Ten Questions to Ask Yourself Prior to Acquiring Business Use Vehicles

If you ask yourself  the 10 questions below, you will have a good feel on whether you should lease or purchase your next business use vehicle.  You will also have a good idea on the best way to maximize the business write off of the vehicle.  These questions work hand in hand with our list of Auto Leasing and Purchasing Tips.

    1. Have you ever looked at the issue of titling the vehicle in the company name versus their personal name.
      For business vehicles that have some personal use, the way that it is titled may make a significant difference in the available tax deductions. For purchased vehicles that are subject to the luxury tax rules, it may be beneficial to title the vehicle in the personal name. The more expensive the vehicle, and the higher percent of personal use, the more pronounced this difference becomes.
    2. Is it used more than 50% for business?
      Vehicles that are used more than 50% for business are eligible for Section 179 expense, bonus depreciation, and accelerated depreciation.
    3. Is it over 6000 Gross Vehicle Weight?
      Vehicles over 6000 GVW are not subject to the Luxury Car Depreciation Limits.  To the extent that they can use Section 179 expense and extra depreciation, it is more advantageous to purchase this type of vehicle. SUVs are limited to $25,000.00

      • What other Section 179 do you have this year?
        If they are already at their Section 179 limit, the advantage of purchasing the vehicle is reduced.
      • Are you having a great year?
        If they are not having a great year, the advantage of purchasing the vehicle is reduced.
    4. What is your tax classification?
      There are differences in vehicle write-offs depending on tax classifications of either Employee with W-2, Schedule C, or Corporation.
    5. How are you writing off your current vehicle?
      Business people are not taking full advantage of the best way to write off vehicles used in business.  This question will help you suggest a better way.  An Accountable Plan might be the answer.
    6. How are your financial ratios and liquidity?
      If cash is tight or loan covenants may be jeopardized, it may be advantageous to lease.
    7. How often do you trade?
      It may be advantageous for people that trade often to lease rather than buy.  They will not have to worry about resale value or losing deductions when they trade in a vehicle.
    8. What is the cost of the vehicle that you are going to purchase or lease?
      If a vehicle costs over $16,000  there are tax advantages to leasing the vehicle, if it is used for business.
    9. What are you doing with the old vehicle?
      If you trade it in instead of selling it, if the book value is greater than actual value, you will be giving up some tax benefits.  If you sell it, if the book value is less than the actual value, you will be giving up some tax deferrals.
    10. Are you converting a vehicle from personal use to business use?
      When converting an existing vehicle from personal use there are additional limitations on expenses that you may take, such as Section 179 expense.