The subject of buying a luxury car for business use is a real conundrum as on the one hand, it is nice to show everyone how well you are doing and wow your clients when you take them out, but the downside is that the IRS or Canada Revenue Agency doesn’t always take a kind view of such grand statements.
Here is a look at some ways to get the best of both worlds, with an overview of leasing and buying options, plus a look at how tax authorities try to limit your ambitions and some tips on how to make the most of your tax options to still get what you want.
Whichever way you look at it, you have to expect that an asset like a vehicle that you are using constantly, will inevitably be worth less than you paid for it over a period of time.
There are many great cars around like the Dodge Charger for instance, which tick all the right boxes in terms of comfort, reliability and a bit of luxury, but when you buy a car for your business it will depreciate in value over the life of the car.
The Internal Revenue Service recognizes this fact and does allow you to claim a certain amount of depreciation against tax. But the IRS limits the level of depreciation that you can claim, meaning that any amount over that current threshold can’t be recovered.
On the face of it, that would seem to suggest that buying a luxury car that goes beyond the sort of value that allows you to make the most of the maximum tax advantage.
The main point about that argument is that the depreciation limits haven’t really kept pace with car prices in general so the limit won’t even cover most standard cars either, so it really shouldn’t be a reason to dissuade you from buying a luxury model.
Consider leasing instead
The most obvious way around the IRS limits would be to lease the vehicle instead, as the entire lease payment will be deductible.
When you lease a vehicle purely for business purposes only, you should be able to deduct the lease payment as well as having the opportunity to write off your out-of-pocket driving costs. This means that you should be able to claim for fuel, general maintenance, insurance, and tires.
Leasing a luxury car also opens up the possibility of being able to upgrade your luxury car more frequently than if you had bought it instead.
If you do decide to buy your luxury car outright and then decide to hold onto it for a while you might find that the standard mileage rate could work in your favor.
It is always a good idea to check with a tax professional to confirm the current rates and whether they apply to you, but if you want to deduct the cost of driving a luxury car purely for business purposes, you should be able to claim a generous cents-per-mile deduction.
If you are driving a reasonably fuel-efficient luxury car, you could find that the allowance looks even more attractive.
Business taxes are always a consideration but if you choose the right options and make full but fair use of the tax rules, you could enjoy driving a luxury car without worrying so much about the cost of your reward for doing well.
Dave Buckingham contributes to a variety of business blogs with his informative articles. He discusses finances, company vehicles, employee management and so much more.