Owning a business car can mean a token of economic status, an expensive method of brand promotion, showing off the corporate success, or a business used either by you as an owner or staff. But did you know that buying a corporate car has a lot of advantages? One of these advantages is a vehicle tax incentive, referred to as capital allowance. You can claim a capital allowance for your accounting firm, for instance, through the corporate car you own.
As a business owner, you understand how difficult it is to keep track of your business and personal expenses. These expenses also include vehicles such as a car or a truck for sales, client meetings, or delivery. So if you use your personal vehicle for business purposes, you are at a clear disadvantage because you are sacrificing tax incentives.
It is high time for you to give up your personal car for business use and instead purchase one specifically for business operation. This helps you claim a huge deduction dependent on the car’s depreciation each year, contributing to lesser income tax on business profits.
Let’s dive deeper into the topic and see how you can avail yourself of tax benefits via a capital allowance.
Company Car
The major tax fit of purchasing a business car is the right to subtract the full cost of operation on each vehicle registered exclusively to your business, provided you split the personal use expenses, if any. This necessitates a thorough estimation of business-specific miles. Also, depreciation earns you a bonus given that your vehicle is put into operation between September 28, 2017, and December 31, 2026. The bonus structure earned via depreciation is as follows:
- In the first year, you get $18,000.
- In the second year, you get $16,000.
- You get $5,760 per year from the third year until the car has reached its full depreciation.
Car Expense Deductions
You may claim business-related vehicle spending as an actual expense or uniform rate per mile traveled. When you claim per mile, you need to multiply it by 58 cents and not be compensated for the depreciation incentive that is open to those who use expense-based adjustments. When dealing with actual spending, you must keep receipts for tally purposes throughout the taxable period.
Mileage is a fantastic deal, in my opinion, if you drive a low-cost car that offers better gas mileage. On the other hand, if your vehicle is primarily used for business reasons tallying is easy because you have the right to claim expenses such as gas, tires, oil changes, auto insurance, tolls, & leasing fees.
Reimbursing Employees for Car Expenses
If you are a sole proprietor, claiming vehicle expenses is extremely simple; but, if you own a company that recruits employees, this is not the case. Since you are liable to cover their travel costs regardless of whether they use their own vehicle or your business vehicle, getting a corporate car enables you to recover those reimbursements as business expenses. The only requirement for you is to maintain a good record of the expenses.
Qualifying Business Mileage
Knowing which miles count helps conveniently justifying vehicle expenses, but not when using a personal car for corporate purposes. When you purchase a business vehicle, you can demand depreciation expenses as capital allowance regardless of why the car is used. The only requirement is that it is recorded as being used strictly for business purposes, such as your employee driving it, shown as specific business use.
Car Tax Deductibility
Did you know you can claim the vehicle tax every year to purchase a car for business use and keep correct cost and usage records? However, it is only true in states where the tax is calculated considering the car’s value. Besides business expenses, you also can claim associated expenses & sales tax.
You’re probably wondering how. Simply add them in the total car cost when putting it in operation, as the depreciation bonus and Section 179 deduction are estimated depending on the total cost.
Heavy Vehicle Bonus
If you do consider purchasing a heavy vehicle, such as an SUV, under your company name, you will earn a big tax break as well as bonus depreciation for the first year if you satisfy the IRS requirements. This is because your company or you as a business owner qualify for Sec 179, which allows you to deduct up to $25,000 provided you use it 50% or more of the time only for business.
That is all about getting your company a new vehicle to take advantage of tax breaks resulting in big savings. You get a brand-new car, and you save on taxes. It sounds great, doesn’t it? So go ahead and get your own corporate vehicle.
