Savvy business owners take their hard-earned profits and know to reinvest them back into their company. Although there are many ways to reinvest your money, like hiring more employees or purchasing additional small business insurance, investing in the right business improvements can be beneficial to your bottom line.
Buying a car for business is one improvement that may help streamline your processes and expand opportunities for growth. Whether you’re looking to provide mobile business services or need a way to get from one work location to the next, having a business car can save you money and make your work life easier. To help you make a smart investment, we’ve put together a list of tips to help you choose the best company car for your small business.
Make sure to check out the infographic below to see how a company car can help take your business from zero to 60.
Pros and cons of buying a vehicle for a small business
Buying a car is a major purchase, so it’s important to evaluate the pros and cons before you decide on a make and model.
Pros of buying a car for your business
Buying a vehicle for your small business comes with certain tax, insurance and employee advantages. Deducting car expenses from your taxes can save your business money in the long run, and with a separate commercial car insurance policy, any accidents that occur while you’re driving for business reasons will be handled through that separate policy.
Helpful tax deductions: When you purchase a car through your company, your business can deduct the costs of ownership as well as general expenses like gas and maintenance. Additionally, your company is able to deduct depreciation and even interest on the car loan if you have one.
Benefits for your personal insurance: If you or an employee gets in a car accident, any claims will be handled using your commercial auto policy. Company cars or even personal vehicles used for business require coverage from a commercial auto policy, which will take care of expenses from liability, damage or medical bills.
Valuable customer and employee benefit: With a company car, you can help your business stand out by meeting your customers where it’s most convenient for them. Additionally, having a company car is valuable for employees who may need help getting to and from work. Not to mention, it’s a great privilege for employees and can be considered a work perk.
Cons of buying a car for your business
Although business cars have excellent tax and insurance advantages, they’re also costly investments that can increase your business liability.
High upfront cost: Whether you’re purchasing a vehicle for personal or professional use, cars aren’t cheap. Think about whether your business has the funds to buy a car or whether taking on an auto loan is the best decision right now.
Increased business liability: Although you can avoid personal liability with a business car, your company’s liability increases the more the vehicle is used. Additionally, a commercial auto policy is another added expense.
Likelihood for more maintenance or repairs: Older cars are more likely to have outdated technology and problems from wear and tear. They likely won’t have active warranties on them either, and this means your business will have to shoulder the cost of expensive maintenance and repairs.
Eleven tips for buying a company car
Before you hit the gas on your decision to purchase a company car, read up on the following tips to make sure you get the most benefits for your business.
1. Determine what your business can afford
Whether you’re a new business owner or have been doing this for years, you should never buy anything you can’t afford. Take a look at your accounts and make sure your business can spend the money before you make a purchase or obtain a car loan. Remember to factor in expenses like gas, insurance, maintenance and even interest if you plan on using financing. You can also try using this car affordability calculator to estimate how much of a loan you can take on.
2. Buy the car through your business
If you plan to use the car solely for your business, you’ll get the most tax benefits by purchasing the car through your company. Companies are allowed to deduct general car expenses such as repairs, gas, oil changes and tires. In addition, businesses can deduct depreciation and other costs, like car loan interest, that individual car owners can’t.
3. Pick a model that will fit your needs
When planning your business car purchase, you’ll want to consider what type of vehicle best fits your needs. Popular commuter cars are great for getting around quickly and efficiently, but you may need more cargo space if your business will use the vehicle for deliveries. Take a look at the vehicle types below to see what might be best for your business.
Common business vehicle types:
Common jobs and industries:
Cars and SUVs
4. Prioritize necessary car features
In addition to picking the right type of vehicle, your company car should have the necessary features to allow you and other employees to do their jobs. For example, if you’re a successful realtor who often drives around your clients, investing in the latest safety features like lane-keeping assist or automatic emergency braking may be a top priority for client safety. Whatever features your business requires, make sure you prioritize the ones that help you achieve your business goals over any extras that are just nice to have.
5. Try buying used
For many small businesses, buying a new car isn’t the most affordable option. If your business values function over form, buying a used car can help you save on both the upfront costs and depreciation. It’s important to note that older cars do come with some risks, given that they’re more likely to need repairs, so it’s wise to have a trustworthy mechanic inspect the vehicle before you purchase.
6. Consider leasing
Another way to afford a company car is by leasing a vehicle. If you’re a micro business and can’t afford increased overhead costs, getting a car loan with high interest may not be the best move. With a lease, you can reap the benefits of having a business car without the high upfront cost of a down payment. Leasing also allows you access to newer car options, provides a predictable monthly payment, and if any repairs or maintenance are needed, they’re handled by the leasing company.
You also won’t need to worry about the value of your company car depreciating to an amount below what you owe on a car loan. Although you won’t be able to deduct depreciation costs from your taxes if you don’t purchase the car, you can still get certain tax advantages, like being able to deduct your commercial lease payments.
7. Keep fuel economy in mind
Even though a company car is a tremendous asset to your business, fuel expenses can pile up fast. If you plan to drive around a lot for business purposes, it’s worthwhile to explore a vehicle with good gas mileage. Some fuel-efficient electric vehicles or plug-in hybrids can also qualify for tax credits — meaning more savings on your business car.
8. Think about your brand
Your company car will be an extension of your business, so you’ll want to make sure that whatever vehicle you choose is relevant to your brand. Not every industry prioritizes aesthetics, but consider whether your car needs to impress your clientele or keep up with the competition.
Additionally, consider your car as an advertising opportunity. If you’re looking to get the word out about your services, it may be advantageous to brand your car with the company logo and contact information. This way, if you or your employees are driving all over town, you’ll get added exposure everywhere you go.
9. Research tax write-offs for your business
Having a business car comes with a host of tax benefits, but it’s best that you read up on what tax write-offs you’re actually eligible for before buying a car for business. This will help you keep the appropriate documentation to successfully write off your expenses.
Below you’ll find the two methods you can use to deduct ownership and operating expenses for your business vehicle. Sole proprietors will qualify for either method, but LLCs and corporations will need to use the actual expenses deduction. If you qualify for both, it’s important to crunch the numbers or talk with an accountant about which method will give you the largest deduction.
Standard mileage rate Self-employed individuals are eligible to use the standard mileage rate to deduct the cost of operating a car for business use. The current standard mileage rate is 57.5 cents for every business mile driven. Expenses like registration fees, parking fees and tolls are also eligible for deduction with the standard mileage rate.
You must choose the standard mileage rate in the year that the vehicle is first used for business to be eligible for it in later years. After the first year of business operation, you’ll be allowed to choose from the standard mileage rate or actual expenses method.
Actual auto expenses If you have high operating costs for your company vehicle, it may be better for you to opt for the actual expenses method of deduction. With the actual expenses method, you can deduct the ownership and operation costs listed below:
10. Negotiate for the best price
Just like if you were buying a car for personal use, negotiating the price tag can help you get the most bang for your buck. Look into the fair market value price of your preferred company vehicle using an online appraisal site like Kelley Blue Book and use that information to bargain for a better deal with the seller.
11. Look into commercial car insurance
Whether you have a company-owned vehicle or a personal one that you use for business, it’s best to get covered by a commercial auto policy. These policies are specifically designed to protect vehicles used for business and offer protection for liability, physical damage, medical expenses and coverage against uninsured drivers. Remember to compare quotes to find your most affordable rates.
For business owners, reinvesting profits back into improving your company is money well spent. Buying a car for business is one way to invest in your business’s improvement, but it’s crucial that you spend your money wisely. Use our tips to maximize the benefits of your company car, and remember to protect your new business investment with the right auto insurance.