A business car is one of the most useful tools a company can have in its repertoire. Whether you need a vehicle to make deliveries, meet with clients, or drive between work sites, a good car can make conducting business easy and efficient. That’s why it’s so important to make sure you’re getting the most out of your business car purchase. Learn everything you need to know about buying a business car and discover what to keep in mind when finding the right fit for your business.
Determine the Cost
The cost of a business car is one of the most important factors to consider, just like with any other business expense. A cost-benefit analysis should take into account several aspects of vehicle ownership, including fuel costs, maintenance, and value.
Whether you’re thinking of leasing or buying, you’ll need to evaluate the overall cost of your business vehicle beyond just the purchase price. In addition to any loan interest, you’ll also face repair, service, and fuel costs. Furthermore, you’ll need to consider the projected value of the vehicle at the end of your loan or lease term. Compare these expenses to the benefit you expect to receive from using the vehicle to help you determine whether it’s a good investment and whether purchasing or leasing is your best option.
Leasing vs. Buying
One of the first decisions you’ll have to make when moving forward with a business car purchase is whether you want to lease or buy. Owning a car has its advantages, but it comes with some risks. For example, you may have to take out a loan if there aren’t enough funds to buy the vehicle outright. The loan terms will still apply even if the car’s value drops as a result of an accident.
Leasing a vehicle is typically less risky for a business than buying. Leasing doesn’t require a massive down payment, and you won’t have to worry about having to sell the car when you’re ready to move on. With a lease, however, depreciation cannot be written off as a business expense on your taxes. That’s only available if you own the vehicle. Mileage expenses, however, can be written off for both leased and owned vehicles.
Buying a used car is a great way to get the performance you need while still going easy on your budget. The benefits of choosing a used car are largely the same for business cars as they are for personal vehicles. It’s essential that your business car is properly inspected and sourced from a reputable seller to ensure you get the reliability and performance you need.
Purchase Through Your Company
Buying your business car through your company is the best way to get as many tax benefits as possible. Car expenses can be deducted from your company’s taxes, including the purchase cost, general maintenance, tires, and gas. If you own the vehicle, you can even deduct the loss of value from depreciation. The same is true for car loan interest, so there are several ways to save.
Consider the Model
All sorts of business cars are available, and you’ll need to find the one that fits your business. If you’re looking for a vehicle that’s suitable for sales, for example, a simple car may be all you need. Maximizing longevity, fuel efficiency, and convenience should be the priority. If your business makes deliveries, a van might be more suitable. Service providers that require a lot of equipment, such as carpet cleaners, plumbers, and electricians, can also benefit from vans.
Trucks can be an appealing option for businesses, but they’re usually only necessary for heavy deliveries and cargo. If payload capacity is an important factor, trucks are among the best options, but those who only really need space may be fine with a van. For instance, a landscaper could benefit greatly from a truck, but a florist who does deliveries would be better with a van. Plus, vans can be altered for cargo and passengers alike.
A business car can offer quite a few tax benefits. You’ll just have to learn the nuances first so that your business can plan accordingly. The first thing to learn is that it’s essential to keep detailed records of vehicle costs. The IRS tends to be pretty strict about writing off vehicle costs, so be sure to keep a comprehensive log of miles and other expenses.
There are two different ways to record costs for a business car. Businesses can use the standard mileage rate or the actual cost. The standard mileage rate can change from one tax year to the next but is generally consistent throughout each calendar year. As long as whatever you do with the vehicle is business-related, miles can be reported. Just keep in mind that you can’t include any stops unrelated to business. For example, going from home to work does not count, as that’s considered commuting rather than conducting business.
Actual vehicle expenses allow you to approach your tax write-off by measuring additional expenses, including gas and oil, maintenance, licenses, insurance, depreciation, and more. Sometimes, the standard mileage rate can lead to greater savings than actual vehicle expenses, so you’ll want to do the math first to see which offers you the greater benefit.
Imagine that your vehicle expenses for the year cost $7,000 including maintenance, taxes, insurance, and interest on a loan. The vehicle accrued 20,000 miles and 16,000 of that was for business use. That puts business use at 80%. Using actual vehicle expenses, you could deduct 80% from your total costs of $7,000, which results in a $5,600 write-off. If the standard mileage rate in 2021, for example, is 56 cents per mile, then you can write off $8,960, which is the better deal in this case.
Trying to decide if you should invest in a business car can be a difficult process. Knowing how to figure out the actual cost of a car and understanding if you should buy or lease and if you should get a new or used car goes a long way in easing the pain of deciding. Investing in a business car is worth looking into once you have the knowledge to make the right decision for your business.
At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.