BUSINESS CAR DEDUCTIONS YOU NEED TO KNOW

Buying a car for business can help streamline your business for growth. Having a business car can save you money and make your work life easier. When purchasing a car for your business through financing, you can deduct more than just the payments as auto expenses.

When you buy and finance a car, you take the full purchase price and put it on your books as a fixed asset, then you take DEPRECIATION expense based on the purchase price.

The only thing deducted from your payment is the interest amount paid during the year. Because of this, you get the same deduction on the vehicle whether you pay for the car in CASH or take a loan out for the total amount.

Beyond the payment, all your other expenses like repairs, fuel, insurance, and anything else would be deducted as you pay them—so make sure to pay for those from your business bank account or business credit card!

Your company car will be an extension of your business, so you’ll want to make sure that whatever vehicle you choose is relevant to your brand. Not every industry prioritizes aesthetics, but consider whether your car needs to impress your clientele or keep up with the jones.

Consider your car as an advertising opportunity. If you’re looking to get the word out about your services, it may be advantageous to brand your car with the company logo and contact information. This way, if you or your employees are driving all over town, you’ll get added exposure everywhere you go.

Another way to afford a company car is by leasing a vehicle. With a lease, you can reap the benefits of having a business car without the high upfront cost of a down payment. Leasing also allows you access to newer car options, provides a predictable monthly payment, and if any repairs or maintenance are needed, they’re handled by the leasing company.

You also won’t need to worry about the value of your company car depreciating to an amount below what you owe on a car loan. Although you won’t be able to deduct depreciation costs from your taxes if you don’t purchase the car, you can still get certain tax advantages, like being able to deduct your commercial lease payments.

Points To Know

1. You don’t need an LLC to take deductions, you just have to be operating your business.

2. There’s no minimum needed when it comes to the ratio of business use vs personal use needed to write off the vehicle. The percent of vehicle depreciation you get to take would just be based on the percent of business use. (ie, if you use it 40% business then 40% of the price is deductible)

3. You can buy the car personally, and “contribute” it to the business by making the car payments from the business bank account, then still take the same deduction.

4. Research tax code 179  deduction rules.

5. Hire a CPA that handles small business accounts. 

6. Always do your own due diligence. 

Actual auto expenses

If you have high operating costs for your company vehicle, it may be better for you to opt for the actual expenses method of deduction. With the actual expenses method, you can deduct the ownership and operation costs listed below:

• Depreciation
• Garage rent
• Gas
• Insurance
• Lease payments
• Licenses
• Oil
• Parking fees
• Registration fees
• Repairs
• Tires
• Tolls

The Cons of buying a car for your business

Although business cars have excellent tax and insurance advantages, they’re also costly investments that can increase your business liability.

• High upfront cost: Whether you’re purchasing a vehicle for personal or professional use, cars aren’t cheap. Think about whether your business has the funds to buy a car or whether taking on an auto loan is the best decision right now.
• Increased business liability: Although you can avoid personal liability with a business car, your company’s liability increases the more the vehicle is used. Additionally, a commercial auto policy is another added expense.
• Likelihood for more maintenance or repairs: Older cars are more likely to have outdated technology and problems from wear and tear. They likely won’t have active warranties on them either, and this means your business will have to shoulder the cost of expensive maintenance and repairs.

It's up to you as the boss to determine if purchasing or leasing a company vehicle is the right decision for the business. 

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