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tallmanusa · Oct 23, 2014, 06:20 PM

I own a small business.

I want to buy a new car for business use.

I have two questions.

1. Should I buy the car personally or owned by the business?

2. How much tax deduction I would get for buying a $40,000 sedan?

Thanks

Michael

AtlantaTaxExpert · Oct 23, 2014, 06:31 PM

Michael,

If your business is a LLC that is considered a "disregarded entity" or is a sole proprietorship, YOU will buy the car whether it is in the business name or your name and there will be no difference as to how it is treated on your tax return.

If your business is a corporation or partnership, then the car will be considered a company asset if bought in the company's name.

There are limitations as to how much depreciation you can claim on a high-priced new car irrespective on who buys the car.

Your business situation needs to be analyzed by a tax pro, but, as rules of thumb:

- If the car is used MORE than 50% for business, have the business buy the car.

- If the car is used LESS than 50% for business, you buy the car.

ScottGem · Oct 24, 2014, 04:38 AM

I don't believe you can deduct the cost of the car against business income as you can with other expenses. You can claim depreciation of an asset. Irrespective of who owns the car, you may be able claim expenses (gas, mileage, maintenance) against income.

smoothy · Oct 24, 2014, 05:21 AM

I'm probably the least qualified person of everyone who has answered so far. But I think there is a reason why Leasing is so popular among businesses, I work for a huge corporation and they don't own any vehicles that I know of, they lease all their vehicles.

ScottGem · Oct 24, 2014, 10:00 AM

Actually smoothy makes a good point. The lease payment is probably a deductible expense, a purchase isn't.

MLSNC · Oct 24, 2014, 03:16 PM

The most depreciation you can claim on a sedan for 2014 is $3,160. You can find that in Revenue Procedure 2014-21. This assumes Congress does not bring back the bonus depreciation that expired at the end of 2013.

As to Item 1, as ATE stated you need to consult a professional.

One note, if you claim actual expenses in the first year, you can not go back and use the standard mileage rate on that vehicle.

AtlantaTaxExpert · Oct 24, 2014, 10:04 PM

MLSNC is right about not being able to claim the standard mileage deduction if you claim actual expenses the first year, as you are LOCKED IN to the actual cost method for the 5-year life of the car.

However, you CAN claim the standard mileage deduction method the first year, then claim EITHER standard mileage or actual expense in successive years.