In case you’ve been watching TikTok or other social media, the answer is no. You cannot buy a Land Rover for a day and then turn around and sell it and write it all off. But, yes, it is possible to buy a car through your business.
In fact, many businesses purchase vehicles for their operations, such as delivery vehicles, company cars for employees, or for other business-related purposes.
There are a lot of crazy hypothetical scenarios we see on social media that are not good tax guidance. And, since we get asked this question frequently, here are the basic guidelines…
Only the business portion of vehicle expenses can be deducted. The portion of expenses for personal use must be removed. To be eligible for depreciation, the vehicle must be used for business purposes at least 50% of the time. For example, if you are a home inspector or a real estate agent, you would prorate what you expense through the business for personal use. In another example, if you are a contractor and have a work truck that is only used for work, that may be able to be 100% expensed to the business.
You will also need to determine whether the car will be owned by the business or by you personally. If it is owned by the business, the expenses related to the operation of the vehicle, such as fuel, insurance, and maintenance, can be tax-deductible. However, if the car is owned personally, you may be able to claim tax deductions for business use, but not for personal use.
You can deduct mileage for a car owned by a business. The IRS allows businesses to deduct the actual expenses or the standard mileage rate for using a car for business purposes.
If you choose to use the standard mileage rate, you can deduct a set amount per mile driven for business purposes. The standard mileage rate for 2022 is 58.5 cents per mile from January to June, and 62.5 cents per mile from July - December.
You can’t double dip. In other words, if you choose to write off mileage, you cannot also deduct car-related expenses like gas, maintenance, repairs, insurance, and depreciation.
However, if you decide to deduct actual expenses, you will need to keep track of all car-related expenses, including gas, maintenance, repairs, insurance, and depreciation. You can then deduct a percentage of these expenses that corresponds to the percentage of the car's use that was for business purposes.
Be sure to keep accurate records of all car-related expenses and business use to support any deductions you claim on your tax return. Additionally, it's a good idea to consult with a tax professional to ensure you're following all IRS rules and regulations.
Because every situation is different, we recommend proactive planning with your CPA business advisor to weigh all of the variables and determine the best approach for your specific situation.
