As a former car dealer turned car-buying consultant, one of the most common questions I get from clients is,
“How to buy a car under LLC or Business”.
The short answer is that besides establishing a credit history for your business (If you plan to finance), the process is almost the same, aside from some additional document requirements which I will list below.
Related Articles to Read:
If buying a car under a business or an LLC is not an option, read our article on How to lease a car through your business.
Table of Contents
How to Buy a Car Under LLC or Business
If you plan on buying a car under an LLC or any other business, and you require financing, the first step will be to build your businesses credit history.
Establishing Business Credit
Before stepping into the car-buying process, establish your LLC’s credit profile.
To do this, you’ll need to get an Employer Identification Number (EIN) from the Internal Revenue Service (IRS), which serves as your LLC’s tax identification number.
With an EIN, you can open business bank accounts, apply for credit cards, and build your company’s credit history.
Additional Methods of Establishing Business Credit
Some other ways you could establish and build business credit is by opening trade lines with suppliers and vendors and making all your payments on time.
Additionally, you can obtain a business credit score, such as the Dun & Bradstreet Paydex score, which lenders often use to evaluate your LLC’s creditworthiness.
Financing Options For a Business to Purchase a Car
When it comes to financing a car for your business or Limited Liability Company, you have several options:
Personal Auto Loan
If your LLC is new or has limited credit history, you may need to co-sign a personal auto loan as the LLC owner. This option allows you to purchase the vehicle immediately, but the loan will be tied to your personal credit.
Business Auto Loan
Once your LLC has established credit, you can apply for a business auto loan. Lenders will evaluate your LLC’s credit history, revenue, and financial statements to determine loan eligibility and terms.
Leasing
Leasing a car for your LLC can be an attractive option, especially if you prefer lower monthly payments and the flexibility to upgrade cars more frequently. However, you won’t build equity in the vehicle.
Registering, Titling, and Insuring a Car Under a Business
When buying a vehicle for your business or LLC, you must follow specific steps to properly register, title, and insure the vehicle in your company’s name.
Vehicle Registration
- Obtain the required documents from the seller, such as the title, bill of sale, and odometer disclosure statement.
- Provide your business formation documents (e.g., Articles of Organization for an LLC) and your company’s Employer Identification Number (EIN).
- Complete the vehicle registration application, listing your business as the owner and registrant.
- Pay the applicable registration fees, which may be higher for business-owned vehicles.
- The vehicle should be registered solely in your company’s legal name, not your personal name.
Vehicle Title
- Ensure the title is completed and signed over to your business name by the previous owner.
- Submit the completed title application and required documents to your state’s DMV.
- Provide proof of your company’s sales tax exemption status, if applicable.
- Pay any title transfer fees required by your state.
- The new title will be issued in your company’s legal name as the owner.
Commercial Auto Insurance
- You cannot insure a business-owned vehicle under a personal auto insurance policy.
- Obtain commercial auto insurance quotes from providers, listing your business as the primary insured.
- Commercial policies have higher coverage limits than personal policies for liability protection.
- Provide details on who will be driving the vehicle and how it will be used for business purposes.
- Maintain active commercial auto insurance on all vehicles owned by your company.
It’s extremely important to properly register and title the vehicle under your business name to separate personal and business assets. Commercial auto insurance is also required by law for any vehicle owned by a business and used for operations. Consult your state’s specific regulations, as requirements may vary.
Tax Implications
One of the primary advantages of owning a vehicle under an LLC is the potential tax benefits.
As a business owner, you can deduct various vehicle expenses, including depreciation, mileage, maintenance, and insurance costs, for the portion of the vehicle’s use dedicated to business purposes.
However, it’s important to consult with a certified public accountant (CPA) or tax professional to ensure you comply with the IRS regulations and maximize your tax deductions. They can provide guidance on record-keeping requirements, eligible expenses, and the appropriate deduction methods based on your specific circumstances.
Process and Requirements
To purchase a car under your LLC, you’ll need to provide certain documents to dealerships and lenders, such as:
- LLC formation documents (e.g., Articles of Organization)
- EIN letter from the IRS
- Business licenses or permits (if applicable)
- Business cards or other proof of your LLC’s existence
Dealerships and lenders may have specific requirements for LLCs, especially for new or recently formed companies.
In many cases, you may need to provide a personal guarantee, which means you’ll be personally liable for the loan or lease if your LLC defaults on payments.
Pros and Cons of Buying a Car Under an LLC or Business
Pros of Buying a Car Under an LLC
Liability Protection
The main advantage is that you separate your personal and business assets when buying a car as a company. For example, you protect yourself from personal liability if the vehicle is involved in an accident while being used for business purposes.
Privacy
Purchasing and registering the vehicle under the LLC name rather than your personal name can provide more privacy and anonymity.
Tax Deductions
You can potentially deduct expenses related to the business use of the vehicle, such as depreciation, gas, maintenance, insurance, etc. This can provide significant tax savings.
Build Business Credit
Financing the vehicle through the LLC allows you to build business credit history separate from your personal credit.
Cons of Buying a Car Under an LLC
More Expensive Insurance
Commercial auto insurance policies required for LLC-owned vehicles tend to have higher premiums than personal auto policies.
Financing Challenges
Lenders may be more hesitant to finance a vehicle for an LLC, especially a newer one with little credit history. Personal guarantees are often required.
Limited Personal Use
To maximize tax benefits, the vehicle should be used primarily for business purposes. Personal use has to be tracked and may be taxable.
Additional Paperwork/Requirements
You’ll need to provide LLC formation documents, your EIN, etc. when purchasing from a dealer as an LLC. More administrative work is involved.
Higher Registration Fees
Some states charge higher registration fees for vehicles owned by businesses versus individuals.
Specific Scenarios
The decision to purchase a vehicle under your LLC may depend on your specific business needs and circumstances. For example:
- Short-term Rental Services (e.g., Turo): If you plan to use the vehicle for short-term rental services, owning it under your LLC can provide liability protection and potential tax benefits.
- Contracting or Service-based Businesses: For businesses that require frequent travel or transportation of equipment, owning a vehicle under the LLC can be advantageous for tax purposes and asset separation.
- Fleet Vehicles: If your business requires multiple vehicles, purchasing them under your LLC can streamline management and potentially qualify for volume discounts.
Alternative Options
If purchasing a vehicle under your LLC is not feasible or desirable, you can consider alternative options:
- Buying the Vehicle Personally: You can purchase the vehicle with personal funds and then reimburse yourself from your LLC for business-related expenses, such as mileage or a portion of the vehicle’s cost.
- Leasing from the LLC Owner: In this scenario, you would personally own the vehicle and lease it to your LLC, allowing the LLC to deduct the lease payments as a business expense.
Regardless of the option you choose, it’s essential to consult with legal and financial professionals to ensure compliance with relevant laws and regulations, and to maximize the potential benefits for your specific business situation.
Sources and References
- https://stepbystepbusiness.com/buy-a-car-under-an-llc/
- https://www.blockadvisors.com/resource-center/small-business-tax-prep/writing-off-car-expenses-for-business/
- https://www.capitalone.com/cars/learn/managing-your-money-wisely/a-guide-to-business-vehicle-tax-deductions/2686
- https://www.llctlc.com/post/can-your-llc-buy-your-new-car-for-you
