If you and/or your employees are racking up a lot of miles on a personal vehicle for work purposes, then now may a good time to look into buying a company car. Interest rates are still near historic lows, so there are some pretty attractive financing terms available. And while car sales have ticked up recently, there are still plenty of good deals available if you’re willing to shop around and use your negotiating skills. Before setting out for the car lots in search of your company vehicle, make yourself familiar with these 4 tax and financial considerations to find the right car, at the right terms, to suit your business.
- Buy versus lease – In the long term, you’ll end up saving money by buying your cars rather than leasing them. But if buying isn’t an option and you need a company car, the good news is that leasing has some tax advantages. As long as the vehicle is used solely for business purposes, you are allowed to deduct the full cost of the monthly lease payments, as well as the vehicle’s operating costs, such as gas and servicing.
- The right write-offs – The IRS allows you to take a tax deduction of 55.5 cents for each mile that your company car is driven for business purposes, so be sure to keep accurate records of its use. You can also choose to forego the per-mile deduction and instead write off the actual costs. If you decide to go this route, then you can depreciate the cost of the car, but there are limits to the depreciation you can claim in a year. For 2012, those limits are $11,160 for a new vehicle and $3,160 for a used one. You may need to do some number crunching to determine which write-off method is more beneficial to your firm.
- Consider the long-term costs – When it comes to cars, the price you pay for the vehicle is only the beginning. Your long-term total costs will also include taxes, fees, financing charges, insurance, maintenance, and repairs. While it’s impossible to predict all of these with certainty, there are some handy tools on the Web, like this helpful formula from Edmunds that can help you compare the expected total cost of owning different vehicles.
- Don’t forget about gas – While you might be able to get a great deal and attractive financing on a number of cars, one thing that hasn’t gotten more affordable is gas. So if you’re going to be putting a lot of miles on your company vehicle, you can wind up saving a good deal of money in the long run by choosing a fuel-efficient car. And if you’re the cutting-edge type and are interested in trying out the ultimate in fuel efficiency, the government is offering a tax credit of $7,500 to electric car buyers in 2012.
With the preceding information in mind, you should be well-equipped to find a good choice for your company at a good price. But because some of the financial calculations discussed here depend on current tax law, you’ll probably want to talk with your tax advisor about the “buy versus lease” decision and utilizing the proper write-offs before committing to buying your new company car.