■ RICHARD PERRY / Contributed
Greetings from the Hemet Car Guy,
In past articles, we discussed people buying cars for their Uber business and the difficulties behind getting a loan approved if Uber or Lyft driving is your only means of income.
At car dealerships, usually their lenders only do personal car loans not commercial/business loans. Fortunately for us at VIP Autos we have lenders that do auto loans that can be put in the business name as long as the business is established with credit or the business owner/CEO/shareholder can cosign.
Purchasing a car for the business has many tax advantages for the owner, whether the owner is the business or an employee. Here’s what you need to know about cars as a business deductible:
– Only actual business use of the car is deductible as a business expense. Commuting expenses from home are not deductible business expenses and neither is personal travel. Whoever drives the car must keep good records on business travel expenses in order to have those miles allowed as a deduction.
– Many banks have seasoned requirements for small business loans, which means you can usually only finance a car if your firm has been in business for at least two years. When applying for a loan, provide your lender with at least two years of business tax returns and cash flow statements. You need a positive cash flow to get a loan. Depending on the size of the loan, your lender may also ask for a business plan that details the purpose for buying the car.
Buying a car can benefit the company or the employee who owns a business car with the cost savings from tax deductions. This deduction comes in two parts: the deduction for ownership of the car and deductions for costs of driving the car for business purposes.
•The company can deduct depreciation expenses at the rate in effect at the time the asset is put into service (begins to be used).
• The company can also deduct general auto expenses for business use of the vehicle, like maintenance, gasoline, and tires.
• If the business owns the car, personal use of the car by the employee must be documented and the company must report personal use as taxable compensation on the employee’s W-2.
• Interest on a car loan is deductible to a business as an ordinary and necessary business expense.
• Insurance for a company-owned car may be cheaper than for an employee-owned vehicle since businesses can get leased and multiple car rates along with other discounts.
• If a company-owned car is involved in an accident, the driver’s personal insurance rates and liability are minimized.
My personal tax guy says, “For the owner, the cost of the car as a business asset and the costs for business use of the car are both fully deductible from business taxes. For the employee, the cost of the car as an asset is not deductible even for interest expenses on a car loan. The cost of business driving expenses are reported on Schedule A of Form 1040, but these costs are only deductible if they are greater than two percent of adjusted gross income.”
No doubt, having the business owning the car allows for more deductions, such as depreciation. Most of these deductions are not available to individual employees on their personal tax returns.
Here is another example our dealership decided to lease a car for business use and then have the option to resell it at the end of the lease term. However, for some businesses you may not have control over how much mileage the employee puts on that car. For example, our car lease term has a 12,000 mileage restriction. If you (as the owner) drive a leased car, you may be able to control personal use and keep costs down. Every situation is different, but consider looking at the leasing option.
Besides being the Hemet Car Guy, I volunteer by serving on the Board of Directors for the Hemet San Jacinto Chamber of Commerce. I see business owners driving to the chamber events promoting their business and this topic often comes to mind.
Are you are using your car for business? It does have its advantages.
Disclaimer: I am not a tax guy nor do I play one on TV. The information in this article is intended to be for general purposes, and is not intended to be used as tax or legal advice. Every business situation is different and federal and state laws are constantly changing. Please consult your tax or legal advisor before taking any action that could affect your business.
Richard Perry is the owner of VIP Autos in Hemet and is known to his readers in the Chronicle as the Hemet Car Guy.