Are you a business owner who uses a car for work-related purposes? If so, you may be wondering how you can maximize your tax savings by writing off your car expenses. One way to do this is by using your limited liability company (LLC) to claim a deduction on your tax return. In this article, we’ll discuss how you can write-off 100% of your car under your LLC and reduce your tax liability.
Before we dive into the specifics of how to write-off your car expenses under your LLC, let’s discuss what an LLC is and why it’s important for tax purposes. An LLC is a legal structure that separates your personal assets from your business assets. This means that if your business is sued, your personal assets will be protected. Additionally, an LLC offers many tax benefits, including the ability to write-off expenses related to your business.
Step 1: Use Your Car for Business Purposes
In order to write-off your car expenses under your LLC, you must use your car for business purposes. This means that you must use your car to perform tasks related to your business, such as visiting clients, attending meetings, or making deliveries. If you only use your car for personal reasons, you won’t be able to claim a deduction on your tax return.
Step 2: Keep Detailed Records
Once you’ve established that you use your car for business purposes, it’s important to keep detailed records of your car expenses. This includes expenses such as gas, oil changes, repairs, and insurance. Keep receipts and make sure to document the date, amount, and purpose of each expense. This will make it easier to calculate your deduction when tax season comes around.
Step 3: Calculate Your Deduction
Now that you have your records in order, it’s time to calculate your deduction. There are two methods you can use to calculate your car expenses: the standard mileage rate method or the actual expenses method.
- The standard mileage rate method allows you to deduct a certain amount per mile driven for business purposes. For tax year 2021, the standard mileage rate is 56 cents per mile.
- The actual expenses method allows you to deduct the actual expenses you incurred while using your car for business purposes. This includes expenses such as gas, oil changes, repairs, and insurance.
It’s important to note that once you choose a method, you must use that method for the entire year. Additionally, if you use the actual expenses method, you must keep detailed records of each expense.
Step 4: Claim Your Deduction on Your Tax Return
Once you’ve calculated your deduction, it’s time to claim it on your tax return. This is done by filling out Form 1065, which is the tax return for LLCs. On this form, you’ll report your car expenses under the “Other Deductions” section. Make sure to attach your records to your tax return in case the IRS requests them.
Conclusion
If you’re a business owner who uses a car for work-related purposes, you can write-off 100% of your car expenses under your LLC. By following these steps and keeping detailed records, you can maximize your tax savings and reduce your tax liability. Remember to consult with a tax professional if you have any questions or concerns.