Should You Put Your Vehicle Under Your LLC??

welcome back to taxes made simple i'm your host carlton dennis and in today's video we're going to discuss vehicle deductions for llc owners i have a lot of llc owners i have a lot of s corporation owners i have a lot of c corporation owners but the big question that comes up with entrepreneurs is whether or not you're going to have to allocate your vehicle underneath your business in order to receive tax deductions if this is your question i'd love to solve that for you today but let's dive in alright guys it's pleasure to be back with you if you haven't taken it upon yourself i'd love for you to join the tax free wealth challenge the challenge that i'm running is going to be from june 27 through july 1st and it's a way for me to coach you and be your tax strategist if you haven't taken it upon yourself to join the tax free wealth challenge i'd love for you to join that challenge so i have an opportunity to help coach you over these tax strategies that i leverage on my youtube channel we'll be going over advanced coaching as well as some of the basic stuff but most importantly you'll have access to the recorded calls but you'll be able to go back later and always refer to this information or go over this information with your cpa or tax professional now back to the video all right guys so one of the things that in which i want to discuss is why do most business owners have a confusion around whether or not their vehicle should be underneath their llc or if their vehicles should be underneath their personal names the main reason why there's so much confusion around this topic is because many business owners understand that they bought their vehicles in their personal names before they became business owners so there's confusion around how to get the business vehicle to become a business tax write-off that was personal before and that's completely fine it's okay to have confusion around this when you're getting started in business there are certain things that are just not very obvious to the business owner there's not very obvious answers online either so i want to make sure that this channel is a way for you to get that tax education that you're looking for some of the not obvious questions that you have is around how do i make sure that i'm actually able to write off my car if i purchased it in my personal name so we're gonna go over the three rules to make sure that you can write off your vehicle underneath your business whether you purchase the vehicle in the name of your business or if you purchase the vehicle in your personal name so let's talk about it alright guys rule number one is making sure that you understand the differences between actual versus mileage so what we're going to do is we're going to talk about what is actual and what is mileage as it comes to our taxes but i first want to jump online so we can read through the updates that the irs just gave us around the mileage deduction the irs just put out new updates as of june 9th 2022 so if you're watching this this is new information around the vehicle mileage deduction so let's tune in the government states in order for us to use a business vehicle inside of our business the vehicle has to be ordinary and necessary for the business owner in nature and the vehicle needs to be used for more than 50 business use now most people are like carlton how is the irs going to know how much i'm using my car for business purpose like are they really requiring me to like have like a clock sitting in my car with a stopwatch that's just tracking the amount of time that's personal use or business use everywhere i go like how are they gonna ever know and how is it going to be broken down to a specific percentage like how is it going to be 62 or 78 how would i know that carlton why can't it just be like basic like 50 of the time is personal 50 of the time is business the reason why is because the irs does require you to document your business use in the event of an irs audit you're going to have to substantiate records and if you do not have any records showing the business being in use for business you're going to get into some trouble when you try to claim that deduction on your tax return so the way in which we can show that our vehicle is actually being used inside of our business is having some type of mileage tracker most business owners are taking either actual or they're taking mileage on their tax returns for a tax write-off you as a taxpayer have the choice to choose actual versus mileage now the irs has made some updates on their website letting us know about the new mileage rates let's look at them alright guys so if you see right here the irs announced on june 9th that there is going to be an increase in the optimal standard mileage rate for the final six months of 2022. so i want to make sure i really point this out they said the final six months of 2022 not the entirety of 2022 so e point there now for the final six months of 2022 the standard mileage rate for business travel will be 62.5 cents per mile this is up 4 cents from the rate effective at the start of the year the new rate for deductible medical or moving expenses is also up 4 cents and will be 22 cents in recognition of recent gasoline price increases the irs made this special adjustment for the final months of 2022 irs normally updates the mileage rates once a year in the fall or the next calendar year the irs is adjusting the standard mileage rates to better reflect the recent increase in fuel prices said irs commissioner chuck reddick okay so the irs is realizing okay there's been some impacts on the economy with the fuel rates we need to do something about it and the commissioner said you know what we're going to increase the mileage deduction by four percent while fuel costs are a significant factor in the mileage figure other items enter into the calculation of mileage rates such as depreciation and insurance and other fixed and variable costs so we're going to talk about that guys the optimal business standard mileage rate is used to compute the deductible cost of operating an automobile for the business use in lieu of tracking actual costs let me say that one more time the optimal business standard mileage rate is used to compute the deductible cost of operating an automobile for business use in lieu of tracking actual costs taxpayers always have the option of calculating the actual cost of using their vehicle rather than using the standard mileage rate okay so there we have it there is new irs rulings that says six months of the the rest of the year we get this upgraded mileage deduction it's going up by four cents we get sixty two and a half cents then they later say taxpayers have the option of calculating the actual cost of using their vehicle as opposed to using the standard mileage when i look at this information on the irs's website i see a bunch of information not a bunch of direction on what you should be doing and the reason why i point this out is because the irs is here to share information with you that's what they're doing in this article they're not here to tell you what to do and as a taxpayer it's up to you to take control over your own taxes to figure out what you should be doing if you're watching this right now this information got released in the month of june when do people file tax returns april 15th when do you need to make a decision on this probably right now why because we have six months until the end of the year to decide if we're going to be tracking our mileage so you as a taxpayer who's watching this video has to take it upon yourself to realize you're the one who's responsible for tracking your mileage not your tax account income tax time it's up to you to have your actual expenses and your mileage so your tax accountant someone like me can take that into consideration to figure out what's going to be the bigger deduction now one of the things that i wanted to make sure we talked about is that the government said you have to choose you have to choose are you going to take actual or are you going to take mileage let's talk about that all right guys so there's two different ways in which we can write off a vehicle there's actual and there's mileage actual is all the actual expenses that most business owners think about when they have a car which includes your car payment it includes your car insurance it includes the gas it includes any maintenance that you might be doing on the car it also includes any tires and any repairs that you need to make on the car actual expenses are typically monthly and you can figure out your actual expenses month over month so let's just say that my my car payments my car insurance my gas my maintenance my tires my repairs came out to 1200 a month okay well if this vehicle is being used inside of my business i need to make sure that it's being used inside of my business for more than 50 50 or more is the rule let's just say i know that my my vehicle is being used inside of my business for 50 well then actual is going to give me six hundred dollars a month and then i'm gonna be able to take that over the course of 12 months if i'm using my vehicle for all months of the year and now i easily have my tax deduction right here so if i have 1200 a month in actual expenses between my car paying my car insurance my gas my mains my tires but i know that i'm using my vehicle 50 percent that means that i'm gonna be able to take 600 a month over the course of 12 months is going to give me a 7 200 dollar tax deduction just off of the actual expenses that i have with my vehicle for having my vehicle fifty percent in use if i had my vehicle a hundred percent in use that tax deduction would all of a sudden jump up to fourteen thousand four hundred dollars not including depreciation now this is one way in which we can take a vehicle right off the other way in which we could take a vehicle wired off is also in mileage mileage is very simple mileage is just the amount of miles that you're driving in the particular year many business owners just don't take it upon themselves to actually track their mileage i am encouraging you to download and mile iq some type of program even quickbooks i believe has a way for you to track your knowledge so that you're tracking your mileages that is business related now we just learned that the government's gonna allow for us to be able to take 60 to 62.5 cents per mile okay let's just say i drove 15 000 miles in the year well i'm going to need to take 62.5 percent of the miles that i drove to know what my tax deduction is so if i were to take 62 and a half percent of 15 000 that gives me 9375 dollars in mileage okay so this is the first tax deduction that i'm able to take from my vehicle is actual versus mileage this is decided by the taxpayer okay all right guys so now that we understand a little bit more about actual versus mileage the second step that we have to understand is how does the government view our tax deduction for our business the government views the tax deduction based on whether or not the deduction is ordinary necessary to the business owner in the pursuit of income which means that if the business owner has a personal vehicle that they were using for business even though they haven't specifically retitled the vehicle in the name of the llc they are able to use a hundred percent of that vehicle for business or whatever percentage that is business use as long as it's more than 50 if the vehicle is financed you are able to take depreciation and depreciation is you recouping the vehicle's purchase price over the course of time now what we're going to do is we're going to break down how um how a purchase price works let's just say that we have a vehicle that we purchased for 50 grand we're going to talk through how a 50 000 vehicle purchase would work on our tax returns year over year so when we look back here on online it says while fuel costs are a significant factor in the mileage figure other items enter into the calculation of mileage rates such as depreciation and insurance and other fixed and variable costs so this part right here is the most important part to me as a business owner because this is the part really that's gonna drive home a big tax deduction for you that you don't really have to track as much most business owners who have business vehicles are choosing to depreciate their business vehicles inside of their business based on the percentage that's business use so in this example that i have i don't have the cars any i don't i'm not showing any of the cars value in this example right all i'm showing is what if i had car payments car insurance gas maintenance tires repairs that totaled up to two hundred dollars and uh the vehicle was used fifty percent i'm just going over what my deduction would be on actual and then if i were to drive fifteen thousand miles at sixty two and a half cents what my deduction would be on mileage but i haven't talked about what the purchase price of the vehicle is yet these two tax deductions that we have just covered are on top of depreciation that's on top of what you paid for the actual car so now we have to factor in depreciation when we factor in depreciation i want you to know that cars are depreciated over five years no matter if the car weighs over six thousand pounds no matter if it weighs under six thousand pounds no matter if it's a lamborghini no matter if it's a porsche five years is the amount of time a car is depreciated if you are not leveraging any type of tax strategy okay so if i didn't pull the trigger on any type of tax code like code section 179 plus bonus depreciation if i never pulled the trigger on any of those tax strategies my car's value whatever its value is is being written off over the course of five years that means that if i had a 50 000 car that i can expect to receive 10 000 in my first year i can expect to receive 10 000 in the second year 10 000 in the third year and the fourth and fifth would follow by the fifth year by the fifth year this is the purchase price by the fifth year my vehicle is fully depreciated so what does that mean what does it mean when your vehicle is fully depreciated what it means is you have recouped the entire purchase price over the course of five years and the government understands that and if you would like to you're more than welcome to trade in this vehicle for a new car but i want you to understand something when it comes to vehicles if you decide to sell a business vehicle you're not going to just pay taxes on the the profit that you receive for selling the vehicle you're also going to pay taxes on the depreciation you took while you were using the vehicle for business and that part right there really it stumps a lot of business owners because they're like oh man but if i bought the vehicle because i wanted to wipe away my taxes and i want to sell it next year you mean you mean to me i'm just going to pay those taxes all over again you absolutely are you absolutely are so this is why i don't look at buying cars as like the biggest tax strategy it's not really that smart of a tax strategy to just buy cars right it's a useful tax strategy when you need the vehicle and can place it in use but it's not a useful strategy if you don't need the car and you really don't want the car and best believe carlton has ran into customers that were told to buy g-wagons and then the next year they're like dude i don't want this car or people who bought range rovers or denali's and they're like dude i need to downsize i don't need this big-ass car i don't have kids right so what happens when we get into this situation we just need to be mindful of what deductions we have working for us and how the tax codes are aligned right now we just talked through the fact that a vehicle was written off over the course of five years but if we decided to we can take code section 179 plus bonus depreciation to write off a vehicle that we know that weighs over 6 000 pounds all in one year we can do that we can do that but the rules are around this is that the vehicle has to weigh more than six thousand pounds so that is the rule for being able to take a vehicle all in one year it has to weigh more than six thousand pounds we talked about at the beginning of this video that there are three steps to follow to make sure that you take a vehicle tax deduction the first step to know is understanding the difference between actual and mileage the second step to know is knowing that a vehicle no matter what type of vehicle it is is depreciated over five years which means whatever your purchase price was of your car you were also able to take that purchase price as a tax deduction over the course of five years all right guys so now that you understand that the vehicle is broken down over the course of five years and this deduction is you recouping the amount the third thing to understand is what should you take actual mileage depreciation which won i want you to understand that when you decide to write off your car mileage and actual is up to you to decide depreciation is taken automatically when you file your tax returns your tax accountant or the tax software that you use is going to ask you for your business vehicles year your business vehicles make and your business vehicles model those three items the irs does care about being on the tax return because we can look up your vehicle's year make and model to know how much your vehicle was worth based on the time you placed it into business service because you're only able to write off the vehicle based on what it's worth at the time in which you started using the vehicle not 30 years ago when you bought it or 10 years ago when you bought or even five years ago when you bought it it's based on when you decided to put it into business service so whatever the value of your vehicle is at the time of you starting this business is the amount that we get to write off for depreciation purposes over the course of those five years that's extremely important for us to know now the second thing that we have to know is that we need to be better stewards of tracking actual versus mileage the reason why i say this is because at the end of the year you have a choice of taking actual versus mileage in excess of depreciation in excess of what's already given to you so it's up to you to decide which one is going to be a better benefit to you i'm i as your tax strategist won't know that answer and you as a taxpayer won't know that answer if you're not documenting and tracking both so the beat to be the best steward of your finances and be the best steward of being a business owner who wants to take a vehicle deduction it is greatly advised to track both your mileage which is pretty easy if you have an app such as mileiq and it's very advisable to track your expenses that do touch your bank account the expenses that touch your bank account whether it's inside of your personal bank account or your business bank account is your car payments is your car insurance gas tires and those items that we have categorized as the actual expenses if you are tracking those actual expenses month over month at the end of the year you would be able to add up all your actual expenses to know exactly how much you can receive in a tax deduction based on the percentage of your vehicle being in business and on the contrary you can also take the mileage if you were tracking it to see based on the amount of miles that you drove how much is going to provide you in a tax deduction when you have these two numbers you as a taxpayer can choose the one that gives you the best tax benefit based on the goals you have to reduce your overall tax bill and that's what we're here for being able to save money in real time with information if you guys enjoyed this information today i'd love for you to do something for me share this with another person that you feel like would find value from this video and take it upon yourself to join our tax free wealth challenge below this challenge is going to be absolutely amazing it's going to be five days where i could spend with you going over advanced tax strategies broken down on my ipad in an hour format and for those who choose vip i will be able to help you implement your strategies during our time together i look forward to seeing you guys at the challenge if i don't see there i'll see on the next video peace [Music] you

Channel: Karlton Dennis

Views: 271,777

Keywords: taxes, tax help, tax trouble, tax expert, how to, vehicle inside llc, vehicle tax savings, tax savings, deep dive, ipad, llc, car, car taxes, save on taxes, small business, small business advice, tax strategy

Id: RPFIAbwNrO0

Length: 20min 50sec (1250 seconds)

Published: Fri Jun 24 2022