Having a car for your small business can offer many advantages, but it’s important to know that owning a car is different for businesses than for individuals. In fact, companies where employees must travel don’t always need to provide vehicles. If owning a company car is right for your business, learn how to comply with government rules – while getting the most out of your investment.
Buying a Company Car
When used for business, both company- and employee-owned vehicles have opportunities for tax deductions. But if your business is a legal entity such as an LLC, you can limit your personal liability by owning a vehicle under your company’s name. To do this, you’ll need to use your EIN Number from the IRS.
Remember, vehicles owned by your business are meant to be used for that business. If you purchase a vehicle that’s unrelated to your line of work, this may look suspicious and could trigger an audit from the IRS. You should avoid the most expensive luxury vehicles unless this type of car is necessary (such as for sales reps).
Purchasing a Fleet
If you need an entire fleet of vehicles, you may get the best deal directly from the manufacturer. A large car manufacturer can provide an entire fleet of vehicles for a company, but the buyer must usually meet specific requirements. If you need only a few vehicles, a traditional dealership is often best.
Registering and Insuring Your Vehicle
Commercial and privately owned vehicles have different registration processes. As a small-business owner, make sure the car payment comes from a business account and that your business is the listed buyer on all paperwork. The process for registering business-owned vehicles depends on your state. Be sure to check your state’s motor vehicle agency online to see whether there are special rules for how the vehicle can be used or whether it can travel out of state. If you’re located in New Jersey, you can get started here. You’ll also need to sign up for commercial insurance, available through most major car insurance companies.
Handling Taxes and Deductions
You can claim federal tax deductions for car expenses related to your small business. These expenses can include depreciation, interest on a vehicle loan, fuel, tolls, registration fees, insurance, and repairs. There are two ways to determine your deduction. You can multiply the vehicle’s annual mileage by the “standard mileage rate,” a number the IRS determines each year. You can find this number and more details in IRS Publication 463. But if your business operates at least five vehicles, you must calculate the actual total of your vehicle operating costs. If that’s the case, saving receipts and recording all vehicle expenses is very important to claiming this deduction.