles, you will find it extremely difficult to justify the costs when the time comes to deduct operating expenses for taxation. So, it is probably unwise to attempt forming an LLC for luxury vehicles.
Similarly, if you have chosen to create an LLC for owning a luxury vehicle, the car must be insured in the name of your LLC and not under a personal insurance policy. If not, you could find yourself in a situation where your vehicle is uninsured, unprotected from liability, or both.
THINGS TO CONSIDER WITH AN LLC-OWNED VEHICLE
As per IRS publication 583, vehicle-related tax deductions based on standard mileage rate or actual consumptions are allowed by the owners of the vehicles. Therefore, a business owner can deduct only those expenses related to the business purposes regardless of the total miles covered by the car.
Those business owners who choose to sell their vehicles to their LLCs to protect the car during bankruptcy must do so one year prior. Furthermore, those business owners who plan to transfer ownership of their cars to their LLC may also notice a significant increase in registration taxes, insurance premiums, and other expenses related to the usage of the vehicle.
HOW TO WRITE OFF A CAR LEASE WITH AN LLC
Writing off a car lease may be easier than it first appears. You can start with gathering your mileage logs. Once you have done that, determine the total business miles you have traveled in the car. After that, calculate the percentage that you used the vehicle for your business purposes.
At last, multiply your total car expenses by your business use percentage. This equation will provide you with the exact amount of money that should be deducted from your LLC’s tax return.
FREQUENTLY ASKED QUESTIONS
Here are some of the frequently asked questions listed with their answers:
- CAN I LEASE A CAR THROUGH MY LLC?
Yes, it is possible, but it is not as simple. You will need your business to qualify for the loan if it does not have enough credit. You may as well need to guarantee the loan on an individual level. After a personal guarantee, you would be allowed to officially lease or buy the vehicle or vehicles through your business.
- CAN I BUY A LUXURY CAR THROUGH MY BUSINESS?
You can, but only up to a specific portion that is dedicated to business. If it is 50% used for business, that is the amount you will be able to write off for your car payment and oil changes, tires, insurance, etc.
- WHAT DOES THE IRS CONSIDER A LUXURY VEHICLE?
According to the IRS rules, a “luxury vehicle” is any vehicle with four wheels, is primarily used on public roads, and has a gross unloaded weight of under 6,000 pounds.