It’s common for entrepreneurs to buy vehicles for business purposes. Business vehicle purchases can expand & improve businesses, get you tax write-off and many other benefits. This is a must read guide for buying a vehicle like car, truck, RV or van for your business.
Primary use of Buying a Vehicle for Business
If your business is purchasing a car or a vehicle, you have to ask the question, why is your business purchasing this asset? All vehicles are long-term assets and will likely be purchased with a long-term liability, so considering how much money the purchase can make for you is always a good idea. Eliminating unnecessary features that cost more will give you a better idea of how the car will perform as an asset and what car you should buy.
For example, if you need a business vehicle for short trips to carry documents, thereby saving on courier expenses, a small, second-hand compact car might be best. If you’re a trades person or someone who carries a lot of equipment as part of your job, then a Light Commercial Vehicle (LCV) or van makes good sense.
Business Vehicles Impact On Cash Flow
Don’t make the mistake of buying vehicles all at once, in cash. You might definitely need the vehicles, but it can tie your hands from a cash-flow standpoint. A poor cash flow can limit your ability to grow the business. If you’re in good shape financially and have some working capital in the bank, only then buy a vehicle for business in cash.
Cost of Owning a Business Vehicle
There are direct and indirect costs involved in owning a business vehicle. It is not a one of purchase and entry in your business books. Apart from the cost of buying a car, there is also the running and maintenance cost associated with the vehicle. You will now need to track your fuel, repairs, maintenance, insurance and tires.
Purchasing A Used Vehicle
You can consider purchasing a used vehicle rather than a new one. Vehicles are bad investments, and the difference between what you’ll pay for a new vehicle versus a used one can probably be better spent on other areas of your business.
Do you really need to go and lay out money for a business vehicle? Depending on both your business and personal situation, buying a used vehicle or converting a vehicle that you already own to business use is probably the most cost-effective option for you. This lets you put your money to better use elsewhere in your business.
Tax Benefits and Costs for Buying a Vehicle for Business
There are certain tax benefits available to entrepreneurs if you buy a vehicle for business. Of course the major issue, if you use vehicles in your business, is keeping adequate records of your business usage and personal usage. Before you obtain a vehicle for your business, be sure that you understand what it will mean for you when it’s time to file your tax return. Depending on which you can claim depreciation and other benefits. There are also several tax implications that can result if you obtain and use a vehicle for your business.
Employee Use of Vehicles for Business
Employees who drive company vehicles can take a deduction for expenses they incur while driving on company business, but not for personal usage. To be deductible, these expenses must be unreimbursed by the company. However, when it comes to costs for business vehicles, you as the business owner can deduct this employee car use costs, and they are tax-free to the employee.
Liability of Business Vehicles
Whatever route you take with your vehicle purchases, don’t forget to factor in liability. 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.
You should 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. It also gives you the added benefit of claiming input credit on purchase of vehicle through GST in some countries.
Buying or Renting Business Vehicles?
Renting is preferable to buying when
- You plan on putting low mileage on the business vehicle
- You need a car on a short-term basis. Renting over a long period of time could cost you more than buying a vehicle.
- You need to upgrade your business vehicle more frequently. Renting a car means you don’t have to make a permanent commitment to a given make or model.
- You can afford to rent but can’t afford to buy the vehicle.
Buying is preferable to renting when:
- You drive extensively for business. There’s no fee for excessive mileage on a business vehicle you own.
- You want to own your vehicle and be in control of what you do with it and how you take care of it.
- You have the funds to purchase a vehicle outright or via monthly payments. Owning the car also makes you eligible for the vehicle depreciation deduction.
- You can keep up with regular maintenance and running cost.
- You have good credit and can obtain a low-risk business or vehicle loan.
Compare Your Options
Analyze your situation before you rush to the dealership to purchase a car or truck. It’s not that complex. Establish columns to compare purchase cost, running cost, mileage, leasing options & cost, and your rows can be different types of vehicles and different scenarios.
You can certainly do some initial research and calculations by simply pulling information off the web to make an overall analysis. It could save you a lot of money. If you are going to spend thousands of dollars on a vehicle, it’s valuable to take a few minutes to analyze the numbers.
Good Luck! Finding your next Business Vehicle.
Do you have or follow any guide while buying a vehicle for business? Comment them on Trdinoo for others to learn. Please subscribe and share us with your friends and networks.