LLC - purchased vehicle

[oceanlovin'ea]

OK, fellow tax people..... let's take this LLC a step further. As in the other post, we have determined that they must file as a partnership for 2014. They will delete her name and it will go to a disregarded entity and file schedule C in the future.
He purchased a truck last year. the truck will be used for his business primarily. (May drive it occasionally to work on church related projects). The question is how to treat the purchase of the vehicle.

It shouldn't be owned by partnership since partnership is only in existence for one year. Partnership could stipulate that it will reimburse partner for all vehicle expenses incurred during year. If so, would you use a mileage rate or actual expenses. How the vehicle is treated in the first year it is put in service determines how it must be treated the rest of its life. Use mileage the first year and you can go back and forth and use whichever is best. But if you use actual expenses first year, you must continue that method. Would that be correct even if the entity type changes?

Am I missing anything here? Any suggestions?

Linda, EA

[Koss]

Partner Expenses

I didn't follow the previous thread...

But I think I'm following this one, in that the business is a partnership now but it will become a Schedule C disregarded entity in 2015, and you are trying to decide how to treat vehicle expenses.

I have two possible answers:

(1) If it changes from a partnership to a sole prop/disregarded entity, that may or may not require a new EIN. If it gets a new EIN, then in some sense, the IRS may consider it a new entity, which would mean that it gets to make a new election between mileage and actual expenses, since it is the first year for the new entity. But that's a bit of a stretch. Getting a new EIN does not really mean it is a new entity. It is probably the same entity under state law.

(2) What about treating the vehicle expense as unreimbursed partnership expenses? Partner owns the vehicle (not the partnership/LLC). Partner claims the expense--not the partnership/LLC. This type of expense comes right off as a deduction on page 2 of Schedule E--not Schedule A. See TTB Tab 20-7.

BMK

[oceanlovin'ea]

Thanks Koss

I was hoping you would answer me. First of all, it is an LLC now and will stay an LLC. Taking one person's name off will just make it a SMLLC which will change the tax status.

I was thinking about doing the unreimbursed partner expenses. If I do that this year, does that mean that next year and from now on they will have to do actual expenses. It might not be so bad to do that. they will have gas, maintenance, tags, insurance and the interest on the truck payment that they can use as expenses. Might even be more than the mileage would be. Just like to know we have options.

The first post is probably further down. They set up the LLC and put both husband and wife in it. Later asked me about it and I told her to take her name off. But got busy and forgot. So now for this year it has to be filed as a partnership return. I was just confirming that was the only way to go.

Thanks.

Linda, EA

[oceanlovin'ea]

moving this up

I'm moving this back up to the top in hopes I might get an answer to my question.

Since this LLC will only be a partnership for this year and next year will be a sole proprietorship again, I am not sure how to handle the vehicle expenses for the new truck he purchased. I will do UPE to take the deduction. My question is whether to take actual expenses or mileage. Under normal circumstances, if you start with mileage the first year, you can use whichever method is better down the road. But if you start with actual you have to continue with actual.
Would that be true in this case?

Thanks

Linda, EA