If you own a business and do a lot of traveling for work, chances are (sooner or later) you’re going to have to decide whether to continue using your personal car, to buy a new car or to lease a car for your business. While all three options could work for your business, it will depend upon your business’ specifics as to which works best for you.
The first thing you should consider is what kind of vehicle you’ll need for your business. This need will depend on the type of business you run. For example, someone in construction should consider one of our new (or used) Ram 1500 trucks—suitable for hauling just about anything for your construction site(s). Smaller businesses (or ones that don’t need materials hauled) could benefit from the awesome fuel economy is one of our Dodge Darts (or any of our other vehicles).
Buying over Purchasing
In fact, many small business owners use the beginning of a new business as an opportunity to get a new vehicle so they don’t have to wear out their personal vehicle for business purposes. Moreover, purchasing a car for their business will allow them to list the vehicle as taxable income, which may allow them to deduct expenses from the vehicle as a business expense.
Before buying your business a vehicle, you should ask yourself the following questions:
- Do you drive your own car more for business than for personal use?
- Is your personal vehicle too small to keep up with your business needs for hauling equipment or delivering goods?
- Can you take advantage of any tax breaks available for purchasing a vehicle?
- Would purchasing a vehicle rob your business of cash flow essential for expansion, payroll or equipment purchases?
Unlike a leased vehicle, owners can deduct the business portion of a car’s annual depreciation. Moreover, since the established depreciable life for a passenger vehicle is five years, a lease-to-own vehicle owner would miss much of this tax break—unless you’re planning to trade in or sell the car before the five years are up.
Leasing over Purchasing
What if you plan to lease a vehicle? Well, you’ll also want to consider how many miles you’ll be driving per year, how often you’ll want to replace the vehicle, the amount of the monthly charge, required down payment and how much the buyout at the end of the lease will cost you.
At the end of your lease, vehicles can either be purchased or returned to the dealer. If you know that you’ll plan to buy the vehicle at the end of the lease, then you should just buy it outright—it’ll be cheaper over its life.
Leased vehicles do have deduction possibilities of their own. Typically, you can deduct the monthly payments. The only problem is that the amount is reduced by a lease inclusion amount that the IRS bases on the fair market values of vehicles.
For more information about this and other vehicle-related issues, please continue to browse our blog. In addition, if you’re in the market for a vehicle, we would love to be of service to you! To learn more about new or pre-owned car sales in the Marshall and Jefferson City area, contact us at 660-826-2700 or come on down to our lot at 2901 S. Limit (US Hwy 65) in Sedalia today.