10/ 01/ 2008
by Shannon McRae
Despite an uncertain economy, more fuel-efficient models and tax incentives make buying a new vehicle for your business a viable option.
Feeling pressure at the pump? Ron Jones of Houston-based Sam’s Limousine and Transportation was feeling the strain, which is why he traded in four of his company’s limos--gas guzzlers, as he calls them--for limo buses. Sure, they take more fuel, but they’re more efficient and have longer lifespans, which means he can depreciate their value over a longer period of time.
"In order to be competitive with other limo services, we had to lower our prices significantly," Jones says. "And it really ate into our profit margins when fuel costs started rising. The investment in the limo buses just made sense. They’re easier to maintain and more cost-effective for our customers, which means that people who are cutting back can still afford our services."
Today’s auto manufacturers are making even SUVs and work trucks more fuel-efficient, so purchasing one can help manage high gas costs. The 2008 economic stimulus package makes buying a vehicle before the end of the year even more attractive. The package increases the Section 179 expensing limit to $250,000 (up from $125,000) and increases the depreciation limits on business vehicles. NFIB was the only group that lobbied for these provisions.
In a slow economy, many small business owners might balk at making an investment of this size, but Andy Meyer, owner of Columbus, Ohio-based Yard Barbers says it’s exactly what a small business can do to stay ahead of the curve. "If the need is there and your business is growing, there’s no reason not to go ahead and make that purchase," says Meyer, whose growing company bought three new trucks this year. "Car dealers are looking to turn over vehicles, so we got a great deal on them, not to mention good financing terms and rebates."
Meyer says the new depreciation limits on business vehicles will help come tax time.
Tax rules for business vehicles are complicated, so keep a few things in mind when purchasing one.
First, you can’t claim a Section 179 expensing deduction unless the vehicle is used at least 51 percent for business. Less than that, you may still claim a deduction using depreciation. Also, you may claim only a deduction equal to the percent of the use of the vehicle. (If you use the vehicle 75 percent for business, multiply your maximum deduction by 0.75 to determine your allowable deduction.)
There are also deduction limits set each year by the IRS to consider. For SUVs and trucks, which are defined based on a specific gross weight, $25,000 is the maximum allowance. Although you may be able to deduct more for specialized vehicles.
Before taking any deduction related to the purchase of a vehicle, consult your tax preparer to ensure that you follow the rules--and get the best deal.
