Article for American Express Open Forum-The Economics of the Company Car (or Truck)
By John Morrell


Dec 22, 2009 -

If you’ve been borrowing the family minivan to move supplies and make deliveries or if you’ve been racking up the highway miles on sales calls, you’ve probably thought about getting a business vehicle. But besides the choices: van, truck, SUV, sedan, you’ve got to decide how handle the transaction: buy, lease, new or used? Here are some tips to get you rolling in company wheels:

Do the Numbers

The first thing to figure out is whether you need a company vehicle. “If you’re using your personal car for business 50 percent or more of the time, you may be better off with leasing a car for the business,” says Nick Pennewell, a CPA in Brandon, Florida. “Leasing is great for businesses because it gives you more deductions.”

Generally any capital reduction cost and other fees associated with acquiring the vehicle as well as the lease payments are fully deductible. Before signing a lease agreement though you’ll want to check out a purchase, especially if you’re buying something big.


“Saying you’re interested in a luxury automobile to drive clients around in,“ says Patricia Walker, a CPA with Brotemarkle Davis & Co. in St. Helena, California. “Buying it will give you bonus depreciation of $10,000 the first year of use, then the depreciation is limited to around $2,000 each year after that. You can also deduct the interest you’re paying on your loan and the standard mileage [50 center per mile in 2010].”


If you lease a vehicle for three or four years, you don’t get that big deduction right away but you may get more over time. “Leasing typically works best for higher priced vehicles. If you’re getting a car that’s more than $60,000, it’s generally better to lease,” says Walker.


Watch Your Weight

If your business calls for operating a good-sized truck, van or SUV, you need to be aware of the 179 deduction. This is the IRS code section that specifies how business equipment, including vehicles, can be depreciated. And if that interests you, you’re looking at something else besides the navigation system and heated seats: gross weight.


“If the vehicle is more than 6,000 pounds, you can take up to $25,000 off in depreciation for the first year,” says Pennewell. “This is ideal for a business that may be growing and has a lot of net income they’d like to shield from taxes. The downside is you only get that big depreciation for the first year and if you purchased a more expensive truck to get that deduction, you’re stuck with those payments.”

An important note: If you won’t be showing a net income for the year, it’s probably best to shelve those plans for a 179 deduction. “The IRS doesn’t allow you take the deduction if you have no net income, which is why it works so well if you’re having a good year,” says Walker.


Good and Used

If you’ve considered your options and don’t think you can afford a purchase or lease payment on a new vehicle, don’t feel embarrassed shopping for something used. “In this economy I’ve seen many successful small businesses shop for used vans and trucks,” says Pennewell. “Don’t be fooled into thinking that just because your competition has shiny new trucks, you have to do the same thing. Buy or lease what you can afford. You won’t worry as much and your business will be better for it.”