Depending on your business plan, you may need a company vehicle. It could be to provide more services to your customers, or it could be for other business purposes. Some companies that require vehicles work in plumbing, installation, electricians, and construction. The main goal of buying a vehicle for your small business is to reach your customers easily and conveniently. For example, if you’re a plumber or electrician and make frequent home visits, chances are you’ll use a company vehicle. There are different options for purchasing a vehicle for your small business project. They understand:
- Transfer your personal car into the company name
- Vehicle rental
- Buy a company vehicle from a dealer or private owner
- Let’s take a detailed look at each option and what’s best for your small business
- Transfer your personal car to the company name
This is a cost-effective option for many small businesses. Maybe you own a car that’s perfect for your type of business. It has plenty of room to carry your accessories and gear, and it still moves smoothly. If so, you can still turn this car into your company vehicle. However, what you need to know about this option is that if the vehicle was acquired through a lease, the IRS will keep the deductions from the business. The only noticeable difference with this option is that the market value will change. The fair market value of a vehicle will now be determined on the exact date you turn it into a commercial vehicle rather than the date you lease it.
- Rent a car under your company name
In some cases, leasing a vehicle for your business may seem like the best option. This is usually because business owners want to make small payments in most cases, rather than making an immediate purchase. So, there are some important things to keep in mind when considering borrowing a car for your business.
- Buy a vehicle for your business from a dealer or private owner
This is your best option if you plan to use your vehicle over long distances. A new or used car from a dealer or private owner is enough to give your business what you need. Tax benefits are also available for purchasing a new car for your business from a dealer such as a Toyota dealership in Cincinnati, Ohio or a private car owner. The IRS will eventually write off the transportation expenses you incur in a given tax year. Other deductions include the interest paid on the vehicle loan and the depreciation of the vehicle if the vehicle is used for more than 50% of your business project.
Commercial Vehicle Tax Reduction
When you purchase certain vehicles for your business, their total cost will be deducted over a period of time. While the first year of purchase is never fully deducted, it will be more than five years. The type of vehicle you purchase for commercial use is subject to several tax deductions. Factors such as vehicle type (whether it’s an SUV, sedan, truck, or minivan) and smaller factors such as color and specific options can affect how you get your tax deduction. There are two main types of deductions that may depend on the vehicle you purchase for your business. They understand:
Tesla Model X Section 179 Deduction
This type of deduction allows taxpayers who purchase a vehicle for their business to deduct some or all of the cost of the vehicle for the first year of commercial use.
Capital Cost Allowance Bonus
This deduction allows taxpayers to deduct up to 100% of the cost of the vehicle; if they do not fully deduct the Section 179 for Tesla Model X deduction.
Commercial Vehicle Tax Reduction Considerations
Gross Vehicle Weight Rating (GVWR)
This is probably the most overlooked factor when shopping for a business vehicle. Ironically, this is also one of the most important factors. If you buy a truck, SUV or van with a GVW > £6000, you are entitled to a 100% tax reduction on the first year of commercial use. If you can afford such a heavy vehicle for your business, this is the best option.
Vans and Trucks
A truck with a 6-foot bed or a van that seats at least 9 people will likely give you the biggest tax deduction in the first year of commercial use. Also, sometimes you can get a full cost deduction for the car in the first year.
New or used car
There is no tax deduction advantage for buying a new car compared to a used car and vice versa.
In summary
Buying a vehicle for your small business is one of the best decisions you can make. Not only will you get tax deductions, but your service delivery will also improve.
