Choosing vehicles for your small business - Pie Insurance

What should small business owners consider when choosing a commercial vehicle?

If your company relies on vehicles for delivering goods, commuting to job sites, or conducting sales calls, choosing the proper vehicle for the job is important. We’ll cover some aspects to consider before you sign on the dotted line.

What type of commercial vehicle does your small business need?

The type of commercial vehicles your small business requires likely depends on your industry. Here are some questions to consider:

• What’s your budget for this purchase?
• Do you need a roomy vehicle with enough legroom and headroom to transport people, equipment, or cargo?
• Does the vehicle need a certain type of door: sliding door, lift gate, hatchback, etc.?
• Do you need a “statement” car to woo clients or project a certain lifestyle?
• Do you need a model that promises low emissions or fuel efficiency, such as an electric or hybrid car?
• Are there enough charging stations in your service area or delivery route if you select an electric option?
• Do you need workplace safety features, such as a system that warns drivers that they are driving too fast or prevents drivers from exceeding a certain speed?
• Are high-reliability ratings important?
•  Do you need a certain model of vehicle to meet branding or franchisee requirements?
• Do you need a vehicle with a high resale value?

Since most business-related vehicle purchases will be based on practicality and not impulse, the vehicle’s features must match your small business’s needs. Answering these questions can help you narrow the search for a commercial vehicle. And, because a vehicle can be a significant financial decision, you’ll also want to calculate the total cost of ownership, including the cost of commercial auto insurance, fuel, and other expenses.

Once you narrow down your options, experts recommend test-driving vehicles with a few of the employees who will be using them. If cargo space is a concern, bring along the items the vehicle needs to fit. For example, if you own a restaurant, will your catering supplies and delivery bags fit in the vehicle you’re considering? Test it out to be certain.

Should you convert, purchase, or lease a commercial vehicle?

You have a few options for obtaining a commercial vehicle, including buying a new or used vehicle, leasing a vehicle, or converting a vehicle you already own from personal use to business use. Each approach has its advantages and disadvantages.

Converting: Using a personal vehicle you already own for business use is likely the most cost-effective option, depending on your business and personal situation.

Purchasing: Because new vehicles depreciate considerably after the sale, most experts advise against buying a new vehicle for your small business. In fact, vehicles with as little as 10,000 miles on them can be worth several thousand dollars less than a new car of the same model.

Leasing: If you’ve decided you don’t want a used vehicle, experts suggest leasing a new vehicle rather than purchasing it. This choice ensures you always have modern, reliable cars representing your brand.

Tips for purchasing used vehicles for commercial use

Found a used vehicle that checks all of the boxes? Before you sign the purchase agreement, the experts at Wolters Kluwer recommend that you:

• Research the vehicle’s “blue book” value, which reflects what auto dealers have been able to get recently for that specific car.
• Have the vehicle inspected by a trusted mechanic.
• Use any issues with the car as leverage while negotiating the price.
• Get any warranties in writing, particularly those that guarantee that the vehicle will pass emission and safety inspections.

Here’s a checklist to help you evaluate a used vehicle.

Tax implications for obtaining a commercial vehicle

Obtaining and operating a commercial vehicle can impact your small business tax situation. For example, according to Turbo Tax:

• You may have to pay substantial excise taxes if you purchase a vehicle.
• You may be eligible for certain tax breaks if you buy an electric-powered vehicle.
• All vehicle-related expenses, including mileage and commercial auto insurance costs,  must be well-documented.
• If you lease a vehicle for your business, you can deduct the lease payments in most cases. However, if the vehicle is driven for personal use, you may only deduct a prorated portion of those expenses.
• The cost of operating cars, SUVs, and pickup trucks for business activities is typically deductible. In addition, the costs of vehicles used as equipment (such as dump trucks) and vehicles used for hire (such as taxi cabs) are also deductible.
• You can calculate expenses using the IRS’s standard mileage rate (65.5 cents a mile in 2023) or totaling up the actual expenses of things like gas, oil, tires, and repairs. Even if you use the standard mileage rate deduction, you can still deduct interest on an auto loan, registration and property tax fees, and parking and tolls, as long as they are business expenses.
• Vehicles used for business can be owned by an employee or the company. Ownership of the vehicle will impact how you claim the deduction.

Talk with your accountant to learn how a vehicle purchase or lease will affect your small business’s specific situation.