If we are changing from a standard business to an LLC do we need to change title to the LLC on a vehicle that has been previously depreciated out?


Answer

If you want the ownership of the vehicle changed from “a standard business” (I assume you mean a sole proprietorship or partnership), to your LLC, then you will need to change the title.

Right now, the vehicle title is probably in your personal name. Therefore, any liability associated with the vehicle (even if another person is driving it), is associated with you personally as the owner.

Because you want the vehicle’s liability to be contained within the new LLC, you will need to have it owned by the LLC. Which means, transferring the title.

Remember that the LLC is its own legal entity–like a person. If you want another person to own your vehicle, you need them to re-title it.

Same with your LLC.

In terms of the tax effects of re-titling, that’s to be discussed with a tax adviser. If it’s been fully depreciated, then there’s probably little impact (particularly if the vehicle has little or no market value).

As far as deducting on going vehicle expenses as business expenses, there are two method:

Method 1 is to keep track of all repairs, maintenance, gas, vehicle property taxes (if your state charges those), and depreciation on the vehicle and use that to calculate expenses.

Method 2 is to keep track of business mileage and multiply that by the IRS’ business mileage rate. For 2012, that number is 55.5 cents per mile.

You will also want the LLC to hold insurance for the vehicle.

Just as an aside, be sure you have adequate insurance for your vehicle, particularly under-insured motorist and un-insured motorist. With the economy bad, you wouldn’t believe how many uninsured people are driving. If one of them puts you in the hospital for a month, and you get a $100,000 medical bill and tens of thousands in lost income, you can recover from your own uninsured/underinsured policy.

I would recommend a minimum of 100/300 under and uninsured motorists coverage, with 250/500 being preferred. The difference in premiums is small compared to the risk.

The most likely way for a young or middle aged person to be disabled temporarily or permanently is through an auto accident. High UIM/UM insurance limits are critical to ensuring that an uninsured driver doesn’t ruin your financial health along with your physical health.

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