When one has been able to purchase a car specifically for the purpose of business, then they need to understand that there are some benefits that they are allowed to be enjoying with regard to taxes. This is in line with when someone has been able to buy a new car for themselves and not an old car. One is normally allowed to remove a very big chuck of their entire cost of the vehicle within the first year that one has been able to use the vehicle only if it is being used for the purpose of business and not for personal use.
This is very essential for small businesses as they have the advantage of having this tax deductions. One may have a vehicle that is specifically for business use or even have a personal vehicle which they use to run their businesses with. Hence, one needs to understand that when they buy a car for personal use, it actually does not have any taxable benefits as compared to when a business owns a car as they are tax-deductible. One is normally advised to put the vehicle in the name of a corporation to save on taxes being paid only if it’s for work purposes.
The Taxable Benefits That Come Along With Purchasing a Car for Business
Deducting Operating Expenses
When it comes to the using of a car for the purpose of business, one is actually allowed to deduct all their expenses which they were able to incur during the whole time that they were able to do errands with regard to business. The various deductions may include maintenance, fuel. And at times even car washes may easily be added to the deductible expenses that one incurs while doing business with the car.
Instead of one having to deduct the actual vehicle expenses, one is normally allowed by the tax rules to have an alternative deduction methods whereby they may easily use a flat per-mile rate that is normally applied to the mileage that the car is driven within the whole year. One may end up deciding which works better for them with regard to their business between deducting the actual expenses and the mileage rate.
Depreciating the Cost
One may easily be able to add in the deductible amount that they are able to calculate with regard to the depreciating level that the car is amounting to every year. Guidelines are normally provided by the tax rules for the term to be used for one to write down the cost of a new vehicle.
In the vent that a business leases a vehicle instead of buying it, then they are very much allowed to deduct the lease payments that they have been able to incur instead of the depreciating cost of the vehicle, and the yearly write-off amount is normally very comparable. In addition, in the event that a vehicle has been financed when one purchased it, then the interest rate that accumulates on the loan is also deductible.
Big Deductions for Big Vehicles
In the vent that a business is able to buy a large vehicle that is bigger than the normal cars or standard pick-up trucks, then one is normally allowed a full deduction on the purchase price for the year of purchase. According to section 179, business equipment are allowed a deduction of up to 100% write-offs which include the large vehicles that fall under these criteria of tax rules. Before, the section 179 was specifically for small owned businesses, but today equipment or vehicles that qualify as well are able to enjoy the tax deductions.
Keep Accurate Records
Any business that would want to enjoy these tax deductions at all times should be able to keep very accurate records of their business owned vehicle expenses. This is because the Internal Revenue Service normally expects that the records will be verifiable with regard to the deductions. As much as one may be the owner of their small business, they are still employees and are expected to obey the tax rules for the personal use of the company vehicle. In the event that one ends up using the company car for their personal use, this is then considered as a fringe benefit and any personal use of mileage must be separately reported from the business use of the deductions.
Vehicle Requirement for Section 179 Deductions
In as much as the deductions are very nice, one needs to understand that there are rules that are attached to them, and they are expected to follow them one may end up not qualifying for the deduction due to the fact that they did not look at the restrictions that easily govern the section 179 deductions. Hence, it is always important to keep in mind that there are rules that apply to the deduction and some of them are listed below.
- The large vehicle/SUV is expected to be a four wheeled vehicle that is for carrying passengers in public roads, streets or highways.
- The SUV is normally expected to be new and not at all used
- The vehicle is not allowed to be used for transporting other people or property for hire
- One cannot deduct as a business expense more than the cost of the vehicle
- One is supposed to make sure to put the vehicle at work by December 31 in order to be able to prove that it was used for business in case of tax auditing. Timing is normally everything with this rule. Hence, always do so before the year ends in order to enjoy the benefits that are attached to it
- One is only allowed to remove the business use of the vehicle and not the personal use of it.
- One is not allowed to deduct more than the business net income that they are able to earn per year.one needs to be in a position to have their books well-balanced at all times.