Who Should Own the Business Car?

Column by Barbara Weltman

You or your corporation? The answer depends on several tax and nontax factors. Here are some things to consider in making your choice:

Tax factors

If the corporation owns the car, it can fully deduct car expenses, subject to dollar limits on depreciation, against its business income. If you, as an employee, own the car and use it for business, your expenses are deductible as a miscellaneous itemized deduction to the extent they exceed 2% of your adjusted gross income. And even this deduction may be further limited by the overall reduction in itemized deductions as well as if you are subject to the alternative minimum tax. If you have the use of the company car, personal use is taxable compensation reported on your Form W-2. You can deduct any of your out-of-pocket unreimbursed car-related costs for the company car (for example, gas and oil that you pay for). But you cannot use the standard mileage rate (50.5¢ per mile for the first half of 2008 and 58.5¢ per mile for the second half of 2008).

Nontax factors

For insurance purposes it may be preferable for the corporation to own the car. If the corporation owns more than one car it may obtain better insurance rates. If a corporate-owned car is involved in an accident, its rates for other cars generally are not affected. And your personal assets are protected in case of a law suit against the corporation arising from an accident. The corporation can show the car as an asset on its balance sheet. If the corporation finances the purchase of the car, it may be able to command more favorable interest rates than you could if you bought the car yourself.

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