The question of whether to buy a car under the personal name or business name has puzzled many business owners for many years. With many things into consideration, such as getting reimbursed by miles, the tax implications and other tax-related questions are the reason for getting baffled by this question. Let’s discuss the advantages and disadvantages of this question – should you buy a car in your business name? To help you with decision-making.
Do You Really Need a Car?
Before diving into tax deductions and all other tax things, let’s first address if you really want to buy a car. Getting tax deductions for buying a car can be tempting, but it’s really crucial to assess if the expense you have to do even after tax deductions are justified. Many times, you may even don’t have an immediate requirement to buy a car and then buying it just for the sake of tax benefit might not outweigh the financial burden eventually.
Understanding How Tax Deductions Work
Let’s take an example of how tax deductions actually work because the term ‘write-off’ can be deceiving in terms of tax deductions. Consider you are in a 22% tax slab, and you want to buy a car for $80,000. Here, the perceived tax deduction of $17,600 is essentially offset by the $62,400 you are paying for the car. Eventually, you may end up paying 60k plus for something you never needed, and hence, it is essential to evaluate your needs.
Many times, business owners tend to showcase the profit of the business based on potential future sales, which may lead to higher taxes. Hence, the decision to buy a car in the business name should also be made by analyzing the potential impact on the business.
Business Owned Vehicles
The thought of increased deductions on business-owned vehicles is one of the main reasons for the popularity of business-owned vehicles. However, it is also important to meet all the other criteria, such as owning the car title, having insurance in the business name etc. There are other alternatives too for titling which you can look for while still complying with IRS regulations.
Business Mileage Deduction Vs Personal Reimbursement
The two options of using the standard mileage rate and getting personally reimbursed by the mile for business-owned vehicles require detailed consideration. Of both, personal reimbursement can reduce your business’s net income, helping you to save taxes, especially for S-corp owners.
Conclusion
The decision to buy a car in your business name or personally depends on many considerations. It is not straightforward, for sure. Understanding tax deductions, other tax implications, business goals, and, most importantly, determining if you really need a car will help you make the decisions easier for you. Moreover, it is also a good practice to consult a tax professional or a financial advisor before making any decision. In the end, it is important to remember that the attraction of tax deductions should never overshadow the financial realities of the business.