There is no doubt about it that when you seek out small business ownership, you are looking for a certain way of life and the perks that come with it. Obviously you will need to work hard to get there, but one of the top reasons for going into business for yourself is all of the tax breaks and advantages that are available to a business, compared to what you can get as an individual consumer. By putting your current vehicle in the name of your business (or financing a new one as a business vehicle), you can come out ahead of the game and still have everything you wanted. The best news about it? It might not be as hard as you think.
Saving Money without Changing Your Lifestyle
The problem with vehicles is fairly simple. They depreciate, they rack up expenses, and every few days it seems like you are back at the pump to fill them up. If you are an average consumer, this adds up quickly. However, as long as you are a small business owner, you have a card up your sleeve that you can play. By making your vehicle a part of the business, you can improve your financial statements, and write off many of the expenses related to the vehicle.
While operating a car is still going to be expensive, you can deduct the overall expenses related to the business activities in which the car was used. And what makes this even better, is that you have a few options for doing so, depending on what you think is the more important method for your specific type of operation. You can either keep track of all of the business activities for which your car was used, or you can deduct a flat rate per business mile driven. To simply keep a log of all of your trips might only take you a few seconds before you get out of the car each day (or maybe a few seconds at the beginning of your trip as you wait for your car to heat up). Those few seconds of logging can literally add up to hundreds or even thousands of dollars in savings just on taxes.
Making the Business Responsible for the Business Expense
Another important item to consider is putting your vehicle payments on the business’ expense sheet. After all, if you already have the vehicle titled to the business and you already use it in the business operation at this point, then it only makes sense to save yourself some tax dollars by making payments for a company car through the business. Furthermore, rather than being taxed at the corporate level and then paying for the costs of your car with after-tax dollars, why not write off the costs of the vehicle, and then pay less in taxes while still achieving the same benefit? Keep in mind that while the principal payments cannot to be deducted, all of the interest on the car loan is deductible! In addition, the depreciation on the vehicle can be deducted for tax purposes. This can add up to some substantial savings, depending of course on what vehicle you own and how the depreciation rules affect your expenses. You also have the ability to write off an entire lease payment if you lease a vehicle instead of financing it. The downside is that you don’t receive the standard mileage deduction in that case, but you might just get a significantly greater benefit out of your vehicle use by leasing instead of buying.
Yet another way of potentially saving money is by looking into a business auto insurance policy. If you drive your vehicle primarily for business, then you should absolutely look to put it under a business auto policy because it will potentially be a lot less expensive. When you think about how insurance policies are rated, it makes sense to think that a business auto is a significantly lower risk than a personal auto for insurance companies. The idea behind a business auto is that you will use it for commuting from place to place, not out at parties, not out late at night, and generally in safer conditions.
There is a good chance you can get a much better rate for the insurance itself, and depending upon how you choose to do your taxes, that entire cost can be written off as well. Not only are you improving your small business’ financial statements by showing you have greater assets (which may come in handy when looking to finance additional equipment or general loans), you are able to maximize your write offs when it is time to pay taxes.
At the end of the day, you should look into which specific strategy is right for you and your small business. However, as long as you are going to have an auto, you might as well maximize your benefits by just using a few of the simple strategies outlined above. It won’t be that difficult, and whether you lease, finance, or buy, as long as you have the business claiming ownership of your vehicle, you will have multiple options for writing off your expenses, all without diminishing your vehicle’s ability to get you around. Same car, more savings, write-offs, and stronger finances.