According to a recent Manta survey, 54 percent of small business owners need to use their cars, trucks, or vans to conduct business and serve their customers. Using a vehicle in your business entails business and tax considerations. Here are five things you need to know.
1. Doing Business On the Fly
Being mobile today doesn’t only mean having wheels to get around. It also means having technology to do business outside of a traditional business setting, such as an office or boutique.
Interesting stats from the Manta survey show that 82 percent of owners don’t venture out without their smartphones, 41 percent take their laptops, 33 percent their tablets, and 29 percent use Bluetooth. Better connectivity outside of your office (through increased Internet access and better broadband), combined with a number of apps and devices (e.g., Square) to enable processing credit cards without a terminal, have made doing business on the fly possible.
2. Selecting New Vehicles
If you’re in the market to replace your current vehicle or to add another one, what should you be looking for? Here’s what other small business owners are doing in this regard, based on the Manta survey:
- Sticker price was the top consideration in selection of a vehicle.
- American-made dominates selection, with 65 percent of owners driving U.S. vehicles. Only 10 percent drive Japanese cars and 5 percent drive German-made vehicles.
- Fuel costs don’t dominate vehicle selection, with only 22 percent factoring it into their choice. Still, 38 percent are already driving or expect to purchase a hybrid, electric, or diesel-fuel vehicle.
Which type of vehicle do you need? More than 25 percent of small business owners drive a truck, and nearly 13 percent drive a van. Your choice depends, of course, on what you need to do in your vehicle.
3. Buy or Lease?
The perennial question that many small business owners ask when considering a new vehicle is whether to buy or lease. As a rule of thumb, leasing enables owners to obtain more costly vehicles than what they could afford if they’d have to buy them.
From a tax perspective, the same standard mileage rate set for business driving (e.g., 57.5 cents per mile) applies whether the vehicle is owned or leased. Those who deduct the actual cost of business driving may enjoy greater write-offs with leasing because of caps on depreciation for purchased vehicles, but there are so many variables that it’s impossible to say which type of usage generates larger tax breaks.
However, as a practical matter, leasing may be out of the question if you expect to do a lot of driving. Most leases make it too expensive if annual mileage exceeds 15,000 or so (of course, depending on the terms of a particular lease).
4. Budgeting for Fuel Costs
If you do a lot of driving each year, the cost of gasoline (if you have a gas-powered vehicle) comes into play. Currently, gas prices are the lowest they’ve been for 11 years. Will they stay this low? Who knows? The U.S. Energy Information Agency predicts only slight increases for 2016. As you prepare your budget for 2016, build in a cushion in case the government’s prediction is too conservative and there’s a significant rise in the price of gas at the pump.
5. Accounting for Employee Use
If you let employees drive company vehicles, consider restrictions on personal use to conform with your insurance coverage. Also think about how to deal with the tax implications of any personal driving. Allowing employees to use company vehicles after hours triggers a taxable fringe benefit (there are limited exceptions). There are different ways to figure the amount of the benefit; find details in IRS Publication 15-B (PDF).
Planning can help you select the best vehicle for your business needs and maximize your tax write-offs. Work with a tax professional to run the numbers before making any vehicle selections or setting company policy about personal use of business vehicles.
Car Keys Photo via Shutterstock
Accounting is essential if you want to keep vehicle use under control. It is common for employees to go overboard if you don’t implement some type of limit.