First off, look at how the business will use the vehicle. Will employees of the business be driving the vehicle, besides the owner of the company? If so, you want to probably buy that under the business’ name, so you can list it on your commercial insurance policy and make sure that your risk is covered, if an employee were to have an accident.
If this will be a vehicle that will be primarily driven by the owner of the business, then you may want to look at a couple of different scenarios. If you buy the vehicle through the business, first off you’ll probably have some higher costs. You will again have to cover it on your commercial insurance policy, which sometimes eliminates some discounts you may get through your insurance carrier, if that vehicle is owned personally.
You will also probably need commercial license plates, commercial property taxes, depending on your state and local taxing and also have commercial financing rates, if you’re financing the vehicle’s purchase. Generally we find the interests rates are higher for a business purchase than a personal purchase.
Those are some costs to consider. Secondly, if you choose to buy the vehicle through the business, there will be some W2 effects. The owner will have to have their business mileage and personal mileage separated and they will have to have an inclusion in their W2 and pay some social security, Medicare taxes on the personal use part of the vehicle, if the business owns it and they drive it for personal purposes as well. Keep in mind commuting from home to an office is also a personal use expense. It is not a business expense.
Next up, if you choose to buy the vehicle through your personal name, there are some pretty good advantages. You can have the business reimburse you mileage at the federal standard mileage rate, which is currently about 56 cents a mile. That changes from year to year, but that will allow you to submit your business mileage to the business and have them reimburse it to you tax free at that amount. There could be some substantial tax benefit to doing it this way.
If your vehicle is over 6,000 pounds GVWR (Gross Vehicle Weight), then there may be some special tax write offs (Section 179 deduction and Depreciation) that we can utilize. That’s generally going to be 4 wheel drive vehicle or a bigger SUV, almost always 4 wheel drive. There are some special tax deductions that you can use, if you’re using the vehicle for more than 75% business purpose.
We can talk a little bit about that if you run into that scenario, but just to kind of give you a summary, I think in most cases if you have an employee going to be driving the vehicle, you want to buy it through the business. If it’s strictly the owner, most times you’re going to be better off to buy it personally. You have a little more flexibility and you may be able to gain some tax advantages by reimbursing yourself that business mileage.
I hope these tips help you. If you have further questions about buying a vehicle, don’t hesitate to let me know. Thank you and have a great day.
Donna Bordeaux, CPA with Calculated Moves
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