Buying or Leasing a Vehicle : 5 Things Business Owners Must Know
So, you need a vehicle for your new or existing business. Should you purchase a new vehicle or simply use your existing vehicle? Is it better to lease or purchase a vehicle? Should the company purchase or lease the vehicle or should shareholders and employees use their personal vehicles? These are loaded questions with several factors that come into play, and it is best to review everything before you make that decision.
When considering a vehicle for your corporation or small business, there are 5 main things to consider:
1. Is it necessary for the company to purchase new or different vehicles? Many businesses do not need a company-owned vehicle at all. If the only reason to have a vehicle is to advertise the company, then consider advertising the company name on the shareholders’ vehicles.
2. Will the company use the vehicle for 2 years or 10 years? If you like driving a new vehicle every 2 or 3 years, a lease may be a better option, while if you prefer having a vehicle for a long time, purchasing may be a better option.
3. What is the purchase price of the vehicle? A $70,000 1 ton truck may be better in a lease, while a small $16,000 car may be better purchased.
4. Will the vehicle be used for business 100% of the time? If the answer is no, then shareholders and employees will receive a taxable benefit on a company owned or leased vehicle. This will be taxed like regular income; and, generally, the higher the purchase price, the higher the taxes to be paid. Alternatively, a shareholder can receive a non-taxable benefit for using their personal vehicle for business.
5. What will be the total annual cost? Consider lease and loan payments, fuel, insurance, and upkeep. All of these costs come into play when deciding to buy or lease a vehicle.
Only when we have a solid understanding and estimated costs of the above situations can we determine the best option. The company can buy or lease a vehicle, the company can pay shareholders a monthly allowance for business use of their personal vehicles, or the shareholders and employees can receive a non-taxable benefit. There are tax implications and guidelines that accompany these and other possibilities. As always, it is best to know all of your options before making a choice. Contact TNT Global Accounting today for more information on vehicle expenses and how they affect your bottom line.