Most businesses need to pay for transportation -- of employees, customers or goods -- and corporations must weigh the costs and benefits of a company-owned vehicle. Fortunately, the Internal Revenue Service offers a series of cost and expense deductions for corporate automobiles that lower the taxable income of the business. The rules apply to LLCs, S corporations and C corporations, and cover all "reasonable and necessary" expenses, according to the IRS guidelines.
The purchase of a vehicle for business use is a deductible expense, subtracted from income along with other expenditures that are reasonable and necessary for the operation of the business. The corporation must keep documentation of the sale, including all fees and sales taxes paid (which are also deductible). The vehicle must be used for the business -- buying a company car, then using it for personal transportation and deducting the sales price and expenses, violates the IRS rules. If an employee is allowed personal use of the vehicle, the expenses paid by the corporation for that use must be accounted for as compensation to the employee.
If a corporation purchases a car for business use, it may also take a deduction for depreciation of the vehicle. Depreciation accounts for the vehicle's gradual loss of value through age and wear and tear. Only vehicles used for business are depreciable - if a car or delivery truck is also used for personal transportation, the business must calculate the proportional use for business and can only deduct this proportion of the total value. The vehicle must also be in use for more than a year. Depreciation is reported to the IRS on Form 4562.
Operating a vehicle results in expenses, including fuel, regular maintenance, repairs, replacement parts, insurance, licenses, registration fees, and highway tolls. The IRS allows corporations to deduct these expenses directly from their gross income -- the "actual expense method" -- or deduct the standard mileage rate. As of 2012, the standard mileage rate for cars, vans, panel trucks and pickups was 55.5 cents per mile for business use. This allows a corporation to avoid keeping track of and itemizing every single purchase for vehicle operation, which can be burdensome.
Casualty and Theft Losses
If a business vehicle is damaged in an accident, or stolen, the business can take a deduction for the loss. Damage or a total loss from an accident would be considered a casualty loss, which is reported to the IRS on Form 4684, Section B. Casualty losses also include any weather-related damage, for example, damage caused by a hailstorm, fire or vandalism. The corporation must subtract any insurance reimbursements for the damage or loss to arrive at the proper deduction amount.
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.