If the use of a vehicle is necessary in your business, the first step is obtaining one. You may be able to use a vehicle you already own or purchase or lease a vehicle specifically for business use.
The first step in using a vehicle in your business is obtaining one. You have a few different options, each with advantages and disadvantages. This decision should include the following considerations:
- Whether you can use a vehicle you already own. Do you really need to go and lay out money for a vehicle? Depending on both your business and personal situation, converting a vehicle that you already own to business use is probably the most cost-effective option for you. This lets you put your money to better use elsewhere in your business.
- Purchasing a used vehicle. If you've decided that leasing is not an attractive alternative for obtaining the vehicle you need, we strongly suggest that you consider purchasing a used vehicle rather than a new one. Vehicles are bad investments, and the difference between what you'll pay for a new vehicle versus a used one can probably be better spent on other areas of your business.
- Explore leasing a business vehicle. If you've thought about your business and you're convinced that you need to get a new vehicle rather than a used one, you should consider leasing rather than buying a vehicle.
- Tax consequences of obtaining a vehicle. There are several tax implications that can result if you obtain and use a vehicle for your business. Did you know that if you purchase a vehicle, you may have to pay substantial excise taxes? Did you also know that there are certain tax breaks available to you if you buy an electric powered vehicle? And of course the major issue, if you use vehicles in your business, is keeping adequate records of your business usage. Before you obtain a vehicle for your business, be sure that you understand what it will mean for you when it's time to file your tax return.
Buying used vehicles
If you don't want to use a vehicle you already own for your business, there are numerous advantages to purchasing a used vehicle instead of a new one. The main advantage is this: as soon as you drive a new vehicle off of a dealer's lot, it immediately becomes worth much less than the price you paid for it. In fact, it is not unusual for a vehicle with just 10,000 miles on it to be worth several thousand dollars less than a new car of the same model.
Tips for buying used vehicles. Here are some tips for purchasing used vehicles:
- When you find a vehicle that you are thinking about buying, research its value in a "blue book." Be wary if you are being charged significantly above book value. "Book value" is the amount that an auto dealer's guide says that a vehicle of a given make, model, and year is worth. Book values are usually compiled by polling a number of dealers to find out what prices they have been getting for vehicles they have recently sold.
- Have any vehicle inspected by a mechanic you trust before buying it.
- Use any "defects" that your mechanic finds in the vehicle to negotiate a lower price.
- Get any warranty information — especially guarantees that the vehicle will pass emission and safety inspections — up front and in writing. Most dealers are required to provide this under state and federal laws.
Tools to use
If you are concerned about whether a used vehicle that you purchase will be reliable, you should consider downloading a copy of the checklist for evaluating used vehicles from the Business Tools.
Many items on this checklist are self-explanatory and you can use the list as a reference when you are shopping for your vehicle.
For those items on the list that you don't understand, you may wish to consult the opinion of a mechanic whom you trust.
Leasing vehicles
If you aren't sure whether buying or leasing a vehicle is the right decision for you, you should be aware that the considerations are generally the same as those for any business equipment lease or buy decision.
Tax considerations. If you decide to lease a vehicle for your business, you can generally deduct the lease payments. However, when business use of a leased vehicle is less than 100 percent, the tax deduction is scaled down in proportion to the personal use. For example, if you use a leased car 75 percent for business, you can deduct only 75 percent of the lease payments. You can also deduct vehicle operating expenses you pay for if they are for business use of the leased vehicle.