Question: Remy is a sole proprietor who just started a business as a limited liability company (LLC). He has no employees and wants to lease a vehicle in the name of his LLC that is used 100% for his business. If Remy leases the vehicle under his LLC, can he write off any of the business mileage since it is a leased vehicle?
Answer: For federal tax purposes, the IRS sees the SMLLC as a disregarded entity. Therefore, Remy is required to report his business income and related expenses on a Schedule C, the same way he would under his own name.
By leasing the vehicle either under his or the business’s name, Remy can generally deduct the lease payments based on its business use. There are two options he may consider. He may use the standard IRS mileage rate for the business miles driven or claim the actual expenses which would include the lease payment along with other expenses like gasoline, oil, repairs, etc.
If Remy chooses the standard mileage method, he must use it for the entire lease period, including renewals, and cannot deduct any of the actual operating expenses, rent or lease payments or depreciation. He must keep accurate records to provide substantiation, if needed. On the other hand, if he selects the actual expense method, he can only deduct the business-related portion of the lease payment.
Additionally, if there is a lease inclusion amount when the fair market value of the leased vehicle exceeds certain thresholds, it is treated as income. However, Remy does not include it in his income. Instead, it will reduce the deduction for his lease payment on the vehicle.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.