Should You Buy a Company Car?

Should You Buy a Company Car?

Should You Buy a Company Car?

Ahh, the company car. It can be a status symbol, a representation of the success of your business, or a great way to advertise your brand. It can also provide great tax benefits to your business while helping get things done. As with any major purchase, there can be major drawbacks if it’s done incorrectly or at the wrong time.

If you’re thinking of buying a company car, there are a number of things you should consider, here’s a quick rundown of why you should or shouldn’t get a company car.

What to Ask Yourself 

Perhaps the most important question to ask yourself is if the cost of the car is worth it to your business at this particular time. Take everything into account: the cost of the car, the total cost of financing, repairs, everything. If you’re considering getting a wrap on the vehicle as a form of advertising, that can stack up as well. Depending on how you go about purchasing the car and who you designate as the owner of the car, you may or may not be able to write off these expenses come tax time.

You’ll want to check up on your business credit, as well. You can check it for free with Nav and have a better idea of where you stand and what interest you can expect to be charged.

Another important detail to know beforehand is how the vehicle will be used, and who the actual owner will be. If the company is going to own the vehicle, the tax benefits are excellent. If an employee is meant to own the vehicle, the reimbursements for various expenses will be itemized differently on your tax return, and may not provide as much benefit.

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Pros of a Company Car

As mentioned, the tax benefits of having a company-owned car are excellent. Your business could deduct depreciation expenses and general auto expenses such as repairs, gas, tires, etc. As well, interest on a car loan is tax-deductible.

If the car is involved in an accident, there are little to no repercussions as far as personal insurance. The car can also be used as a perk for employees, and time used with the company car will need to be reported on the employee’s W2.

Cons of a Company Car

As with buying a car for personal use, the up-front cost of buying a vehicle is no joke. If your business is struggling with cash flow or still young, that cost can be greater, either in the form of higher interest rates or greater impact on the company.

Paying for repairs and general upkeep of the vehicle, while tax deductible, can have an immediate impact on your business. While you will see the benefit of such expenses, it may take some time, and drive you to other means to cover the additional expenses.

The liability on a company car goes up as more and more employees use it, meaning the insurance expenses for your business could go way up. Your personal insurance may not be impacted in case of an accident, but the legal stress for the company is enough to make it a tremendous headache nonetheless.

So, if you’re considering purchasing a company car, be sure to give it significant though and run the numbers on your business. Some areas of your business may need your attention before such a purchase is possible or wise. Best case scenario, a company car can provide great incentive for your employees and improve efficiency within your organization.

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This article was originally written on September 24, 2018 and updated on August 4, 2020.

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Connor Wilson

Connor Wilson is Nav's Content Manager. With experience in loan underwriting and credit review, he brings a strong desire to help business owners make the best financial decisions possible to every piece he writes and edits.

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