Updated: Aug 31, 2021
A common question we get here at Peridot Consulting is, “How do we handle vehicle expenses for my business?” The short answer is - “It depends.”
There are TWO main factors you need to consider when deciding how to deduct your vehicle from your taxes:
Does the company own the vehicle?
Do you own the vehicle personally?
Rely on Peridot Consulting, Inc. advice on how best to decide whether to put your cars and trucks in your business name or your personal name.
Other important factors that may come into play:
If there are legal implications, talk to an attorney
If there are Insurance implications, talk to your insurance agent
Business tax-deductible items vary substantially from your personal deductions, although it depends on your business entity. When it comes to your vehicle expenses, the details determining depreciation, mileage, acceptable deductions and bookkeeping can get confusing.
What Are the Advantages of Buying a Car in My Company Name?
If you operate your business as an LLC, S Corp or C Corp, you may have chosen that designation to protect your personal finances. As a business asset, your vehicles also enjoy this protection, so you may want to maintain that separation. Other advantages of putting your vehicles in the business name include:
Deductions are more inclusive of everything from the purchase price to maintenance costs.
Your auto insurer provides extensive coverage when you’re on company business.
You can take depreciation costs off your taxes to extend your tax deductions over a longer period.
You’re eligible for higher liability coverage from your auto insurer.
You avoid double vehicle taxation if you decide to change the registration from personal to business at a future date.
Many car dealers understand the paperwork involved in registering your vehicles in a company name and provide you with the necessary forms.
For some models, you can buy directly from the manufacturer when you purchase a fleet, usually considered to be five or more vehicles.
Your bookkeeper pays the bills, keeps up with mileage and appropriates tax-deductible charges directly from your business account.
As long as you use your vehicles strictly for work, the details about mileage and deductions stay fairly consistent for your accountant. When you use your car or truck for personal use as well, however, it gets a little more complicated, although still manageable.
What Are the Disadvantages of Buying a Vehicle through My Company?
The disadvantages may give you pause. For instance, your auto insurer won’t split hairs regarding your vehicle use. If you’re using your car for any business, they require that you pay the premiums for a business vehicle.
Only an accountant or financial coach like Peridot Consulting, Inc. can advise you about the various disadvantages of putting your vehicles in the company name since they know you and your business activities best. Consider:
You pay higher premiums for auto insurance.
You must allow for more time to process the vehicle’s registration.
You’re not necessarily covered by your auto insurer if you get in an accident while doing company business.
You put your personal finances in jeopardy if you get in an accident when using the vehicle for company business, including actual expenses from the accident and potential lawsuits.
You can’t take deductions for the cost of the vehicle or for maintenance, only standard mileage deductions at standard mileage rates. And, oftentimes, deducting mileage is a little better outcome than deducting maintenance and other vehicle expenses.
You must keep close records of your mileage so you can separate your personal usage from business mileage.
Before you make a final decision, it’s always best to check with your accountant about what’s tax-deductible and how you can get the most deductions for your business. While tax laws are generally applicable to most businesses, only your tax accountant knows for sure what’s in your best interests. To find out if it’s the best move for you and your business, contact Peridot Consulting, Inc.