If driving to clients and job sites is an important part of your business, investing in a company car may be a useful option. When deciding between employee-owned and company-owned vehicles, consider which option best supports your business goals, your budget, and the needs of your team. As you make this decision, ask yourself these questions:
What are the tax benefits? When you own a company car, you can claim tax deductions for business-related car expenses such as gas, maintenance, new parts, interest paid for auto loans, and depreciation due to wear and tear. For details, look at the guidelines in IRS Publication 463. Accurate recordkeeping is extremely important, so make sure your employees carefully record mileage and expenses. You cannot deduct costs associated with personal errands an employee may have permission to use the company car on your taxes. You’ll need to record this use as taxable compensation on the individual’s Form W-2.
Do cars affect my company’s image? Company cars may be an important representation of your brand. In certain industries, vehicles are sometimes viewed as symbols of success or professionalism. The quality and attractiveness of employee-driven cars may influence how clients and prospects view your business. Owning cars for business also gives you the option to decorate them with branded graphics if that’s important to your industry.
What about insurance? It’s important to think about insurance coverage. As a business, you can sometimes arrange better rates for company-owned vehicles if they are leased or if you’re covering multiple cars. This can also benefit your team. If one of your employees is in an accident while driving a company car, your coverage may help reduce your employee’s personal liability and the consequences for his or her insurance rate. Plus, if your business owns a fleet of vehicles, this accident won’t necessarily raise the insurance rates on your other cars.
Would employee-owned cars be easier? Depending on the size of your business, having employees rely on their own transportation and reimbursing their travel expenses may prove simpler. Again, it’s important that your team records their mileage and expenses for tax purposes. If employees have unreimbursed business travel costs, the IRS allows them to deduct these expenses as a miscellaneous itemized deduction (if greater than 2 percent of his or her adjusted gross income). But unlike for company-owned cars, employees can’t claim a tax deduction for interest paid on a personal auto loan.
When deciding whether your business should invest in a company car, consider your financing options.