Whether you need a single sedan or an entire fleet of 14-wheelers, how you acquire vehicles for business use has tax consequences. In most cases, you’ll have one of three options: purchase outright, finance or lease.
If you can spare the cash, buying is a good option. It allows you to avoid finance charges and control resale pricing. Plus, purchased vehicles generally qualify for depreciation deductions. Depending on the type and cost of the vehicle, you may benefit from a Section 179 deduction — which enables you to write off the cost (up to an annual limit) of a vehicle in the year you place it into service.
Financed purchases also generally qualify for tax breaks and allow you to invest available cash in other, potentially higher-returning, initiatives.
Leased vehicles don’t qualify for depreciation or Sec. 179 expensing. However, you typically can deduct the business percentage of your lease payments, as well as gas and maintenance costs. And, in many states, you’ll pay sales tax only on monthly lease payments — not on the full purchase price of the vehicle.
The best way to obtain vehicles for business use is just one example of practices that could create a tax consequence for your business. For guidance with these types of decisions, please contact Holbrook & Manter today.