5 Things You Should Know about Purchasing a Company Vehicle

5 Things You Should Know about Purchasing a Company Vehicle

By Blogtrepreneur

Many businesses require a vehicle to do business. It transports both goods and people from point A to point B and allows you to keep business dealings in-house.

However, choosing a good company vehicle can be somewhat complex. You shouldn’t take the decision lightly. Here are a few things you should know before you buy a vehicle for your business:

  1. Accidents can happen, placing liability on you.

You might think that an accident won’t happen if you hire drivers with a good track record and write a rule-book with strict policies and procedures. These are good tactics for mitigating some of the risks associated with commercial car accidents, but they won’t protect you completely.

More than two million car accidents happen each year. Many of them are commercial truck accidents, costing millions in damages. Since commercial drivers are on the road more than personal drivers, they’re significantly more likely to cause an accident.

Understanding the liability that’s placed on your shoulders if your company vehicle gets in an accident is vital. You need proper insurance, paperwork, training, and other entities that will protect you in the event of an accident.

  1. Protect yourself by establishing a separate company.

This is one of the safest methods to ensure that any liability from a car accident doesn’t have the ability to derail your entire business.

“If your company frequently allows employees to drive vehicles as part of the primary business (e.g., deliveries, sales calls, on-site repair calls), protect your business by establishing a separate company or corporation whose sole function is to lease or purchase and insure those vehicles,” says Florida CPA Noah Rosenfarb. “You want to segregate that liability out of the operating company, into an entity that has no assets other than the vehicles. That way, if an employee gets into an accident, the only assets the other party can go after are the vehicles.”

Discuss your options with a financial advisor and/or an attorney. They may also be able to advise you on things like adequate insurance and handling accidents.

  1. Personal use of the company vehicle should be metered.

If you use the company car for personal reasons, such as commuting to and from work, running a personal errand, going on vacation, or letting a family member use it, there are some limitations for tax and liability reasons.

“When an employee uses a company vehicle for business purposes, the vehicle use is a working condition fringe benefit,” explains Kaylee Riley of Patriot Software. “This means the value of using the vehicle isn’t included in the employee’s income, nor is it taxed.”

“But, when an employee uses a company vehicle for personal reasons,” Riley continues, “you generally must include the value of using the vehicle in the employee’s income. And, you must withhold taxes on the value of the benefit.”

There’s also concern about having an accident while using the vehicle for personal use. If the vehicle is owned by a business, but wasn’t being used for business purposes, the liability will be on your shoulders.

  1. There are tax write-offs, but they’re limited.

You may have heard the argument that purchasing a company vehicle basically pays for itself because of the tax deductions. It’s true that you can make deductions, but they’re limited and don’t amount to the price of purchasing a vehicle.

“You can deduct the cost of business use of the vehicle using an IRS standard mileage rate (55.5 cents per mile in 2012) or the actual costs,” says Barbara Weltman, an attorney and contributor for AmericanExpress. “If you choose to write-off actual costs, you can take depreciation. However, the tax law restricts your depreciation write-off to a set dollar limit. For 2012, the limit (which is higher than it was in 2011) is only $11,160 if the vehicle is new, or $3,160 if the vehicle is pre-owned.”

If the company vehicle isn’t an absolute need, you might want to think twice about purchasing it; you might not get enough tax credits to make it worthwhile.

  1. There are ways to get more tax write-offs.

According to Weltman, heavy SUVs—those weighing more than 6,000 pounds—allow for higher write-offs because they don’t depreciate as quickly as other vehicles.

You can also beat the depreciation factor by selling your vehicle on your own rather than trading it in. You might have a gain based on the tax write-offs you were able to take.

Leasing also has advantages over purchasing your vehicle, as does purchasing an electric car. You can ask your attorney for more insights into getting the most bang for your buck for a company vehicle.

The post 5 Things You Should Know about Purchasing a Company Vehicle appeared first on Blogtrepreneur – For Busy Entrepreneurs.

      

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