Whether your business is a corporation, a sole proprietorship or a limited liability company, you can buy a company car or several cars. You can even transfer your own car to LLC ownership while driving it for personal use, provided you follow all the rules. It's possible that keeping your car and using it part-time for business will work out just as well.
How LLCs Work
Businesses incorporate to protect the owners' personal assets from the company's creditors. Setting up an LLC does the same thing, but with less paperwork. If your business is an LLC, creditors can seize business assets, but not your personal property, as long as you separate your business and personal finances. An LLC can have multiple members or just one. Normally the owners pay taxes on business profits, but they can opt to have the LLC pay tax like a C or S corporation.
Buying a Car
There are several ways for an LLC to buy a company car. If the business has enough cash and good enough credit, it can buy a car outright. You can transfer ownership of your own car as part of your capital contribution in setting up the company. Or you can sell your car to the company later.
If you contribute a car as part of the start-up, you don't get any money back. If you sell the car you get money but you have to report the payment as taxable income. Either way, your capital contribution or your sale has to be at the car's fair market value. If it's only worth $10,000, you can get into trouble selling it to your company for more, even if you're the only LLC member.
Personal Or Business
An LLC can claim a flat per-mile rate for business driving, set by the IRS every year. The alternative is to claim actual expenses such as gas, repairs, maintenance and depreciation. In most cases, the write-off isn't that different either way, but the per-mile method is a lot easier, requiring less paperwork.
If you set up your LLC as a partnership or a one-member company, you report your share of business income and expenses on Schedule C. If you use your own car for work, you can simply write off the business mileage or a percentage of your automobile expenses. If the LLC is set up as a corporation, it's trickier to use your own car. You have to ask the company to reimburse you, just as you would any employer.
If the LLC buys a car, or you transfer your own vehicle to the LLC's control, you can drive the company car for personal use. Use of a company car, however, is a taxable fringe benefit. You'll have to set a realistic value on driving the car and treat that as taxable income.
Fraser Sherman has written about every aspect of business: how to start one, how to keep one in the black, the best business structure, the details of financial statements. He's also run a couple of small businesses of his own. He lives in Durham NC with his awesome wife and two wonderful dogs. His website is frasersherman.com