Minimize the value. If you’re looking a big ticket vehicle purchase and it won’t qualify for a Section 179 exclusion, then you may want to consider leasing Probably the second biggest purchase (next to your home) that you can make will be your car. While you’re sorting through all the details (type, new or used, color, etc), take a minute and think about how you’re going to pay for it. What if the IRS bought it for you?
That’s basically what happens when you get to turn your auto into a business vehicle. Do it right, and you’ve got a deduction PLUS you can still sleep at night.
Here’s a question that we got we were asked at USTaxAid.com:
“I’m about to buy a car, I’m going to do a loan, is it better to buy in personal and do miles or buy the car in the company? I was reading in your book today and it seemed with a car that I do a loan that it would be alot more of a write off. It may be preowned or new.”
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Answer: There are some more things we’ll need to know first to decide which is the best way for you to go.
(1) Are you going to buy or lease? Generally speaking, if you are leasing, you are better off leasing through the business. This is true even if you have to personally guarantee the lease. The personal use of the vehicle will be added back to your W-2 at the end of the year, but the tables the IRS uses instead of buying. Of course, don’t make a financial decision simply based on the taxes. You need to weigh all of the criteria and make an informed decision.
(2) Is the vehicle a ‘heavy vehicle’ or excluded because it is a utility truck, multi-passenger van or long-bed truck? If you qualify for the Section 179 exclusion, you’ll get to take an immediate expense deduction of anywhere from $25,000 to the full price of the vehicle. If you do qualify for the special tax treatment, then definitely buy (don’t lease) and buy it through the company.
(3) Will you have 50% or more business use? If you have less than 50% business use, you will be limited to the mileage (cents per mile) method. In that case, it won’t make a lot of difference whether the business buys the vehicle or you do. Your options are limited on how you take deductions.
In general, your insurance will be higher if your business buys the vehicle and titles in its name. One idea is to have you buy the vehicle personally and then have the business assume the liability if it makes sense to have the business take that deduction. Remember to make a note in the business minutes if you do that.
As you can see, there are a lot of options and the right strategy depends on your own circumstances. This is just one of the dozens of individual deduction strategies we consider as part of our comprehensive strategy for our clients.