Do you know about Business Vehicle Considerations? If you’re starting a business, you’ll likely need a company vehicle. Your sales team can use these vehicles to travel from place to place, make deliveries, and transport passengers. But there are many things to consider before purchasing a vehicle for your business. Here are five essential considerations.
6 Business Vehicle Considerations
1. Tax Implications
The Tax Cuts and Jobs Act has changed the tax laws for business vehicles. These changes include allowing the cost of some vehicles to be fully deductible in the first year of business use. This new law also changes the rules for trade-ins of business vehicles.
Buying a vehicle for business purposes is a great way to save on taxes, but it also comes with some complexities. First, you need to keep track of your tax basis, which is the vehicle’s original cost minus any improvements or annual depreciation. Second, you must keep track of the standard mileage rate. In 2017, the standard mileage rate for business vehicles was 25 cents per mile.
2. Legal Implications
If you own a business vehicle, you need to be aware of the legal implications of using it. The laws can be confusing. At JPS Accountants, we can help you sort out your tax affairs. We are independent CPAs with 50 professionals and six partners. Contact us to discuss the legal implications of using a business vehicle.
Many business owners need help understanding the underlying costs of business vehicles. Typically, monthly costs are posted in the vehicle operating costs account, and depreciation and interest are listed in the capital costs section of expenses. This is the case even for businesses that don’t need a vehicle for their primary service. Regardless of the nature of your business, it’s essential to keep track of your costs. Even if you don’t have a vehicle to offer, you should still be able to claim your mileage when you file your taxes.
When calculating business vehicle costs, make sure to include the cost of gas, oil, tires, and parking fees. You can also include repairs and maintenance of equipment. These expenses are deductible, but you should also consider depreciation that’s prorated to the number of business miles you drive.
Suppose your business owns vehicles for employees to drive, consider an insurance policy for your company vehicles. This coverage is designed to cover any accidents or damages caused by business vehicles. Employees may sometimes be allowed to take the company car home regularly. However, most commercial auto insurance policies don’t cover non-business usage. In such cases, you may need temporary replacement cars for employees.
When you’re in the market for business vehicle insurance, you’ll need to understand your specific business needs. Most personal auto insurance policies cover everyday commuting needs, but they don’t cover regular business use or equipment. Additionally, business insurance may cover damage to property or theft. Because business vehicles are more frequently used for business purposes, they should have more liability coverage.
5. Pre-Selection of Vehicles
Business vehicle ownership is one of the first decisions a business must make. Whether a company should buy, lease or rent should be based on the needs and budget of the company. While many businesses have always bought their company vehicles, many have now started to look at leasing and renting alternatives. Some companies may choose to buy because of the tax breaks or cash flow benefits, but it is essential to consider the total cost over the long term.
6. Limitations on Interest Deductions
Business owners should be aware of the new limitations on interest deductions for business vehicles. This new law will impact many types of businesses. However, there is an exception to the limitation for small businesses that do not have average gross receipts over $25 million. Taxpayers in such groups will be required to aggregate their gross receipts to determine if they qualify for the exemption.
While the new law will make it easier for small businesses to deduct interest expenses on business vehicles, it will require some modifications. For example, interest on floor plan financing is effectively excluded from the limitation on business interest expense. This is because floor plan financing property is not eligible for first-year bonus depreciation.