Buying a Company Car

By Gregg Schoenberg Monday, August 13, 2012

If you and/or your employees are racking up a lot of miles on a personal vehicle for work purposes, then it may a good time to look into buying a company car. During periods when interest rates are low, there are some pretty attractive financing terms available. And there are always 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 54.5 cents for each mile (current as of the 2018 tax year) 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. As the IRS states, the maximum amount you can deduct each year depends on the date you acquired the passenger automobile and the year you place the passenger automobile in service.
  • 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, you'll still have to pay for gas to operate them. 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. 

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.

Note: This post was originally written by Gregg Shoenberg in 2012. It has been updated as of September 2019.

*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.

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