The 3 Hidden Costs of Buying a Company Car

Whether you’re in real estate or housekeeping, financial consulting or landscaping, there may come a point in your business’s progress that you contemplate getting a company car: one that’s dedicated to getting you to and from listing appointments, scheduled services, business meetings, and job sites.

There are plenty of perks to getting a set of wheels exclusively reserved for your craft and its transportation. For starters, gasoline and car mileage are deductible business expenses, but if you ever face an IRS audit, you would need to prove that your deduction was actually for a business purpose, not for a personal one.

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Having your company car wrapped in vinyl with your unique business logo is a great low-budget marketing strategy for entrepreneurs looking to gain more business; the advertisement will receive a high number of impressions driving around town or sitting like a stationary billboard, parked on the side of the road.

Added bonus: pulling up in a sleek company vehicle makes you appear polished and professional, so you’ll be more likely to close a deal or sign a client.

That said, there are some hidden costs you might not think about while your mind is so focused on the many benefits a company car would bring. Here are three business expenses you should weigh in on your debate over whether or not you should head to your nearest dealership.

Taxes

You might think that taxes do not belong on this list of “hidden” costs; it’s true that most company owners, when they consider purchasing a vehicle, think about the tax implications before anything else. That’s because—like we mentioned—you can score some major tax breaks for doing so and save yourself a pretty penny when it comes time to paying Unlce Sam your dues.

What they don’t know, however, is that only some cars are tax deductible and you can either write off the actual costs or the mileage as a business expense. Whichever decision you make, you’re stuck with for the lifetime of the car.

Factoring in the cost of the car plus your tax obligations, buying a company car is usually more cost-effective than leasing—but the savings only come over the long term, and it might make more sense for your company to have money in the short term.

Bottom line: The tax break and the lifespan of the car both depend greatly on which model you get. Before you speed over to your local Volkswagen dealer near Spokane Valley, do some research on the Volkswagen tax credit and make sure you know what you’re investing in.

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Interest

Depending on where you’re at in your business budget, it’s more likely than not that you would be financing the company car you intend to purchase. A lump sum of cash is great, but in most cases, business owners get convenient online car loans in order to avoid cutting too deeply into profit margins.

The right loan structure might be beneficial and result in a net positive due to the new business you acquire, but the wrong lending terms could tack on an unreasonably high interest that makes the car depreciate faster than a tire can turn.

Insurance

You pay health insurance, property insurance, homeowner insurance… at this rate, you feel like you should be set for life should any accident happen. But have you thought about how much it would cost to insure a new company car—especially if you have your eye one that’s blacked out and destined to close deals from just rolling up on arrival?

Car insurance premiums can cost over $200 a month depending on whether you use a national insurance provider or a budget company with minimalist coverage. Multiply that number by 12 and you could be paying almost an additional $1,500 per year just to look sophisticated and sleek.

Consult your margins and the sales forecast ahead to see if this is in your realm of expense. If not, you could always revisit the question of who pays for the company car, the business or the employee?

Entrepreneurs understand the need to build their brand while also monitoring financial decisions closely. Don’t forget about these three less-than obvious expenses when considering your new purchase!

Adam Torkildson