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- [Toby] Does my auto insurance
need to be in my company name?
Such a trick question.
- [Jeff] I feel like the auto insurance
needs to be in the name
of the owner of the vehicle, however-
- [Toby] There you go.
- [Jeff] For liability protection
I would think the company
needs some form of insurance protection.
- [Toby] All right so is the-
- [Jeff] What's the answer, Toby?
- [Toby] You bring up some interesting points.
So I've dealt with this a few times.
It gets really, yeah.
This is like I say,
it's a trick question
because it's like,
who's car is it?
And are you in a state that requires the vehicle insured
or the individual?
So like in this state of Nevada
we insure the vehicle.
So it's what you just said.
If somebody's name is on that thing
whoever's name it is
better have the insurance.
So if you want it in your company
you better make sure that the company has insurance.
Here's the rub.
You're going to pay a heck of a lot more
for commercial insurance
than you are going to be for individual insurance.
That said you want to make sure
that if you're driving it primarily for personal,
in other words if it's less than 50% business,
there's no way in heck you want
that car in the name of the company
because you can't use all the beneficial acts provisions
like 179 and bonus depreciation
because it has to be more than 50% business.
So if you're less than 50%
you just want to reimburse yourself mileage
and frankly if you have a vehicle
that's owned by a company,
insured by a company,
any time it gets into an accident
whoever's driving it
is going to be presumed
to be acting on behalf of the business
and you just brought liability
into your business.
So the only time
I suggest people actually have vehicles in their business
is when it's the reality of the situation,
the business actually controls that vehicle,
provides it to employees who run around.
So like construction companies I could see it.
Somebody that's got
a bunch of crews running around out there,
I could see it.
Otherwise reimburse yourself.
I see accountants come up and say,
"Oh no, we get these big deductions."
I'm like the people I know
tend to rotate their cars
every four years.
If you haven't depreciated that thing off
and you're like year five or something
and you don't trade it in
or you sell it
you have depreciation recapture
even if you wrote it all off
and you have a taxation of the personal use of that vehicle.
So if you have it 50% plus,
let's say you're 60% business,
then we could go on a schedule
and we look at the value of the vehicle
and you have to pay W-2 wages
on 40% of the value of that vehicle
from a lease standpoint.
So the IRS gives us a little schedule
and it says,
oh you have a $30,000 car
that's you know let's just say
it's $10,000 of wages.
And you say,
"Well, I used it half for business."
Okay that's only $5,000.
You got to pay tax on that like you received it.
Somebody just said a sports car, yeah.
- [Jeff] So in this case
I'm using my personal vehicle in my name.
It's insured in my name
but I'm driving on company business
and I have-
- [Toby] Then you would be the, you're driving-
- [Jeff] Right.
- [Toby] So you're the insured.
So you're always liable.
- [Jeff] Do I need to do anything for my business
to protect them from being sued?
- [Toby] What you can do
is if it's a business that says,
"Hey I need my employees
"to have access to a vehicle,"
the business would have a policy as well
but it would also say
the employee has to maintain insurance-
- [Jeff] Right.
- [Toby] On that vehicle.
So the business would kick in
if they're having you do something for business
but if you're negligent
the question is,
is your employer going to be responsible for it?
They could argue it
but changes are
they're going to hit your insurance first
and then they're going to look at the employer's.
- [Jeff] Okay.
- [Toby] So in a general liability policy of an employer
it's going to have the provisions on it.
You just talk to your insurance guy that,
like ours here,
we don't have a bunch of company cars
but we definitely have a policy that says
if somebody's driving
you know, on behalf of the company,
they're taking a client to the airport
or something like that.
- [Jeff] Right.
- [Toby] We're driving, that you're covered.
Remember running into that issue quite a bit.
Somebody says if you wrap your car with marketing decals
does that make every mile you drive reimbursable?
No, that's why everybody,
that's not advertising,
I promise you.
- [Jeff] Yeah, IRS killed that-
- [Toby] Yeah.
- [Jeff] Quite a few years ago.
- [Toby] Yeah yeah, the wrap itself.
You wrap your vehicle, yes,
you can write that off
but the vehicle and the miles,
it matters what the intent is
when you're moving your vehicle
from one place to another.
If you're traveling between offices that's business.
If you're commuting that's personal.
If you're going to take your in-laws
to a football game that's personal.
I don't care how much swag you got
on that vehicle
or how much you know bling,
I don't know the right word for it.
- [Jeff] Swagging.
- [Toby] Your advertising, yeah.
It's like really cool
but if you do do the miles
now here's the thing
that I always kind of look at.
So I have a lot of clients.
I don't know what it is
but you start getting to taxes,
they tend to get a little bit cheaper, right?
They start looking at dollars
and they realize the value of a dollar
and so some of them have older cars
and the cars are paid off.
They're not worth a ton.
Maybe it's a $10,000 car
or a truck or something like that.
You get 58 cents a mile reimbursed
whether it's worth a thousand dollars,
$10,000 or 100,000.
The IRS doesn't say your mileage reimbursement
is more if it's a nicer car.
So my clients tend to like the fact
that they can get tax-free money,
non-reported cash that's deductible to the company,
over the years
over and over and over again
without regard to the actual expenses of the vehicle.
You get a set amount.
It's kind of like if depreciation
was the same amount for every house.
We don't care what the house is worth.
You get to write off $30,000 a year.
Then you'd start buying cheaper houses
because you'd say,
"Hey, I'll never pay tax on it."
- [Jeff] And I actually had a client who did that,
who would repeatedly buy old beater cars
for the business
for delivery or whatever.
- [Toby] Yup.
- [Jeff] He still got the same deduction
as he would have
if he'd been driving his Jaguar around.
- [Toby] That's exactly right.
Remember my beautiful truck that used to
sit right out there?
- [Jeff] Uh-huh.
- [Toby] They kept threatening to tow it
and it was a little ugly.
Need to open an office 500 miles away, crazy.
You get some crazy people out there, right?
So hopefully that answers your question.
The insurance really
you need to decide
whether it's going to be in your name or the,
I mean whether the car
is going to be in your name or the company.
If you're using an out-of-state entity
like a Wyoming or a Nevada
you're going to have to register it
in your home state
if you're going to have a vehicle anyway.
So I tend to say
own the vehicle in your name.
It's cheaper insurance,
keeps the liability to you
and reimburse yourself for business miles.
Use, the app I use is MileIQ.
Really easy, it's just MileIQ
and you can even put in there
here's set trips that I do all the time,
repeated trips and mark them as a business trip
and by the way
if you have a home office
then everything you drive is pretty much business.
I keep my car insurance that's also for business use
under my personal name
but this year State Farm is sending me
a questionnaire asking me
if I'm using this car for business
and if it's over 50% use
and they want to charge you more.
If it's more than 50% business
they're going to want to say
the parameter use of that
is now commercial and they want to insure you in that way.
If you're using it more than 50% for business
well, A, you're going to get
a lot of reimbursement back
or you could actually have that one
in the name of your company.
Again if you drop below 50%
you have depreciation recapture
and bad stuff that can happen, so.
- [Jeff] And who we're really going to see
get hit by this
is your couriers,
your transportation people like Lyft and Uber,
things of that nature
where their driving is itself the business.
- [Toby] Well and I guess I should stop
because since we're talking,
going back to the insurance one,
and I'll actually click back to it
just so you guys see it,
you have two choices.
You could actually do the actual expense method
or you can do the reimbursement
but you have to pick the year that you get the car.
I don't think you can switch once you do
even though that-
- [Jeff] You can switch from mileage
in a later year
but once you start taking actual expenses
you're stuck with it.
- [Toby] You're stuck with it.
So if you do actual expense in the beginning
you're sticking to it.
Actual expense means you're writing off
the actual expenses for the business use.
So again the way they look at it
is they say if it's more than 51% business,
great, you pay tax on the personal use.
It's 100% deductible.
Even the wages it's paying you,
remember like if it's giving you the car
and letting you use a car
and you have to pay tax on it
the company didn't give you cash.
You just have to classify that as wages.
The company has to pay its witholdings.
You have to pay your witholdings.
Failure to do so subjects you
to some penalties and some nastiness
but you would just,
you would end up paying tax on it.
No money changed hands
but a fringe benefit
is presumed to be taxable
unless there's an exception.
So if I give an employee a car
that's presumed to be taxable.
To overcome the presumption
I have to be,
they'd have to be using it more than 50% business
in which case then they would just
pay a tax on the portion that was personal use.
See how it gets a little muddy.
That's why it's so much easier
just to reimburse miles.
The miles if 58 cents a mile
and it doesn't matter
what the vehicle is
and how much you spent on it.
So if you have a Prius that doesn't cost anything to run
and it gets 50 miles to the gallon and never,
you know and the tires on it are 100 bucks
it's still 58 cents a mile
whereas if you have Jeff's Maserati
you got to,
he probably pays a thousand dollars a tire, right?
- [Jeff] Oh yeah yeah.
- [Toby] Just trying to visualize Jeff driving.
- [Jeff] I have to send it back to air league,
get the tire rotation.
- [Toby] Yeah okay, I just see you in a Maserati.
If you ever come up in a Maserati
I'm taking pictures.
Accountants just instinctually can't,
like they get into the Maserati
and it like ejects them
because you're like
this is such a waste of money, right?
- [Jeff] That's right.
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