Tax Advantages to Buying a Car in the Name of an LLC

by Tyler Palmer

    You can reduce your tax liability to the government by purchasing a car in the name of a limited liability company. If any or all use of the vehicle is classified as a business use in the eyes of the Internal Revenue Service, the costs of this business use are tax deductible. You can choose to calculate these deductions using one of two methods: the standard mileage rate or actual expenses. The standard mileage rate is a much easier method, but calculating actual expenses may result in a larger deduction.

    You cannot deduct 100 percent of the costs of operating a car simply by purchasing it in the name of your LLC. You can only deduct expenses of the vehicle that are associated with the business. These include, but are not limited to, driving from one workplace to another, meeting with customers or clients, attending meetings with colleagues and driving home to temporary workplaces. It does not include expenses incurred while traveling away from home overnight.

    The standard mileage rate is used by the IRS to simplify the accounting process in deducting automobile expenses. After purchasing a vehicle through an LLC, owners are required to keep a mileage log and record the date, mileage and purpose of each trip in the car. Business-related miles are added up and multiplied by the standard mileage rate to determine the total deduction. For example, the IRS standard mileage rate in 2012 was 55.5 cents per mile. If a vehicle purchased by an LLC was driven 20,000 total miles in 2012 and 80 percent -- or 16,000 miles -- was business-related, the total deduction for the car is $0.555 x 16,000 miles, or $8,880.

    Calculating the LLC's business-related costs of operating the vehicle is the alternative to using the standard mileage rate. This method is more cumbersome and time-consuming but may yield a greater tax deduction for the LLC. Similar to the standard mileage-rate method, calculating actual vehicle expenses still requires keeping a mileage log. However, the deduction is calculated by multiplying the percentage of the total miles that are business related by the total expenses associated with the car for a certain year. For example, if a vehicle purchased by an LLC was driven 20,000 miles in a year, and 16,000 miles -- or 80 percent -- were business related, and the total cost associated with the car for that year was $25,000, the total deduction would be $25,000 x 80 percent or $20,000.

    Several types of car expenses can be deducted from an LLC's profits for tax benefits. The cost of renting a garage or parking space for the vehicle qualifies, along with any insurance, registration or licensing expenses. Fuel, oil and tolls are also deductible. Any repairs to the vehicle, including new tires and basic maintenance, qualify as well. An LLC can also deduct any lease payments or depreciation in the value of the car.

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