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Loans > Auto
Buying a car for your business
JOYCE M. ROSENBERG, AP Business Writer. Associated Press.
Copyright Associated Press
NEW YORK (AP) _ A new car might be a status symbol or image statement in your personal life. But if you plan to use it for your business, you should remember that it's also a piece of equipment, and therefore deserves some thoughtful consideration before you plunk down money on a sales or leasing contract.
"Look at the economics of the situation," is the advice from Barbara Weltman, an attorney in Millwood, N.Y., and author of "J.K. Lasser's New Rules for Small Business Taxes."
Many people buy cars, even for their businesses, on emotion. But you need to think about how much any new vehicle will cost you to buy and operate _ or whether it might actually save you some money. As you comparison shop, you need to think about the financial pros and cons of each vehicle.
For example, Weltman noted that under new federal tax laws, a business that buys a vehicle that weighs in excess of 6,000 pounds _ and some SUVs and pickup trucks fit that category _ can deduct up front $7,660 of the purchase price in the first year of ownership. Under 6,000 pounds, the deduction falls to $3,060. A few pounds less could cost you hundreds of dollars or more in taxes.
There's also the question of buying vs. leasing. The big question to ask is how long do you expect to have the car?
"If you're talking short-term, two to three years, then leasing is probably better than buying," Weltman said.
Many small business owners seem to be leaning toward leasing. Steve Kalafer, chairman of Flemington Car & Truck Co. in Flemington, N.J., said 75 percent of the cars sold to small business owners at his company are leased.
"That's driven by the advice of their accountants, who tell them they should be investing their cash into their business instead of into their autos," he said.
But Kalafer said some business owners have also been drawn to buying because of zero percent financing.
Another consideration is who should own the car. If your firm is a corporation or partnership, would it make more sense to have the business own the car? One factor is whether the company could get a more favorable insurance rate than you're able to get personally.
Before you even look for a car, you'll likely find it pays to familiarize yourself with how tax laws treat vehicles used in a business.
Many company owners use their cars for personal as well as company purposes. That affects how much of the vehicle's price and expenses that can be deducted on a business income tax return.
Under the Internal Revenue Code, you must determine how much of the vehicle's use is for business purposes, and how much for personal purposes. If, for example, you use it 60 percent for business and 40 percent for family errands and trips, then you can deduct only 60 percent of your expenses.
In determining what the expenses are, the IRS gives you a choice _ keeping track of the actual expenses, including lease or loan payments, depreciation, gas, maintenance, insurance, car wash, etc., or keeping track of mileage. Alternatively, as of 2002, you can deduct 36.5 cents per mile that the vehicle was used for business; if you drive the car 1,000 miles on business, you could deduct $365.
A caveat: You cannot deduct both the actual expenses and mileage. And, if you decide to use actual expenses and include depreciation costs, that can preclude you from using the mileage method in future years.
Another point to be aware of: If the business owns the car and you use it for yourself or your family, that personal use must be reported on your tax return as income. You'll have to pay some tax, but the arrangement might still make financial sense.
You can find more information in a business tax guide at a bookstore, or by looking at IRS Publication 463, Travel, Entertainment, Gift and Car Expenses. You can get a copy at the IRS Web site, www.irs.gov, or by calling (800) TAX-FORM You can also get the publication faxed to you by calling (703) 368-9694.
If you're wondering when is the best time of year to shop for a car or truck your business, you'll find what many buyers have learned _ there is none. The end of season sales that dealers used to advertise during the summer are unlikely to get you a better price than you'd pay during the spring, or even during the fall, when many new models arrive.
"Manufacturers are incentiving autos 12 months of the year," Kalafer said. "There's very little difference in transaction price (in the summer) than on the car you bought four months earlier.
The tips on this website should be considered food for thought only. Lendingtips.com is a clearinghouse of ideas, not a professional adviser. Before any important decision, please consult the appropriate professionals (lawyer, accountant, real estate agency, broker etc.).
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• Loans >Auto Loan Articles Archive
• Auto rebate vs. low financing Use this calculator to help you determine whether you should take advantage of low interest financing or a manufacturer rebate.
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• Car Cost Comparison Calculator This calculator will not only help you to forecast the real cost of buying and owning a car, but it will also help you to more accurately compare the real cost of one car buying scenario with the real cost of a second car buying scenario.
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