If you have a limited liability company (LLC) and you’re buying a car for business purposes, you might be thinking of buying the car in your LLC name. To do so, you’ll need to take the proper steps.
Steps to Buying a Car Under an LLC
Here is a step-by-step guide to buying a car under an LLC:
1. Business Credit
If you have a good business credit history, you may be able to finance the car in the business’s name only. If not, you’ll likely need to personally sign for the loan.
2. Find a Lender
You’ll need to find a lender that will finance the loan under an LLC name. Some car dealerships have commercial finance departments with connections to such lenders.
3. Talk to Your Insurance Company
Your insurance company will probably want you to obtain auto insurance, even if you only use the car for the business part of the time.
4. Purchase the Car!
Go ahead and purchase the car you want.
5. Register the Car
You’ll need to register the car in the LLC name. Requirements vary by state, but you’ll probably need to take a copy of your LLC’s articles of organization to your state’s Department of Motor Vehicles (DMV). Be sure to pay the registration fees with your business bank account.
6. Keep Records
Keep track of your mileage and other auto expenses, which you should be able to deduct from your taxes.
Why Buy a Car Under an LLC?
There are several advantages to buying a car under an LLC.
1. Liability Protection
If your business vehicle is involved in an accident, your LLC’s liability protection should shield you from having to personally pay legal or medical bills.
The car’s title and other records will have the LLC name, rather than your personal name, so if someone searches for the car’s owner, they will not find you.
3. Tax Deductions
You should be able to deduct your vehicle’s expenses as business expenses. You’ll have to keep mileage and other expense records for the vehicle.
Drawbacks of Buying a Car Under an LLC
Interest rates for commercial auto loans are often higher than personal loan rates, so the car may cost you more in the long run. Insurance rates may be higher as well. Also, some states charge an annual property tax on cars, which will be an expense of the business.
Transferring Your Car to an LLC
If you have a car and want to transfer it to your LLC, there are a few additional steps you’ll need to take. First, you’ll need to check with your lender to see if they require you to refinance your loan as a commercial auto loan and if your LLC will qualify.
Then you’ll need to transfer the car with some kind of document of transfer, usually a bill of sale. The bill of sale should be signed by you personally and by a member of the LLC, which can also be you signing as a representative of the business.
Finally, you’ll need to apply for a new title for the car in the LLC name. You will do so with the state’s Department of Motor Vehicles (DMV). Then you’ll register the car in the business name.
You should also talk to your insurance company to see if you need commercial auto insurance.
Buying a car under an LLC has several advantages and is very simple to do. You can also transfer your personal car to the business if you choose. However, you should check with your tax advisor before doing either to make sure it’s the best option based on your situation.