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Depending on the business venture you’re in, you might require a business vehicle. This might be to provide more services to your customers, or it could for other business uses.
Some businesses that highly demand vehicles are plumbing, installation, electrician, and construction jobs, among many others. The main aim of purchasing a vehicle for your small business is to reach your customers with ease and convenience. For example, if you’re a plumber or an electrician and do house calls, a business vehicle is what will likely get you there.
There are different options to acquire a vehicle strictly for your small business endeavors. They include:
Transfer your personal car into the business name.
Leasing the vehicle
Purchasing a business vehicle from a dealership or a private owner.
Let’s find out more about each option and the one that is the most suitable for your small business.
1. Transferring your personal car into the business name
This is a cost-effective option for many small businesses. Maybe you own a vehicle, and it’s a perfect fit for your kind of business. It has enough room to carry your accessories and equipment to work, and it still moves smoothly.
If this is the case, you can always turn that vehicle into your business vehicle. However, what you need to understand about this option is that if the vehicle was acquired through a lease, the IRS will keep making deductions from the business.
The only noticeable difference for this option is that market value will change. The vehicle’s fair market value will now be determined by the exact date you turned it into a business vehicle and not the date you first leased it.
2. Leasing a car through your business name
In some instances, leasing a vehicle for your business might seem like the best choice. Often this is because the business owner wants to make smaller mostly payments rather than making a purchase right away.
Also, businesses will opt for leasing a vehicle for their business if they do not need miles covered. This is mostly when the business owner knows they won’t be driving very far to attend to business commitments.
However, there are some important details to keep in mind when deciding to lease a vehicle for your business.
For example, when you lease a truck, van, or car for your business for 30 days or more, you’ll have to add an inclusion amount to your income for every tax year you’ll be leasing the vehicle.
The inclusion amount is mainly calculated by multiplying the yearly business and investment use percentage with the vehicle’s fair market value percentage. It’s important to note that the IRS provides the fair market of any leased vehicle in a particular year.
3. Purchasing a vehicle for your business from a dealership or a private owner
This is the best option for you if you’re planning on using the vehicle for long distances. A new or fairly used vehicle from a dealership or a private owner will provide you with the service you need for your business.
The best thing about buying a new vehicle for your business is that you can drive it anywhere, without worrying about adding more miles to your personal vehicle. This is particularly very useful for those who have personal vehicles through a lease. You won’t have to worry about exceeding a mile limit as it is your business vehicle.
Buying a brand new vehicle for your business from a dealership like the Toyota dealership in Cincinnati Ohio, or a private owner also comes with tax benefits. The IRS will end up writing off any transportation expenses you incur in a particular tax year.
Other deductions include the interest paid for the vehicle loan and, the depreciation of the vehicle if it’s being used for your business ventures over 50% of the time.
Tax Deductions For Business Vehicles
When you purchase certain vehicles for your business, its overall cost will be deducted over some time. Although the cost is never deducted in full in the first year of purchasing it, it will be over five years.
The type of vehicle you purchase for your business use is subject to several tax deductions. Factors such as the type of vehicle, whether an SUV, car, truck, or van, and smaller factors like the color and specific options can impact how much tax deductions you get.
However, the biggest factor that will affect the tax deductions for your business vehicle is weight. The weight of the vehicle you purchase for your business will greatly impact the tax reductions you can claim from the IRS.
There are two main types of deductions that can be subjected to the vehicle you purchase for your business.
The section 179 deduction
This type of deduction enables taxpayers who purchase a vehicle for their business to deduct part of or all the cost in the first year of the vehicle’s business use.
Bonus depreciation deduction
This deduction enables the taxpayers to deduct up to 100% of the cost of the vehicle; if they didn’t fully deduct it with the section 179 deduction.
Factors Considered In Business Vehicle Tax Deductions
Gross Vehicle Weight Rating (GVWR)
This is undoubtedly the most common factor people overlook when purchasing vehicles for business. Ironically, it’s also one of the most important factors.
If you purchase a truck, SUV, or van with a GVWR>6000 pounds you’re eligible to get a 100% tax reduction in the first year of business use. If you can afford such a heavy vehicle for your business, it’s the best option to go for.
Vans and trucks
A truck with a 6-feet bed or a van that can seat at least nine people are likely to get you maximum tax reductions in the first year of business use. Also, at times you can get the full-cost deduction for the car in the first year.
New or used vehicle
There are no tax deduction benefits for purchasing a new vehicle over a used vehicle and vice versa.
Purchasing a vehicle for your small business is one of the best decisions you can make. Not only due to the tax deductions you’ll get, but your service delivery will also improve. If you’re looking for a reliable vehicle for your business, you might want to contact the Toyota Dealership in Cincinnati Ohio.
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