Commercial Van for "Personal" Use

[STC1991]

A prospect has a commercial van that he claims is not used for business but is registered under his business' name for 'tax purposes'. He needs auto insurance for this van as his current company is dropping due to an accident. Two questions:
1. Outside of purchasing the vehicle, what would be the tax advantages of keeping a personal vehicle registered under the business?
2. If there are benefits for tax, wouldn't the potential lower cost of a personal auto policy outweigh the potential tax benefits AND having to purchase commercial auto only because the van is registered under the business?

I am a little confused with this whole situation but am inclined to advise him to switch the registration to his name and get a personal auto policy rather than keep van under the business and buy commercial auto for a vehicle that has no commercial uses. Input appreciated !!

Thanks

 

[adjusterjack]

This issue came up many times when I was a PC underwriter and later when I was a PC agent.

1. Outside of purchasing the vehicle, what would be the tax advantages of keeping a personal vehicle registered under the business?

There really aren't any.

If he's deducting the entire cost and expenses of the vehicle as a business expenses he is likely doing it illegally and could eventually be audited by the IRS and owe a great deal of back taxes and penalties.

I'm guessing that he, like many business owners, is using that dodge to get a tax write off.

The proper way is to deduct only that portion that is for business use. If no business use, no deduction.

By the same token, if he owned it personally and did use it for business he would still get a tax deduction for the portion of expenses that relates to the business use.

2. If there are benefits for tax, wouldn't the potential lower cost of a personal auto policy outweigh the potential tax benefits AND having to purchase commercial auto only because the van is registered under the business?

Maybe.

I am a little confused with this whole situation but am inclined to advise him to switch the registration to his name and get a personal auto policy rather than keep van under the business and buy commercial auto for a vehicle that has no commercial uses.

There's a slight problem with that and it depends on the vehicle.

Insurance companies typically consider a 1 Ton and up as a commercial vehicle and will either refuse to put it on a personal lines policy or will put it on a personal lines policy at commercial rates REGARDLESS of it's actual use.

3/4 Ton and less qualifies for personal lines rates unless specified as business and then typically takes the personal lines "business use" rates which could be less that commercial rates.

All I can suggest is that (before you advise him) you submit this situation to your personal lines underwriter and see how it goes.

 

[BADTROUT]

Stick to insurance advice... Like Jack said, get with your underwriter and spill the scenario and seek your solutions there. Unless you are also a tax professional or an attorney I would refrain from advising on anything other than insurance coverage and solutions.