Vehicle purchase by business (LLC-S-corp) or personal?

[Laserjet3051]

Hi:

Looking to get some advice on the purchase of my next vehicle. Currently, I own and operate a single member LLC (S-corp election) and use my vehicle for both business (85%) and personal (15%) activities. Accordingly, I deduct business use as allowed by law on this vehicle that I originally purchased as an individual, long before I started my business.

I am estimating that my current 1999 vehicle will not make it through the next year or two and I will be forced to acquire another vehicle. On the surface, it seems that if my business buys the next vehicle, for which ~85% of the miles driven will be business, my business could deduct the vehicle cost as an expense, thus lowering my business taxes, and due to the pass through nature of taxes in an s-corp, i would lower my personal taxable income (line 17 of personal 1040).

On the surface this seems like a good move but what are the downsides to this strategy? Would vehicular use and/or sale have onerous restrictions? Higher insurance rates for a business vehicle? Would business depreciation of the vehicle affect future resale value? I should add that my business is a consulting firm thus the vehicle would not be used to transport equipment, supplies, hazardous agents, etc.

I read a small discussion of the pros and cons of purchasing a vehicle through the biz vs personal but want to get this community's take on it.

Your responses are greatly appreciated.

[dandarc]

https://turbotax.intuit.com/tax-tools/tax-tips/Small-Business-Taxes/Business-Use-of-Vehicles/INF12071.html

See section on the ownership dilemma.  Simplest way, in my opinion, is for you to own the vehicle and have the corporation reimburse you at the standard mileage rate for business miles.  If the corporation owns the vehicle, you MUST use the actual-expense method, so you've got all the paperwork to keep track of that.  You're still capped at the business-use percentage, unless you report the personal-use as income on your W-2.

You might be able to play some games if the corporation owns the car - deducting actual expense from the corporation, but maybe you can add the personal-miles income at the standard-mileage rate and have less income over all.  For that specifically to work out compared to standard mileage rate, of course, your car would have to cost more to own and operate than the average the standard-mileage rate is based on.

Fundamentally you need a vehicle.  You should buy a vehicle that meets your business and personal needs for as low a cost as possible.  Unless you really need a truck or something that even used has a pretty hefty price tag to do your work, a newer than 1999 but still used small car is what you'll buy to minimize costs, and therefore you probably come out ahead just taking the standard-mileage rate on business miles.

[jwright]

If you buy the car through the business; it is a business asset and would be depreciated over time.  Depending on what type of vehicle, there are limits to how much you can deduct each year.  Typically it is going to be deducted over five years. 

Also, you lose the ability to deduct mileage if you are deducting the actual expenses.  The immediate benefit of deducting the cost will help in the first years, but after that you can only deduct actual expenses which is typically less than the standard mileage rate in my experience.

Also, you have to track your mileage either way to determine the business use percentage.  You would then apply that percentage to your actual costs or use the standard mileage rate.  So it doesn't cut down on any paperwork to use the acutal expenses.

[CareCPA]

My advice is to own it personally and do the mileage reimbursement. It reduces your business income as an expense, but you do not pick up mileage reimbursement in your individual taxable income, so it helps you get more cash out of your business at a very preferential rate. Proper documentation, of course, must be maintained to prove the reimbursement is only for the business portion, and must be at or below the IRS rate.

[fa]

Also, if you have multiple insurance policies with one company, say homeowners and auto, you typically get a discount.  You lose that is the business owns the vehicle, because the business would have to buy a separate policy.