Yes, you can potentially write off a car used for business purposes if you own it through your LLC. However, the specific rules and limitations for deducting car expenses depend on several factors, including how the car is used and whether it’s owned or leased by the LLC.
Here’s a general overview…
- Business Use Percentage – To deduct car expenses, including depreciation, gas, maintenance, insurance, and other costs, you must use the car primarily for business purposes. The IRS requires you to calculate the percentage of miles driven for business compared to total miles driven (business use percentage). Only the portion of expenses attributable to business use can be deducted.
- Standard Mileage Rate vs. Actual Expenses Method – You have two options for deducting car expenses:
- Standard Mileage Rate – The IRS sets a standard mileage rate each year for business mileage. For tax year 2022, the standard mileage rate is 56 cents per mile for business use of a car. You can multiply the number of business miles driven by the standard mileage rate to calculate your deduction. This method includes depreciation, so you cannot separately deduct depreciation if you use the standard mileage rate.
- Actual Expenses Method – Alternatively, you can deduct the actual expenses of operating the car for business, including gas, maintenance, repairs, insurance, registration fees, and depreciation. However, you must keep detailed records of all expenses and calculate the business use percentage to determine the deductible amount. If the car is owned by the LLC, you can also deduct depreciation expense based on the car’s cost and useful life.
- Documentation and Record-Keeping – Regardless of the method you choose, it’s crucial to maintain accurate records of business mileage and expenses. Keep a mileage log or use a mileage tracking app to record the date, purpose, and number of miles driven for business. Retain receipts, invoices, and other documentation for all car-related expenses to substantiate your deductions in case of an IRS audit.
- Leased vs. Owned Cars – If your LLC leases a car for business use, you can generally deduct the full lease payments as a business expense, subject to the business use percentage. However, if the car is owned by the LLC, you may also be able to deduct depreciation expense in addition to other car expenses.
- Consult with a Tax Professional – Tax rules related to deducting car expenses can be complex, and the optimal strategy may vary depending on your specific circumstances. Consult with a tax professional or accountant to ensure that you’re maximizing your deductions while complying with IRS regulations.
By following IRS rules and maintaining accurate records, you can potentially write off a car used for business purposes and reduce your LLC’s taxable income.
