truck purchase--insur./potential liability

[Odds-on-Sod]

I'll be buying a new truck within the next couple of weeks. For the remainder of 2003, its use will be strictly personal; starting next spring it will be used primarily for business. I'll be starting a property maintenance company at that time. I'm organizing as an LLC in VA.

Is there any reason not to have joint (wife and I) financing on the truck? (e.g., could jointly-owned assets be put at risk in the event of accident while on business?)

My greatest concern in entering this business is limiting exposure to personal assets. Sufficient insurance is obviously one way to do that. Are there other considerations that I should be thinking about.

I will talk to my insurance agent about the business use of the truck and whether I'll need to convert to a business auto policy next Spring.

Thanks for your advice.

-Mike

[edrenckh]

Why just personal this year?

Don't forget, any legitimate business will have LOTS of expenses before the first dollar is brought in.

Would you deposit your money to a bank, before the building as built? Maybe just some guy with a cigar box and a card table??

Heck no, the bank builds a building, hires employees, etc. long before thay make money.

You also have expenses. Mileage, accounting expenses, cell phone, stamps, parking, etc. Your business will suffer a loss this year, and it offsets your (and your wife's) income from the regular job. You get a larger refund of taxes paid. Almost like having a kid on 12/31, but cheaper!

Consider owning the truck personally, then leasing it to your corporation. The lease payments should equal tghe depreciation every month (S/L), then you will not have income on your personal side. Still report it, but it nets to zero.

Do that with all of your equipment.

[Odds-on-Sod]

I think I see your point--the truck doesn't have to be 100% personal this year because I'll be involved in setting up the business which will include some driving around. Since it won't get to 50% business use this year, I'd have to use S/L depreciation as opposed to MACRS or other. (This stuff is enough to boggle the mind. I need to get a good CPA/consultant.)

Leasing the truck to the company is interesting.
I guess I could file the articles of organization etc. asap so that there is an entity in place this year. Does the entity have to be a corporation for this leasing idea to work-- I'm planning on LLC, which is considered same as sole-proprietor for tax purposes?
Do you have to "paper the file" for the lease with a formal leasing contract (would seem odd considering I'd be signing as lessor and lessee...)

Do you think it would be legit to begin leasing the truck to the company this year even though it's probable that no income will be earned from the business in 2003?

It sounds like you've probably analyzed all the possible methods of depreciation, 179 deductions, etc. against the lease method.

[edrenckh]

I would incorporate, I believe it is better. Incorporate, and then file for Chapter 'S'.

I use Turbo Tax for business for my taxes. I have a fairly solid accounting background with my MBA.

Sec 179, you have to have a profit to use the deduction. Depreciation can be used even if there is a loss. If you lease the vehicle to the business, it's nice to have the two amounts 'wash', else you may have to declare a profit at some point.

If the Corp owns the vehicle, at some point you have to dispose of it. Gets more complicated with recapture. The corp could donate the vehicle to you I suppose. Then you could sell it. You should report the gain, but not much of a paper trail.

Also, if the corp still owns the vehicle after the depreciation period, the expenses are less, less write-off.

Depreciate it over 5(?) yrs to zero, but the Corp can continually renew the lease for the vehicle's entire life, maybe 10 yrs. You have to declare a profit on the amounts over and above the depreciation (personally). Not much of a paper trail there, unless you and the Corp get audited. If the amounts are a wash initially, no effect on your personal taxes with the lease.

If you get sued or go bankrupt, the corp has no assets.

[McBillNLex]

A Observation

You can't count on the weather wet or dry
But year in and year out these companies produce depreciation at an obscene rate