Transcription
Everybody knows that Carlton Dennis is a big car guy. From my Ferrari to my Lamborghini to my Rolls-Royce, I love all my cars. But I also love saving money in taxes, and I know you do, too. So, today I'm breaking down who should place their vehicle under their LLC, who should absolutely avoid it, and what are the hidden tax perks behind both of these maneuvers. Without further ado, let's dive in.
All right, guys, let's break this down. First off, primary vehicles versus your business vehicles. One of the biggest sources of confusion for LLC owners is whether their vehicle needs to be owned by their LLC to qualify for deductions. Here's what you need to know. The IRS does allow vehicle deductions for business owners, even if the vehicles are personally owned. So, if you have a car and you use it for business purposes, then you could potentially qualify for these deductions, whether your vehicle is under your LLC or it's not under your LLC. But the key here is that your vehicle expenses must be ordinary and necessary for conducting business, and you must accurately document the business use. This means you don't automatically need to place your vehicle under your LLC or escorp to take advantage of vehicle related tax incentives or deductions. However, doing so can provide some additional benefits that we're going to talk about. I'm glad you decided to click on this video. So, keep watching. We're going to go into this and break down this strategy in its entirety.
One of the best ways for business owners to get tax savings for their vehicle is with the business vehicle deduction. And the business vehicle deduction is a tax deduction that allows business owners to deduct expenses related to a vehicle under their business for business purposes. It reduces your taxable income based on the cost of operating a vehicle that helps generate business income. This deduction can be claimed in two main ways. One, the actual expense method, which we'll talk about, and two, standard mileage method. Let's break these down.
Number one, the actual expense method. This is easily the most popular method. This requires you to track all cost associated with you running your vehicle. This includes the monthly car payments, your insurance payments, the gas you put into the car, the maintenance, the tires, and any of the other accessories you put on. Once you have that total, you calculate the percentage of time the vehicle is used for business purposes. Yes, you have to calculate this. For example, if your total monthly vehicle expenses equals $1,200, and your vehicle is used 50% for business, your deduction would be $600 per month or $7,200 per year. That's how it works. If your business use is higher, say 100%, the deduction would double to $14,400. That's a significant increase.
Now, the standard mileage method is a lot simpler and involves just multiplying business miles driven by the IRS standard mileage rate. In 2025, the standard mileage rate for business purposes was 67 cents per mile. So, if you drove 15,000 miles for business during the year, your deduction would amount to $10,500. The mileage rate is adjusted annually to reflect fuel prices and insurance prices and other vehicle operating costs. So, staying current on IRS updates is essential, which is why I'm glad you subscribe to my channel. Both methods require accurate documentation. The IRS can request evidence of business use. So logging your miles using apps like Mile IQ or QuickBooks Mile Program or simple programs that ensure your deduction is substantiated is greatly appreciated by your accountant and the IRS. You can also track actual expenses month by month to have a clear record of costs that touch your bank account. So that way you can do the first method we talked about. You see, the beauty of tracking both is that you get to choose the method that provides the larger deduction at tax time.
Next is section 179. Depreciation is one of the most significant ways to maximize your vehicle deduction. Under standard rules, vehicles depreciate over 5 years. However, for vehicles weighing over 6,000 lb, such as like SUVs, trucks, vans, business owners, you know which cars I'm talking about, you can leverage section 179 expensing. This allows a larger percentage of the price of qualifying vehicles to be deducted in the year of purchase up to current IRS limits. Though in 2025, the limit was only $31,300. This can allow you to write off tens of thousands of dollars associated with your business vehicle purchase if you know bonus depreciation.
You see, in addition to section 179, business owners can also use bonus depreciation to write off their entire purchase price of the vehicle. Bonus depreciation is a tax provision that allows immediate expensing of large percentages of the cost of qualifying assets. This includes vehicles, this includes cars or equipment in the year that they are placed in service instead of spreading it out over multiple years. Now, 100% bonus depreciation was restored by the big beautiful bill, which Trump signed into law in July 4, 2025. So now, if you buy a vehicle and use it 100% for business, yes, you can potentially write off the entire cost in year 1.
Now, to qualify for section 179 or bonus depreciation, your vehicle must be used over 50% for business. And you can only deduct the portion that's actually for business use. So, if you use the business vehicle 75% of the time for business, you will only be able to deduct a maximum 75% of the vehicle's purchase price. Does that make sense? You have to keep this in mind when calculating your write-offs.
Now, what are the benefits of placing your vehicle under your LLC, and is it something you should worry yourself about? There are a few key benefits of placing your vehicle under your LLC that I want to make sure I discuss.
Number one is just having clear business expense tracking. You see, titling the vehicle in your LLC's name, it creates a clean separation between personal and business use. This makes it easier to deduct actual business expenses related to your business, such as gas, maintenance, insurance, and depreciation, because all of that is business expenses for your vehicle. It also makes it easier to keep accurate records for taxes and audits and justify the business use of the vehicle if the IRS ever questions it. Makes it a lot easier on you. Even if you claim mileage deductions when the car is personally owned, having the vehicle in the LLC will still simplify your accounting and it'll also strengthen your documentation.
The second reason why I do recommend placing your vehicle inside of the LLC is because of the limited liability protection that LLC's offer. An LLC exists primarily to protect your personal assets from business risk. So, when the LLC owns the vehicle, the vehicle is an LLC asset. So, lawsuits related to business use can target the LLC's assets first, not your personal savings or your house. Carlton, I want that. Yes, you do. This protection works best if you also carry commercial auto insurance in the LLC's name, and you keep business and personal use clearly separated. Commercial auto insurance typically costs more than personal auto insurance, but it tends to provide significantly higher coverage limits and broader protection. And this can be very helpful if you ever get into an accident or you owe damages.
Now, it is important to note, however, if you are the one driving the vehicle and you cause an accident, god forbid, you can still be personal liable for injuries or damages. LLC ownership does not automatically shield you from creditors or negligent actions that happen. It just slightly increases the odds that the plaintiff will sue the LLC, the business instead of you. And that's what you want. It is still possible though for the plaintiff to sue both of you. And your company could be caught in this because you chose not to keep clean records. Keep that in mind.
Now, it goes without saying that LLC's provide just greater privacy. So, opting for an LLC ownership over your vehicle's title, it just keeps your personal details off public records in many states. A quick DMV search will reveal only the business name, not your name. This anonymity appeals to many people, especially if you're acquiring high-end vehicles where discretion matters for security or other personal reasons. Now, to increase this layer of privacy, you want to form your LLC in a state with strong anonymity laws like Wyoming, Delaware, Nevada, or New Mexico, where member information remains shielded from public view. But keep in mind, you also want to make sure you have your business set up in a state that you operate in. Now, combining this with a registered agent service, which is a third-party handler for your legal documents, it ensures that your business address stays separate from your personal one. All legal notices get routed to a professional P.O. box or office, minimizing your exposure in your everyday business dealings.
So, should you place your vehicle under your LLC or not? Deciding whether to place a vehicle under your LLC depends on your business needs. It also depends on your current ownership situation and your tax goals. Buying a vehicle under the business can simplify depreciation and just make it easier to claim your actual expenses. But, if you purchased a vehicle in your personal name and you want to allocate it to your business, that is okay as well. if you bought it in your business name. It also establishes clear ownership for liability purposes and may reduce but not entirely eliminate personal exposure if the vehicle is involved in a car accident.
However, purchasing a vehicle solely to generate a tax deduction is not a wise strategy. The IRS allows deductions, but the vehicle must serve a legitimate business purpose. If the vehicle is not truly necessary and you're not using it for business, the deduction can be challenged. The deduction can be disallowed, and the cost of the vehicle may outweigh any potential tax benefits in the long term. For many business owners who already own a personal vehicle, you can still take business deductions on that vehicle without you having to go buy a new car. So, take that into consideration. You just need to track mileage or track your actual expenses carefully, and you can deduct the business use portion without transferring the title to the LLC if you don't want to. This flexibility ensures you are not forced to make unnecessary purchases solely for tax purposes.
Another thing to consider is whether you have more business assets or more personal assets. If you are someone with very few personal assets but a lot of business assets, it can make more sense to keep the vehicle possibly under your personal name. This is because you could stand to lose more by exposing your business to vehicle related lawsuits. So, take that in consideration. However, if you're someone with very few assets in your LLC, it'd probably be a great idea to look at moving an asset over to your business, hypothetically, to protect yourself. These circumstances should all be taken into consideration as you're looking to build your wealth and to save money on taxes. So, before making this decision, please make sure you know what all of your personal and business assets are and which ones you want to protect the most. I also highly recommend speaking to a tax professional or lawyer before making this decision as neither option is correct for every single person. Your unique situation, your unique goals, and your preferences will determine which option is best for you. So, keep that in mind.
Never underestimate the importance of having good auto insurance, whether the vehicle is under your own name or your LLC's name, because if you do cause a car accident, a good insurance policy can potentially cover all the damages or at least a portion of them.
So, the bottom line here is placing a vehicle under your LLC is not a requirement for taking deductions. What matters most is proper documentation and understanding actual expenses versus mileage and accounting for depreciation. If you already own a vehicle personally, you can allocate the deduction to your business without having to transfer the title to your business. If you purchase a vehicle under your LLC, you can use code section 179 and bonus depreciation to accelerate deductions, opening up more write-offs for yourself, especially if your vehicle is over 6,000. And tracking both actual and mileage is crucial for maximizing your deductions because you can choose one or the other when you go to file your tax returns.
My name is Carlton Dennis. If you're a client of Tax Alchemy, thank you so much for watching this video. If you would like to become a client of Tax Alchemy, I'd love for you to click on the link below. If you're making over $400,000 a year self-employed, we'd be happy to schedule a complimentary consultation. Thank you so much for watching this video. I look forward to seeing you on the next one.