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Should I buy a vehicle through my healthcare business?

Buying a vehicle through your business isn’t entirely different from buying one personally. But before you buy a vehicle under your business’s name, there are several factors you must consider.

When you buy a vehicle through your business, you will be faced with different requirements. The ways the IRS accounts for personal and business vehicles are very different. For every step of the way from financing to taxation, you will play by different rules.

Healthcare/medical businesses can benefit from some of the tax advantages offered when you purchase a vehicle through your business. In particular, if you have employees that need to drive often, you can benefit from these tax advantages. So let’s investigate that and more as we go over the differences between personal and business vehicle ownership.

There are different restrictions for business-owned vehicles and individually-owned vehicles. 

When you buy a vehicle through your business, your vehicle is a business vehicle.

That implies that the primary purpose of your vehicle is business. The choice you make will determine the tax deductions you can claim for your purchase.

The most significant financial reason to purchase a vehicle through your company is the reduction in your business tax liability.

The costs of operating your vehicle are tax-deductible when it’s used for your business. But only the costs of operating a company vehicle for business trips can be deducted. Any personal use of the vehicle will not be deducted and, in some cases, it will be added to your wages as a company benefit. You receive the greatest tax benefits if your vehicle is exclusively driven for business reasons.

There are two ways to deduct operating expenses for company vehicles.

You can claim your total business expenses or claim a flat rate based on your mileage.

Mileage-Based Deductions

For the 2020 tax year, you can claim $0.575 for each mile driven for business purposes, down half a cent from 2019. That’s a sizable tax incentive, but it comes with a catch. If you choose a mileage-based deduction, you cannot claim the depreciation available or expense-based deductions.

Expense-Based Deductions

If you claim an expense-based deduction, you will need to take more steps to save your money. You’ll need to collect all your receipts and add them all up when you file your company’s taxes. This is more time-consuming than simply multiplying the tax year’s mileage by 0.575 to get a mileage-based deduction.

But with the expense-based deduction, you can claim far more than each business mile driven.

You can also claim:
- Gas payments
- Oil changes
- Insurance payments
- Lease payments (if applicable)
- Tire changes
- Car washes
- Parking/Tolls
- Repairs/Maintenance

If your vehicle is in good condition and is fuel-efficient, it’s safe to assume you’ll save more with the mileage-based deduction.

The actual expense-based deduction is usually a better deal. However, you’ll have to consider all your vehicle’s potential expenses before making the decision.

If the vehicle you want to purchase is a qualifying heavier vehicle, you can claim a deduction of up to $25,000.

Many SUVs and pickup trucks qualify for a section 179 deduction. To qualify under current regulations, the vehicles must meet at least one of the following requirements:

- Have nine or more passenger seats behind the driver’s seat
- Have a fully-enclosed driver’s compartment, no seating behind the driver’s seat, and no body section protruding more than 30 inches
- Be a tractor-trailer

If you have employees that need to regularly travel for work, you can save a lot of money.

Their expenses, which you must cover, are more generously deducted when it comes time to file your taxes. It doesn’t matter whether you need your employees to meet clients or just commute. If they need to use your vehicle for work, it’s always better when the vehicle is bought under your company’s name.

There is one major caveat.

You can only benefit from these deductions if you reimburse your employees when they incur expenses.

The IRS doesn’t allow you to claim expenses your employees incur without reimbursing them first. The easiest way to do this is to have your employees use a company credit card for all their auto expenses so you don’t have to reimburse them (you will still want their receipts though!). If you have employees that need to regularly travel for work, you can save a lot of money. Their expenses are all deductible if you pay for them after they’re incurred. 

There are several apps that make this job easier.

No matter what system you plan to use, you’ll need to keep track of your employees to deduct your reimbursements to them.

Your daily commuting mileage and expenses aren’t deductible.

That rule stands even if your vehicle was purchased through your business. So, you’ll need to subtract the miles you accrue commuting from the total mileage of the vehicle. 

There is only one catch to the rules surrounding commuting expenses.

If one of your employees uses your company vehicle to commute from home to work, their expenses and subsequent reimbursements are completely deductible.

It doesn’t matter if they’re just going from home to the office as long as everything is properly documented as the vehicle being solely used for work purposes

Getting an auto loan through your business will require a business auto loan.

The process of getting a business loan isn’t very complicated. But you must remember that business lenders will assess both you and your business to determine their offer.

If you get a business loan to finance your vehicle, lenders will still consider your personal FICO credit score.

But they will take into account your business’s revenues and debts. If your personal finances are great and your credit score is high, that will always help you get better rates and terms. But if your personal finances are good but your business finances aren’t as good, you will receive worse offers when you apply for a business auto loan.

If you just want a vehicle for personal use, or if you don’t plan to use your vehicle for 90-100% business, you need to purchase the vehicle under your name.

While you can often purchase a vehicle through your business and ride it personally, it’s important to consider the tax implications beforehand. The more non-business driving is done with that vehicle, the less money you can save, and the more time it’ll take to prepare your taxes.

Purchasing a vehicle through your business can save you plenty in taxes and deductions for expenses. But if you use the vehicle for too many non-qualifying purposes, it won’t be worth the trouble of buying it under your business’s name.

Buying a vehicle through your business can be very financially rewarding.

But only when you intend to use the vehicle for strictly business purposes. It’s as simple as that.

After reading this article, if you’re still uncertain whether or not your vehicle qualifies for tax savings, book in a call and we can chat more. 

Buying a vehicle through your business can be very financially rewarding.

But only when you intend to use the vehicle for strictly business purposes. It’s as simple as that.

After reading this article, if you’re still uncertain whether or not your vehicle qualifies for tax savings, book in a call and we can chat more.