Should I buy a car/truck in the business name?

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Ajay Kumar, CPA, MBA

A lot of people ask me if they should buy their car/truck under the business name or personal name. Typically, the answer is that it depends on what kind of business you are in (product vs Service), what kind of company you have (LLC, S-Corp, C-Corp, etc), how do you intend to use the vehicle (only business use, personal use, or mixed-use). Here is a brief summary of the pros and cons of each situation:

 

 

Company Owned Vehicle

If the company truly owns the car and wants to claim the asset depreciation and lease expenses then the title needs to be in the company’s name. This might be a challenge with car loans, insurance, and leases. If you buy the car yourself and then transfer it to the business, you might end up paying the sales tax twice. One of the main reasons to have the company own the vehicle is the ability to take depreciation and claim lease expense, but if someone is driving the company car and get into an accident, the company might get into a liability too just based on ownership. Lastly, and most importantly, any personal use must be considered taxable income if you own more than 2% of the LLC or S-Corp. It can be a lot of work for not much gain… more like jogging a mile to get French Fry.

You Own the Vehicle, Get Reimbursed for actual expenses

This may be a good option if depreciation is not a big consideration. You would own the vehicle yourself and turn in expense reports. This works because first, you are reducing the net income of your company, second, in most situations, actual car expenses are higher than the standard mileage rate. The reimbursement paid by the company is tax-deductible for the company.

You Own the Vehicle, Take standard Mileage Deduction

This may be the easiest option if tracking actual expense is too cumbersome. Please note that you still need to maintain written mileage logs detailing odometer readings, date, business purpose or connection, etc.

Buy or Lease

Buying or leasing greatly depends on your situation. Buying may be a better option if you want to claim depreciation or plan to drive a lot of miles over the year while leasing may allow you to change/upgrade the vehicle frequently without carrying a debt.

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