As an invested entrepreneur or small business owner, you might consider the possibility of buying or leasing an official business car. This vehicle could be used exclusively for business purposes, or could be used by employees as both a personal and professional vehicle. So under what conditions would a business car be a good investment? And how can you ensure the situation remains in your favor?
First let’s take a look at some of the advantages of having a business car:
- Depreciation deductions. After buying a car, you’ll be able to write off its depreciation on an ongoing basis. Over the course of one to five years, you’ll use one of several depreciation techniques to offset your business income, and ultimately save money.
- Auto expense deductions. You’ll also be able to deduct certain expenses related to the upkeep of your vehicle. For example, you may be able to deduct repairs and maintenance, auto insurance costs, and the costs of gasoline.
- Employee perks. You can offer a business vehicle as a kind of reward for some of your employees. For example, you may allow your VP of Sales to drive a company car, simultaneously rewarding them for their past efforts and demonstrating to your current employees that there are additional benefits to working hard.
- Advertising and impressions. In some cases, you may be able to use the company car as a medium for advertising, or as a way to make a better impression on clients. For example, you might purchase a custom license plate that advertises your brand name, or use a bumper sticker or decal to show off your brand. You could also purchase a luxury vehicle to make a bold impression on would-be clients.
- Cheaper insurance. In many cases, insurance for business vehicles can be lower than insurance for individuals. This is especially true if you’re going to own and manage several vehicles; you may qualify for a discount.
Factors to Keep in Mind
There are some considering factors you’ll need to keep in mind, however:
- Auto insurance specifics. You’ll need a good auto insurance policy, and one that doesn’t cost you a fortune, so it’s important that you learn how auto insurance works for businesses, and what types of policies are available. Depending on what type of vehicles you have and how many you have, auto insurance may be one of your biggest auto-related expenses, so it’s important to shop around for the best rate.
- Industry-specific considerations. Some industries and individual businesses may have a unique need for a specific type of vehicle. For example, a roof repair company may need a company van or truck to haul their equipment to their customers’ homes. For these businesses, buying a company vehicle is a no-brainer.
- Make and model. If you’re buying a car for utility, you’ll have a narrow range of options, but if you’re buying one to make an impression or for your employees to drive around the city, you’ll need to carefully consider the make and model you go with. In general, high-end brands tend to last longer and make a more prominent impression, but they may also depreciate faster and cost more upfront.
- Buying vs. Leasing. One of the biggest decisions you’ll face is whether to buy or lease your company vehicle. There are some advantages to each approach. If you buy, you’ll officially own the car, which means you’ll be able to count it as a business asset, and you’ll be able to sell it if you ever decide to in the future. However, you’ll also be required to pay a greater amount of money upfront. The tax code limits the amount of depreciation you can claim on luxury cars as well, so in general, the more valuable the car is, the more advantageous it is to lease the car instead of buying.
- Tracking and deductions. Regardless of whether an employee or a business owns the car, only business-related expenses are going to be deductible. For most businesses, that means carefully tracking when and how the vehicle was used for business and when it was used for personal matters, then using that info to calculate deductions accurately.
So should your business have an official company vehicle or a fleet of cars? That depends on what you’re using them for. Some businesses will strongly benefit from having a business-owned vehicle, or may practically require one. Others can easily get by without one. If you’re a small business on the fence about buying a company car, it’s often better to err on the side of not getting one; it’s a big investment to make if you’re only on the fence, and there are complexities of business car ownership that aren’t worth managing unless you can see a clear advantage.