When you drive for business purposes, you may wonder if you should get a company car for your small business. After all, there are a lot of perks when you’re the right fit to have one!
What do you need to know about getting a company car?
At CSI Accounting & Payroll, we’ve worked with small businesses for over 50 years. That means we’ve advised many of our clients about these important aspects of getting a business vehicle:
- Driving for business or personal purposes
- Expenses to deduct
- Leasing or buying
- Depreciating over time and when you sell
Business or Personal Use
The biggest sign that you should get a company vehicle is if you’ve been using your car for business purposes a majority of the time.
Once you get a company vehicle, you can still drive it for personal use. As long as it’s used for personal reasons less than 50 percent of the time, you won’t face tax ramifications.
With a company vehicle, the percentage of use for business purposes is the percentage of the car’s actual expenses that are deductible.
Company Car Expenses to Track
As we mentioned above, there are great opportunities for deducting expenses from a company car. That’s why you may want to use the actual expense deduction method.
Be sure to track things like:
- Maintenance
- Repairs
- Gas
- Mileage
Plus, with a company car, your business car insurance is fully deductible.
While we’re on the topic of insurance, a huge benefit is if you have an accident in your company car, it goes against your company insurance (instead of using a personal vehicle for business purposes and having to use your personal insurance).
Lease or Buy
You know that you want a company car, but should you lease it or buy it?
There is a breakeven point of when to lease versus when to buy, and it will look different for each situation based on a variety of factors. This topic gets fairly complicated, so we’re just going to do an overview for now.
Leasing a Company Vehicle
Leasing can be beneficial if it’s not used for very many miles. Leases have a certain number of miles that they allow per year, and if you go over a typical lease mile cap, you’ll be paying extra. It’s at that point that you may want to consider buying the car instead.
With leasing, your lease payment can be mostly deductible, and there’s no depreciation for you to consider.
Buying a Company Vehicle
On the other hand, buying can be beneficial if you put lots of miles on the car that would surpass the mile cap on a typical lease.
With buying, you can write off the interest on the loan and depreciate the vehicle while it’s yours. There are some additional complexities here, though, so let’s look at what depreciating a vehicle is like when you buy one.
Company Car Depreciation
There are two aspects of depreciation to consider: reselling it, and depreciation schedules.
Reselling a Company Car
When you buy a company car, you’ll probably eventually sell it. However, when you sell it, you’ll need to recapture depreciation up to the amount that you sold the car for. Then, that amount is taxed at ordinary tax rates.
Depreciation Schedules
There are no rules about what kind of car you can buy (besides that the type of car must be reasonable for its intended purpose).
However, more expensive cars ($62,000 or more as of 2024) will take a very, very long time to depreciate due to the luxury car limit. You can only depreciate a certain limit per year until the car is fully depreciated or sold. The IRS’s limit is subject to change, but here are the 2024 depreciation limits for luxury cars.
Choose the Right Transportation for Your Business!
Now that you know more about choosing a company vehicle based on driving purposes, deducting expenses, leasing or buying, and depreciating a purchased vehicle, are you ready to check out monthly accounting services?
If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
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