When purchasing a new or used vehicle, there’s a lot more that goes into the cost than just the sticker price. Taxes, title fees and registration fees are common in most states and counties, and are typically based on the the vehicle’s age, weight, value and the location where it is being registered. If you have purchased a new vehicle for your business, there are special tax implications that must be kept in mind.
Perhaps the most important issue when dealing with business vehicles is ownership of the vehicle. Depending on the size and organization of the company, a work vehicle may be owned by an employee, the company, or a self-employed owner. Each of these has its own tax implications.
An employee who drives his or her own vehicle for work may be eligible for reimbursement from the company directly. When this happens, the company is typically able to write off those expenses on their taxes, but the employee is not. Conversely, if the company does not reimburse its employee, the employee can deduct travel costs for work from their taxes at the end of the year.
If a corporation owns the vehicle, it can only write off the actual operating expenses of the vehicle and is limited to the business-use percentage of the vehicle. However, there is a loophole wherein access to a company car is an employee benefit, in which case the full value of the vehicle may be deducted from the company’s taxes.
Self-employed workers and individual contractors can use any of the above options, depending on how the business is structured and whether they are filing taxes as two entities (an individual and business) or just one (an individual). Whatever the case, detailed record-keeping is essential, as the IRS typically gives extra scrutiny to excessive vehicles deductions. Whether work closely with tax professional or are a do-it-yourselfer with a stack of Turbotax coupons, having the records to back up your claims will improve the process of saving money on your work vehicle when it comes time to file your taxes.