Who Should Own the Business Car? You or Your Corporation?
When deciding whether to put the company car in your name or the name of your corporation, one of the most important issues to consider is the tax consequences of the decision.
If you put the company car in your own name, you can deduct a portion of expenses related to the business use of the car on your personal income tax return. However, if the company reimburses you for these expenses, the reimbursement counts as taxable compensation. It's possible to set up a plan that allows you to receive reimbursements tax-free, but doing so will disqualify you from deducting the expenses you pay out-of-pocket.
Conversely, if you decide to put the vehicle in the corporation's name, the corporation can deduct all car expenses up to a certain limit from its business income. The car will also appear as an asset on the corporation's balance sheet. However, if you use the company car for your own purposes, the usage will be considered taxable compensation and must be reported on your W-2. If you pay certain expenses related to the use of the vehicle, such as oil or gasoline, you can deduct these expenses on your personal income tax return as long as you didn't receive reimbursement from the company. Keep in mind that you can only deduct the actual value of the expenses. You cannot use the standard mileage rate in this situation.
The car's ownership also has an effect on financing, insurance and legal issues. For example, corporations sometimes receive better insurance rates than individuals. Similarly, your corporation may be able to finance the vehicle with a lower interest rate than you can. However, if someone files a lawsuit against the corporation, it would be better to have the car in your name, as it would be protected from the litigation.
In the end, deciding who should own a company vehicle is largely based on your preferences. To make the best decision, run the numbers for both scenarios and weigh the pros and cons carefully.
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