If your company needs a car, the two options available are a lease program or to purchase a vehicle. Both of these options have a different effect on the taxes you will owe, especially when you offer a vehicle reimbursement program.
Car Lease Payments Are Tax Deductible
Car leasing payments are tax deductible. The percentage at which the company car costs can be deducted from taxes is based on the percentage of the time car is used for company purposes. However, only the interest on the car loan can be deducted.
There Are Restrictions On The Depreciation Of The Vehicle Allowance
The depreciation of the vehicle allowance is restricted for vehicles that weigh less than 6,000 pounds. However, there are no dollar limits for heavier vehicles, such as certain SUVs.
No Dollar Limit For Non-Personal Use Vehicles
There is no dollar limit for vehicles that are non-personal use. For example, a vehicle that has a permanent sign on the outside and only has a driver’s seat and a jump seat on the inside would not be subject to dollar limits. Instead, the deduction for this type of vehicle is up to the deduction limit. If you own four or less vehicles, another option is to deduct the business usage based on the IRS rate, which was 57.5 cents per mile in 2015.
Electric Cars Come With Tax Credits
When your business purchases an electric car, there is a special tax credit that becomes a part of the general business credit. However, it must be a qualified electric car.
Taxes Are Based On How The Car Is Used
Oftentimes, employees use the car that is used for business purposes also for personal reasons. One scenario is where the employee uses a company car for business purposes and your company can offer him or her a vehicle reimbursement program. Another scenario is when a company has an employee use his or her car for business purposes. When the company owns the vehicle and you use it for any personal reasons, including commuting, the business deducts any expenses from owning or leading the vehicle, but the driver must pick up income for personal use using the IRS valuation methods.
There May Be Excess Mileage Penalties
It can be more expensive to buy if your vehicle needs to drive for 12,000 miles or more because there are charges for excess mileage. There are many factors to consider, but when you weigh the pros and cons, you will be able to determine whether it makes more sense to buy or lease a vehicle. You can find more resources available at the CarDATA website.