How to Buy a Car Under a Business Name

Purchasing a car for commercial needs can be crucial as your business grows. To buy a vehicle, you can obtain business credit. What documents do you need, and what are the advantages of a car purchase under a business name? Read on to find out the details. 

What Are the Advantages of Buying a Car Under a Business Name?

When buying a car for business purposes, you might enjoy the following benefits:

• You separate your personal and business assets when buying a car as a company. For example, you protect yourself from being sued if your vehicle gets into an accident. 
• Optimizing maintenance costs is the primary goal of any limited liability company. If the company owns the vehicle and the CEO uses it under the power of attorney, gasoline and maintenance costs are deducted from the legal entity’s funds.
• More substantial insurance coverage: As business cars may run into additional risks, commercial vehicle insurance coverage limits are higher. It means that if you get into an accident, there won’t be any gaps in coverage.
• Tax deductions: If a person acquires a car under their business name, it is considered a business expense. In this case, they can write off some of their tax costs.

How to Buy a Car with Business Credit

Follow these steps to obtain a business credit for a car purchase:

• You first need to create a credit profile in a credit bureau, like Dun & Bradstreet, Experian, or Equifax, all of which are the major credit bureaus for businesses. After that, you have to build your business credit, which may take up to two years. Remember to pay your bills early, avoid relying too heavily on credit, and clean up your public records. To qualify for a car loan under a business credit, you need to have a credit score over 80. 
  • Please note that personal credit scores and business credit scores are different and operate on separate scales. Your personal credit range is 300 to 850 and is attached to your social security number. A business credit score is tied to the Employer Identification Number (EIN) and is measured on a 1 to 100 scale with 80 to 100 indicating the lowest risk.
• Make sure your credit score is at the required level. To do this, contact credit bureaus and pay a fee to get the information. Then you can contact a commercial sales department in a car dealership, which assists businesses in buying and registering their vehicles. 
• Choose the car you want to buy. It must suit your business goals. 
• Provide financial information to lenders. Some may be interested in your business balance sheet or your credit history. 
• Make sure to provide an extra guarantee for the loan. 

What Documents Do You Need to Obtain a Car Loan as a Company?

You need to provide a tax ID number to apply for a car loan. You may apply for an Employer Identification Number (EIN) if your principal business is in the United States or U.S. Territories. The person applying online must have a valid Taxpayer Identification Number (SSN, ITIN, EIN). You are limited to one EIN per responsible party (i.e., the person who ultimately owns or controls the entity or exercises ultimate effective control over the entity) per day. 

Can You Lease a Car for Business Purposes?

In addition to using a car loan to acquire a new vehicle for business purposes, you can lease as well. The benefit is that your company will have a new vehicle under warranty with presumably less maintenance costs – reducing the likelihood of major repairs). While you may save on upfront costs, it should be noted that lease agreements come with penalties for excessive wear and for exceeding mileage stipulations. Thus, if your business requires drivers to be on the road as much as possible or you are in a harsher line of work, leasing might not be the right fit for your company.

What Are the Tax Benefits of a Company Car?

There are two IRS tax deduction options for vehicles acquired under a business name.

Mileage Deduction: The first is a mileage deduction where you claim the miles driven for business needs. In 2024, the mileage deduction rate was 67 cents per mile. Therefore, if you travel 10,000 miles in 2024 for business purposes in your company vehicle, you can deduct $6,700. 

Expense Deduction: The second option is an expense deduction where businesses deduct expenses related to their business vehicle such as gas, repairs, and car loan interest. You can deduct the total monthly lease payment if you lease a car used solely for business. If the vehicle isn’t used 100% for business needs, then you can deduct an amount proportionate to its use. For instance, if you have a $500 monthly lease payment and you use the vehicle 80% of the time for business needs, then you can deduct $400 monthly which is $4,800 for the year. 

Consult with your accountant to understand which option makes sense for your business. 

Can You Purchase a Used Vehicle Under a Business Name?

You can purchase a used vehicle under a business name. However, unlike purchasing or leasing a new car, you may have more unforeseen expenses given the age and mileage of the vehicle. Thus, business owners should take potential business disruptions of a used vehicle into consideration. 

Can You Use Your Business Car for Personal Purposes?

A vehicle registered with the company can be used both for business trips and personal purposes. It is difficult to prove the misuse of a vehicle. The digital age has blurred the lines between work and leisure for entrepreneurs, but that doesn’t mean you can’t get into trouble.

So, to avoid legal problems, prepare supporting documents and account for everything. In addition, calculate what percentage you are using your vehicle for business purposes, as this will dictate your tax deduction. 

Summary

If you own a business and need a vehicle for the company’s needs, it’s best to register the car with your business name. You’ll enjoy many advantages that come with registering under your business name.

However, before all that happens, you have to prepare. The most important thing is to make sure your credit score is within acceptable limits to get a loan for your car. Then, you need to thoroughly explore the process of applying for a loan, take care of the paperwork, and, voila, you’re well on your way to owning a vehicle under a business name.

Matt Yantakosol is a lifelong automotive enthusiast and former consultant focused on the consumer aspect of the industry. He has traveled to New York, Detroit, Chicago, L.A., Paris, Geneva, Frankfurt, and Tokyo Auto Shows to track and observe the newest industry innovations. In addition to JDPower.com, Matt's writing has appeared on Pcarmarket.com.

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