CPA Advice in Scottsdale, Phoenix, or Paradise Valley

Vehicle Auto SHOULD be owned by your business to avoid tax and liability issues! by Jeff Brooks CPA

Business Owned Vehicles help avoid taxes liability issues in Scottsdale, Phoenix, or Paradise Valley

LEGAL LIABILITY:  Lawyers have repeatedly told me that business owners SHOULD ALWAYS have their vehicle (if used primarily for business) titled in the business!

TAX LIABILITY ISSUES:

You simplify record keeping if you have the corporation own the business car.

If you own the car personally and you want a corporate deduction, you have to consider how your business is going to reimburse you for business vehicle use.

One absolute. You do not want to use the car for business and deduct the car as an partner or employee  business expense.

 

If the car is financed and you deduct your car individually as an employee business  or partner expense on your personal tax returns , you may not deduct any interest you pay on the car loan through the business.

 

Another factor to consider is the cost of insurance and how you use the car.  Yes, there is less expensive insurance at the personal level (normally).

 

Next, you absolutely do not want to deduct the car as an “unreimbursed employee business

expense” using IRS Form 2106. With this form, your car expenses become miscellaneous

itemized deductions that face two obstacles:

  1. The deduction falls into the miscellaneous itemized deductions category, where

lawmakers reduce your deduction by 2 percent of adjusted gross income. The 2

percent by itself is not a killer.

  1. If you are subject to the alternative minimum tax (AMT), the AMT destroys every

penny of your individually deducted car expenses. That’s as bad as it can get.

 

 

THE BEST solution is to have the business own the car.

LLC partnership (as well as S corporation ownership)  triggers neither the 2 percent problem nor the AMT.

 

I do NOT like the second solution is to have the business  reimburse you for vehicle expenses, using whichever of the following methods gives you the best result:

Mileage at the IRS standard mileage rate  or

 

Actual expenses (including depreciation, interest, Section 179 expensing, gas, oil,

etc.)

 

Having the business  reimburse you for all your actual business vehicle expenses makes those expenses business expenses. Note that this makes the interest on the vehicle loan a business expense to the extent of business use.

 

THE MOST IMPORTANT PART (Next to transferring the auto to the business) is  a mileage log.

 

If the business takes the deduction and the auto is in your personal name, guess what?? No tax deduction for the business and ALL members of the LLC partnership (or S corporation shareholders) are liable for the tax.

 

The IRS would catch you again because there is no mileage log nor payments to you for the mileage you paid personally.

1 IRC Section 163(h)(2)(A).  2 Rev. Proc. 2009-54. 3 Reg. Section 1.62-2(d)(1).

(c) 2012 Jeffrey Brooks CPA and JBrooks Wealth Advisors, PC

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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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JBrooks Wealth Advisors, PC.

Certified Public Accountant
Address: 4647 N 32nd Street, Suite B245
Phoenix, Arizona 85018
Phone: 602-292-2009
Email: jeff@jbrookswa.com