One commonly asked question is whether or not you can deduct mileage for a car that is not owned by your business, but is used for business purposes. The short answer is yes, but there are a few factors to consider before claiming this deduction.
Understanding Business Use of a Personal Vehicle
When it comes to using a personal vehicle for business purposes, the IRS allows you to deduct the actual expenses or use the standard mileage rate. The actual expense method involves deducting the cost of gas, insurance, maintenance, and other related expenses based on the percentage of business use. On the other hand, the standard mileage rate is a set amount per mile that the IRS allows you to deduct for business use of a personal vehicle.
For the purpose of this blog post, we will focus on the standard mileage rate as it is the more commonly used method for deducting car mileage for business purposes.
Can Your LLC Deduct Mileage for a Non-Owned Vehicle?
The general rule for deducting car mileage for business purposes is that the vehicle must be owned or leased by the business. However, there is an exception to this rule for LLCs. If you are a single-member LLC, the IRS allows you to deduct mileage for a vehicle that is not owned by the business, but is used for business purposes.
For example, let's say you have a personal vehicle that you use for both personal and business purposes. As a single-member LLC, you can track the number of miles you drive for business and deduct that amount on your tax return using the standard mileage rate.
On the other hand, if you have a multi-member LLC, the non-owned vehicle must be used for business purposes and the LLC must reimburse the member for the mileage. The LLC will then be able to deduct the reimbursement as a business expense.
It's important to keep detailed records of your business mileage, regardless of whether the vehicle is owned by your LLC or not. The IRS requires you to keep a record of the following information:
- Date of each business trip
- Business destination or purpose
- Beginning odometer reading
- Ending odometer reading
- Total miles driven for business
It's best to keep a mileage log or use a mileage-tracking app to ensure accuracy and to have proper documentation in case of an audit.
Talking to a Tax Advisor
While the general rules for deducting car mileage for business purposes are outlined by the IRS, it's always a good idea to consult with a tax advisor or accountant. They can help you determine the best method for deducting mileage for your specific business and ensure that you are following all tax regulations.
In addition, if you are unsure about whether or not your LLC qualifies for the exception for non-owned vehicles, a tax advisor can provide guidance and help you navigate the process of deducting car mileage for your business.
In conclusion, as a single-member LLC, you can deduct mileage for a car that is not owned by your business, but is used for business purposes. Keep detailed records of your business mileage and consider consulting with a tax advisor to ensure you are properly deducting this expense. By taking advantage of this deduction, you can save your business money and reduce your tax liability.