Why You Should Plan On Buying a Vehicle for a Small Business
Did you recently start a business? There are benefits of buying a vehicle for a small business. Here’s why you should buy a business vehicle.
Are you thinking about buying a vehicle for a small business?
The car market has seen mixed results this year, with light truck sales far outpacing passenger vehicle sales.
A company car can have its advantages. You can save on taxes, and your car is under your business, which can protect you and your personal assets.
If you use your car primarily for business reasons, you might want to consider buying your new car under your company’s name.
Keep reading to learn the top reasons why you should have a business car for your small business.
Who Can Buy a Company Car?
The legal structure of your small business will determine if you can buy a car under your company or not.
If your business is a corporation, such as an LLC or S-Corp, you can buy a car under your company.
As a sole-proprietorship, you do not have this option. It would be considered a personal expense. You would then write off deductions like mileage for a personally used vehicle.
Let’s say that your LLC is taxed as a corporation. If you personally own the car, you cannot deduct your car’s expenses for vehicle use.
That’s when it would make sense to buy a car for your company.
Many business owners assume that because the car is insured either by their personal policy or by their business insurance.
That’s not the case.
Insurance companies can deny your claims on your personal insurance if you were using your car for business at the time of an accident.
That would leave you completely without insurance.
If you are in an accident when driving your car for business, you and your business could get sued. If the car is registered under your business, you wouldn’t be personally liable for any claims. Those claims would fall on your business.
If your employees use the company vehicle for business, your business is liable.
Experts recommend that you create a separate company, such as an LLC, to handle the purchase or leasing of company vehicles.
This way, you transfer the risk from your core business to the other LLC with no assets, other than the vehicles.
You Control Your Brand
When small business owners are debating whether or not to buy a car for their company, they look solely at the financial aspects.
What they forget about is the marketing and branding of the company.
If you have employees who go to customer sites and meet with customers on a regular basis, you want to make sure that their appearance is aligned with your brand.
That includes attire, and yes, even the car they drive.
What would your customers think if one of your employees showed up to an important meeting in a clunker? That wouldn’t leave a good impression of your employee or your business.
With a company owned car, you can control how your employees look when they arrive at meetings.
You can put your branding on your vehicles. Car wraps and magnets are a couple of ideas that you can do yourself.
The new tax laws are very kind for company car owners. The first thing that you’ll notice is that there is no cap on depreciation in the first year for pick-up trucks, vans, and heavy SUVs that are used more than 50% for business.
They’re viewed as transportation vehicles, instead of passenger vehicles. If you’re wondering what qualifies as a heavy-use SUV, think of Audi Q7, Jeep Cherokee, and Chevy Tahoe as examples.
If you use the vehicle less than 50% for business, then you’ll deduct the percentage of use from the total depreciation over a 6 year period.
Do you just have a passenger vehicle, you will be happy to learn that the depreciation allowances for cars that are used more than 50% has increased.
Don’t forget about additional incentives for electric vehicles. You’ll not only have those deductions, but you’ll have additional incentives for investing in an electric vehicle, like an electric utility vehicle in Australia.
If your employees used their own cars and deducted expenses that were not reimbursed, they can no longer do that under the new tax laws.
There are a couple of ways to make up that difference to your employees. One way would be to buy company cars and have employees use them.
You will want to sit down with your accountant to go over your options to take full advantage of these savings.
Buy vs. Lease
Once you realize the advantages of buying a vehicle for a small business, the next question that is asked is “Do I buy or lease the car?”
Each option has its pros and cons. These are the things you want to ask yourself before you make a decision.
How much driving do you do? Lease agreements usually allow for about 36,000 miles for the life of a three-year lease. If you drive a lot, expect to pay between 15-25 cents per mile over 36,000 miles when you return the car to the dealer.
If you drive a lot for business, it would make more sense to purchase the car, instead of lease.
How long do you keep cars for? Are you the type to trade in your car every few years or do you like to hang on to them until they can no longer function?
Buyers are holding on to cars longer than ever before, and if you fall into this category, you’re better off
What’s your budget? Monthly payments tend to be less for leases, so you can upgrade to a nicer car or truck if you need to.
Does your business have good credit? A smart move would be to wait until dealerships offer deals for 0% financing on year-end models.
Buying a Vehicle for a Small Business
Buying a vehicle for a small business is a big decision.
You have to weigh the advantages of taxes, insurance, and handling.
Before you decide, it’s best to talk to your team of advisors in who handles insurance and bookkeeping. You want to be certain that your business is prepared and set up in a way to take advantage of having a company car.
For more great tips on business-related issues, be sure to check out our blog.