written by Jay Logal
Clients often ask if there is an advantage to buying their vehicle in their business. Unfortunately that is not a black and white answer. There are many types of vehicles that can be purchased (passenger car, truck, SUV, van) in this article I will be solely reviewing passenger automobiles. Passenger automobiles are defined as any four-wheeled vehicle manufactured primarily for use on public streets, roads, and highways that has an unloaded gross vehicle weight rating 6,000 pounds or less.
Advantages of owning a luxury automobile in your business is that all expenses of the vehicle are born by the company. These expenses include gasoline, insurance, repairs, maintenance, and property taxes.
The primary disadvantage is that the personal use of the company vehicle needs to be calculated and added to your salary as income. This requires maintaining a mileage log to support the business and personal use of the company owned vehicle.
Another item to consider is depreciation and in the case of passenger automobiles I consider depreciation to be both an advantage and disadvantage. The advantage is the ability to deduct part of the cost of the vehicle. The disadvantage is that depreciation is limited each year. In 2014 the limit was as low as $1,875. Depending on the cost of the passenger automobile it could take in excess of 10 years to fully depreciate the vehicle.
Another option would be to own the vehicle personally and use the standard mileage rate. The standard mileage rate is an amount the IRS sets each year that can be used as a reimbursement amount in lieu of actual expenses. In 2015 the standard mileage rate for business purposes is $0.575 per mile.
The advantages of the standard mileage rate is that there is no need to track actual expenses including depreciation. The rate has a depreciation component built into it and is often accelerated over the actual calculation of depreciation. Additionally there is no need to calculate a personal use component for the vehicle to add to your salary because it is your vehicle.
The disadvantage of the standard mileage rate is the need to document the business miles driven which needs to include the mileage to and from the locations and the business purpose of each trip. This mileage log should be submitted to your company as part of an expense report. This represents an expense to the company, but does not result in taxable income to you.
Each case is unique and should be analyzed based upon its own merits. Personally I have found that when dealing with passenger automobiles it is often more advantageous to use the standard mileage rate instead of the company buying the vehicle and taking actual expenses.
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