What's up everybody? My name is Ryan and
today i'm going to be talking about whether or not
you should be putting your car under your business's name or not.
But first it would be awesome if you're new here, thanks for joining me,
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So the question is whether or not you
should be buying a vehicle and putting it under your name
personally or your business's name. One thing I want to get out the window
immediately is I'm not talking about like
legitimate company vehicles you know. Like if you
are in construction and you have a work van or
a work truck that you solely use for work. Or if you're in the business of
renting cars out and you have a fleet of cars.
Or you're in the business of buying and selling vehicles and you know, obviously
you need to purchase those vehicles under your business's name. That's not
what I'm talking about. I'm more talking about this.
What's up bro? Yeah man, just chilling. Thinking about
getting a new car you know. Maybe like a Benz or a Mercedes or a "Beamer"
if you will. Yeah. I know, I'm such a baller.
Yeah. You know what I heard from my from my friend that if
you put it under your business, if I put my car under my business
I'll get to write the whole damn thing off. Yeah,
I know. It's crazy right? Yeah man. In no time we're gonna be bawling the
hell out of my life with my new Beamer.
So what happens when
you purchase a vehicle and you put it "under your business"? What does
that even mean? So first of all, that means when you buy
a vehicle you register it or title it under the name of your business
okay. So that's the first thing you've got to do.
The second thing is if you are financing the vehicle, it has to be financed
under the name of your business as well. Putting your car in the name of the
business puts more liability on your business and
it might be more expensive in the long
run. Because having it financed under your business, usually lenders will
charge you more interest, higher interest rate than if you
financed it personally. Your insurance will be more complicated
because you have to have proper liability insurance and auto insurance
to cover your company vehicle. Because you know you might get in an accident while
you're on, while you're conducting business.
So your company has to be liable for that. A couple upsides here
is that you know, your vehicle's taxes, and insurance, and gas will be deductible
to the business if your car is properly registered
and accounted for under your business. When you hear that you put your vehicle
under the business, you get to "write it off"
okay. And there's a couple ways that this happens.
So typically, when you purchase a car it's considered a fixed asset.
Which means you can't really write it off all in one go.
You know, it's depreciated over time - typically five years for a car.
So if you bought a car for $50,000 then you typically
would take a $10,000 depreciation
for five years. So that's one thing to consider.
Now, there are special rules for small business owners that let you depreciate
more of the car up front, depending on the type of the car.
So you've heard of the 6,000 pounds vehicle deduction rule
that allows you to take the full value of the car's depreciation
all in the year of purchase, okay. That's under section 179 of the tax code. So
if you're interested in that check out that section of the tax code. It gives
you more detail on that deduction. I'm not going to go into much detail here.
Another thing to consider if you want it to be tax deductible is that it has to
be fully used or very, very high majority
used for the business okay. So if you're,
if you're buying a car that's like a personal car and you're using it like 50 -
50 for business but you wanted to put it under your
business's name to get the tax deduction, that's not going to fly with the
Internal Revenue Service okay. I mean it might fly. There's a chance
you may never get caught, there's a chance you may never get audited.
But if you do get audited and they question your vehicle deduction,
then that's where you might get in trouble. Because you're going to have to
pay taxes on those deductions that you took
if the IRS decides to disallow those deductions
okay. So if you go to, if they audit you and you tell them oh I use it
50% for business or even 70% for business. The IRS
can disallow the entire deduction and then you'll pay taxes,
penalties, and interest on the whole thing. And it's not going to be a good
look or a good situation or outcome for you. What they really want to see is to
make sure that it's a legitimate business vehicle that's used solely for
business okay. Now you can use it personally as well if
it is a legitimate business vehicle but then you have to
take what's called a personal use tax on that. Which complicates things more
you know, because you're technically using a
company vehicle for personal reasons. So you're kind of
you're you're incurring an "income" in a way
for using that company vehicle. So what do I recommend
to most people who are in this scenario and who are thinking about putting their
car under their business? I recommend just
purchasing it, personally registering it to yourself,
getting financing through yourself personally, and then just taking either
the mileage deduction or reimbursing yourself through an
accountable plan for your mileage. Now for 2020, the
mileage rate is 57.5 cents per mile. Which is a pretty good
deduction you know, especially if you drive a lot.
You know my realtor clients, my construction clients,
they have huge deductions they're driving 15,
20 maybe 25,000 miles a year just for business okay. And so that ends
up actually being more beneficial to them
in the long run than purchasing the vehicle under the
business and taking that depreciation deduction you
know under the business. So mileage is a huge tool
for a tax deduction. Now in order to properly
write off mileage, and for it to count legitimately on your tax return,
and through an audit you need to keep track of a mileage log.
And there are tools out there now that let you do this very easily. Like
one tool you've probably heard a lot is called Mile IQ.
Mile IQ basically uses the GPS on your phone.
It tracks everywhere you go, everywhere you drive,
and then it separates them into trips. So you, maybe you go from
home to a client's house. It'll know that as one trip.
Or maybe you went to your, from your client's house
to like Wendy's for lunch. That's another trip.
It separates those trips out and you can classify each trip as either business or
personal. And then now you have this nice detailed,
very detailed log of your business trips and your personal
trips. It's broken up by mileage and it might even give you the deduction
amounts for each trip. Now these are the kind of logs that the IRS
needs to see if they audit you for your mileage. And
it's better to have this kind of system in place up front
then to recreate it if you find out you're being audited
okay. Because a lot of my clients before I took them on
they were just estimating their miles or they were just kind of
you know, using Google Maps to determine oh I drove this much here
on this day and this day. And then they made like a more
detailed and refined estimation. But you know, some of my clients got audited
and then they had to go back and basically
create logs for the IRS to show them this meeting was
legitimate. I was meeting this person. I was meeting this person.
So it's better to have these systems in place up front
so you don't have to do all that work if you were to get audited,
okay. That's all I've got for today. Thanks for joining me.
Smash that like button if you haven't done so already. And subscribe to my
channel for useful updates and let me know in
the comments below if you have any questions, concerns,
anything like that okay. Take care y'all. See you next time.