Tuesday, July 16, 2013

How to treat car deductions.

Own a small or one-person business and want the best car deduction? Here's your options:

1. Purchase the car in the name of your corporation or LLC and pay for all auto expenses and gasoline by the business... Of course if you don't use the car 100% for business, you'll have to have a journal entry notated in your books that gives you a distribution/draw for the amount equivalent to percentage of personal use
2. Purchase the car personally and then have the business give you an auto allowance per month (to cover gas, maintenance and car insurance that you personally obtained)
3. Purchase the car personally and then have the business reimburse your mileage

Which is best?

Depends on how well you keep records and how much you use the car for personal stuff. For *most* people, #1 will give you a slightly higher deduction than #3--but it's more work. Between #2 and #1, #2 gives you the potential to receive the best deduction as you're getting money tax free (as an individual) to pay your insurance, maintenance, etc. The hard part about #2 is that you would have to keep good car records and report the actual mileage to the company on a consistent basis. ‪#‎HelpMeImagine‬

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