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Dear Abacus

I travel for work. Can I expense my car?

By PRETTY BOOKS ON November 28, 2022
DEAR ABACUS is an advice column where local bean counter Abacus the Accountant answers your small business accounting questions.   Hi, I'm Abacus the Accountant, your local bean counter and small business management whiz. In this series, I'll use my accounting know-how to answer real questions you have about running your small business, from how to price new products to hiring employees and more. Got a question? Email me: people@pretty-books.com, subject line "Dear Abacus."

Dear Abacus,

My business takes me all over the state. I travel a lot. My old car was just not keeping up, so I bought a new one that I mostly use for business travel, but I do occasionally use it to run personal errands. I bought it on a payment plan and pay monthly. I’m wondering if, since I’m using the car mostly for business travel, I can expense the payment to my company.

Best,

Driving on the Company Dime

 

 

Dear Driving,

Congrats on the new car! I get this question a lot, so I’m glad you asked. The truth is, this is a pretty complex question and it would be best to discuss your options with your tax advisor. Each business is different, so it’s hard for me to pinpoint the best option without having all the details. That being said, there are a couple routes you can take, depending on who owns the car.

If the car is under your name, then it isn’t owned by your company. Since you’re the owner, you are responsible for paying off the loan and it cannot be covered by the company. Imagine you went to work for a corporation. They likely wouldn’t pay for you to buy a new car because they wouldn’t own it. In most scenarios, you would be paid only the mileage you drive during business travel multiplied by the federal mileage rate. That is something your business can pay for.

If the car is under your business’s name, you’ll need to do a little more work before you can claim it as a business expense. You first need to make sure the business recognizes the car as an asset—meaning it belongs to and can be sold by the business. The full value of the car should be on your business’s balance sheet so you can generate a report that shows the asset and its value after depreciation.

From there, work with your CPA to decide whether the business is paying for the car directly, or paying you. Either way, the amount you are paid by your company may not be the same amount you are paying for the car. At the end of the day, you’re paying off a loan you took out to purchase the car. The interest on the loan will probably be your burden to bear.

Good luck,

Abacus the Accountant

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The information provided in this post is for general informational and educational purposes only and is not a substitute for professional advice. Consult your financial, business, or tax advisor with respect to matters referenced in this post. Pretty Books assumes no liability for actions taken in reliance upon this information.

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