Buying a company car?
Did you know General Motors sold 3 million cars in 2017? Ford Motors sold 2.5 million, and Toyota sold 2.4 million. Those numbers are for the U.S. alone.
Why is that important?
Whenever you consider buying a vehicle keep one thing in mind: you have options. Too often, car buyers stick to what they know. That limits their options.
If your next big purchase is a company car, a little research and a new strategy could save you tens of thousands of dollars. Start with the information in the sections below. Read on.
Brand New or Newish?
A new vehicle depreciates by thousands of dollars when you drive it off the lot. Yes. Seriously. The simple act of driving your brand new vehicle out of the parking lot costs you thousands of dollars.
If you own a business, you know the value of a buck. Throwing away thousands of dollars to ensure you’re the first person to own your car is a pointless financial endeavor. The first lesson in thinking outside the box during your next car purchase is to throw away your old preconceptions.
Used vehicles cost less. Period. When you take emotion out of the picture, logic dictates that you buy used.
That doesn’t mean you should jump on Craigslist or AutoTrader and start hunting around. Unless you’re an auto mechanic, you won’t have the skill set needed to assess a used car. You won’t know whether the motor’s in mint condition or ready to fall apart in a thousand miles.
You can, of course, hunt down a trustworthy mechanic. Then you can ask the owner of each prospective car if you can take their car in for thorough inspection. Unfortunately, this limits you to a small search area, and the inspection costs add up quickly.
An alternative is to buy a certified pre-owned vehicle. They’re sold at dealerships. Essentially, the vehicle in question is fully reconditioned by factory-trained technicians.
They also come with a competitive warranty. It’s not quite as good as a new car warranty, but its close.
Almost every manufacturer now sells lightly used models which cost thousands less than their brand new cousins. With the warranties, they’re almost like new cars. Many dealers include extra incentives. Think free satellite radio, roadside assistance, and maintenance.
Purchase or Lease?
When you buy a business vehicle, there are specific benefits to leasing a car rather than buying it. But, you must keep a few things in mind:
- How many miles you drive in a year
- How long you’ll keep the vehicle
- How much you’re willing to spend on payments
When you lease a car, you have to pay exorbitant prices for every mile over the yearly limit. These limits vary, but they’re usually 10,000 or 12,000 per year. When you return your car at the end of your lease, you’ll have to pay for every mile over the limit.
If you keep the car for only 3-4 years, leases can be a good option. If you keep your cars until they’re old and rusty, purchasing is a better idea.
If you’re worried about the cost of monthly payments, leases typically cost you less than car loan payments.
There are some IRS deductions for business cars. Because you don’t own a leased vehicle, you can’t depreciate it on your business taxes. You can instead deduct part of the business percentage of your lease payment.
Here’s an example. Sally owns an SUV that she uses for both business and personal use. She leases the SUV for $5,000 a year. The number of miles she racked up for work was equal to 60% of the overall miles on her SUV that year. 60% of $5,000 is $3,000.
That means Sally can deduct $3,000 from her businesses taxes for lease payments on her SUV that year.
If you buy the vehicle, you can deduct the interest on your vehicle’s loan in much the same manner. Here’s another one for people buying sports utility vehicles to transport passengers. If your job is for Uber and Lyft, you could be looking at a $25,000 deductible.
The point is, each option offers unique tax benefits. Do your homework and discover more before you jump in, headfirst.
Electric vehicle tax credit may be on the way out. The tax credit has been around for about a decade, but some in Congress think it may have overstayed its welcome. The incentive was created to get more people buying green vehicles.
Nowadays, that’s the trend. Congress is hoping to vote later this year whether to take that incentive away. If you’re going to get in on the $7,500 tax credit, you’ll need to buy an electric car soon.
If you have a used business vehicle, you may want to avoid trading it in. If a dealership is eager to take your trade-in as part of your deal, there’s usually a reason for it. The deal may be working against you.
Spend some time checking Kelley Blue Book values to see what your vehicle is worth on the open market. It just may surprise you. If it’s worth more than a dealer is willing to give you as trade-in value, sell it yourself.
Selling a car today is nothing like it was twenty years ago. Countless websites help connect private vehicle sellers and buyers. If you live in a heavily populated area, there’s a good chance someone will buy your car within a few days.
Demand a Lower Price
Dealerships. The name says it all. They’re in the business of making deals. Unfortunately, that can go either way for you.
If you don’t spend your days haggling over prices in flea markets or as a corporate tycoon, then they might work against you. If you’re one of the many who fears negotiating a price, consider one of the few dealerships with fixed prices.
On the other hand, if you’re willing to aggressively bargain, you’re going to save yourself thousands. There are three main areas to concentrate your focus:
- Overall price
- Lease price
If you have excellent credit, you may qualify for 0% financing or factory rebates. You may also talk your dealer into including additional amenities in the sale. You can even negotiate lease price.
Buying a Company Car Review
When buying a company car, keep the following in mind: you can always find a less expensive option. Put your emotions on hold, and use logic to determine your price range.
Now, promise yourself that you’ll stick to that price range, no matter what. All it takes is that mindset and a little legwork.
If you found this article helpful, take five minutes to check out our library of articles on all things business.
So long and good luck!
P.S. If you’re looking to save cash, don’t forget to read How to Save on Taxes: A Guide for Business Owners.