NEWS
■Business owners looking to buy a car should consider used vehicles for tax savings!
Tax planning is often a source of concern for business owners. As income rises with business ownership, tax liabilities tend to increase as well. Purchasing a used car can help mitigate this. If you are currently in the market for a vehicle, focusing on used options is highly recommended. This article explains how purchasing a used car can lead to tax savings for business owners and highlights the differences compared to buying a new car.
1. Can a car be recorded as a business expense?
If a business owner purchases a vehicle under the company's name (as a "company car"), it can be recorded as a business expense. In accounting terms, it is treated as a "depreciation expense." Since a car represents a significant purchase, it can contribute substantially to tax savings—in some cases, even drastically reducing the total tax bill.
1-1. Benefits of purchasing a car under the corporate name
One major benefit of purchasing a car under the corporate name is that not only the purchase price but also maintenance costs can be recorded as expenses. Essential costs associated with vehicle ownership include automobile tax, compulsory liability insurance premiums, fuel, and mandatory vehicle inspections. These maintenance costs often exceed 100,000 yen annually. However, by classifying the vehicle as a company car, these expenses can be deducted as necessary business costs, resulting in tangible tax savings.
Another benefit is the ability to purchase the vehicle personally at a low price once it is no longer needed for business operations. When a corporation sells a vehicle to an individual, the transaction can be executed at a price lower than the general market rate. This allows you to acquire a luxury vehicle at a bargain price without the hassle or brokerage fees associated with auctions or trade-in services. However, caution is required; setting the price too low could lead to an increased tax burden. When transferring ownership from the corporation to an individual, it is important to ensure the transaction takes place at a fair market value, typically determined through a professional appraisal.
2. Differences in Useful Life Between New and Used Cars
Many business owners purchase luxury vehicles in the company's name. However, this is rarely just because they "want to drive an expensive car"; in most cases, it is a tax-saving strategy to maximize deductible expenses. It is also common for them to choose used cars that are four years old. This is because a four-year-old used car has a statutory useful life of just two years, making it both affordable and tax-efficient. In other words, spending the same amount of money on a used car rather than a new one can yield greater tax savings, as the amount that can be claimed as an expense is determined by the vehicle's statutory useful life.
For example, a new car has a useful life of six years, with an annual expense limit of 1.67 million yen. If the car is one year old, the useful life is five years (limit: 2 million yen); if it is two years old, the useful life is four years (limit: 2.5 million yen)—meaning the deductible amount increases. If the car is four years old or older, the useful life is two years, allowing for an expense deduction of 5 million yen. If the purchase price is the same, buying a more expensive car results in a larger expense deduction, thereby serving as an effective tax-saving measure. Of course, this strategy assumes the company is generating sufficient profits.
High-end used cars also offer advantages regarding cash flow management. Since a company's financial situation can deteriorate unexpectedly, holding onto assets with resale value provides a useful buffer in times of need. Luxury cars retain their asset value even after passing the two-year useful life mark (applicable to cars four years or older). Even as the vehicle ages, it can often be sold for a high price to generate necessary funds. Consequently, many business owners prefer buying a high-end used car over a cheaper new one. Risk management is another key perspective for business owners to consider when selecting a vehicle.
2-1. Points to Consider When Purchasing a Car in the Company's Name
There are three main points to keep in mind when purchasing a car in the company's name. First, pay attention to the timing of the purchase. When settling accounts, vehicle depreciation is calculated on a monthly basis. If a vehicle is purchased during the month of the fiscal year-end, only one month's worth of depreciation applies. Since this limits the potential tax-saving benefits, it is recommended to purchase company vehicles in the month following the fiscal year-end. Doing so ensures that the entire period leading up to the next fiscal year-end qualifies for depreciation.
Next, it is important to be aware of ongoing monthly maintenance costs. Before deciding to purchase a vehicle, consider expenses such as monthly fuel costs—calculated based on driving distance—and automobile taxes. Understanding these maintenance costs allows you to estimate the amount that can be claimed as a business expense in advance. However, caution is required if you intend to use the company vehicle for personal purposes. In principle, maintenance costs associated with personal use cannot be claimed as business expenses. For instance, if total maintenance costs are 100,000 yen and the vehicle is used 70% for work and 30% for personal reasons, only 70,000 yen can be claimed as an expense.
Finally, since vehicles tend to depreciate quickly, it is important to choose a model that retains its value well. Models with high demand on the used car market can serve as valuable company assets should the need arise.
2.2 The Option of Car Leasing
When acquiring a company vehicle, you have the option of using a car lease instead of paying the full price upfront or taking out a loan. Car leasing is a service where you use a vehicle in exchange for a monthly fee. By making payments over a set period, you can eventually own the vehicle outright.
One advantage of car leasing is that expenses are easy to calculate because the monthly payment amount remains constant. This clarifies cash flow, making it easier to formulate business plans. Another major benefit is that you do not need a large lump sum of cash to acquire the vehicle, allowing you to preserve capital. Additionally, maintenance is handled by the leasing company, saving you time and effort. Furthermore, the monthly fee covers insurance premiums, taxes, and maintenance costs. Since all of these costs can be recorded as business expenses, you can expect significant tax-saving benefits.
However, car leasing does have some downsides. For instance, terminating the lease early incurs a hefty cancellation fee, and there are significant risks associated with accidents or theft. When considering a car lease, it is important to weigh the pros and cons before making a decision.
3. Using a Chauffeur Service for Luxury Vehicles
When business owners purchase luxury vehicles, they often hire professional drivers. Luxury cars entail high maintenance costs, so they require careful, skillful daily driving. Professional driving techniques can extend the vehicle's lifespan, and drivers can also handle some aspects of maintenance. Furthermore, having a driver allows the business owner to work or rest while in the vehicle. However, hiring a full-time driver involves high personnel costs—an expense the company cannot simply ignore. Moreover, since business owners do not necessarily use the car every day, paying a fixed salary can result in wasteful spending.
This is where chauffeur services prove efficient. Such services allow you to hire a driver and pay only for what you need, when you need it. Not only can you make productive use of your time in the vehicle, but you can also keep personnel costs down and reduce overall expenses. By exploring outsourcing options, you can find the perfect driver for your needs.
■ Chauffeur Services Are Also an Option for Tax Savings!
For business owners, purchasing a vehicle is a significant move that can contribute to company profits. However, acquiring a luxury car often creates a need for a suitable driver. By utilizing outsourcing, you can easily find chauffeur services. Hiring a driver only when necessary helps cut personnel costs, ensuring the expense does not place an undue burden on company finances.
【 TransACT Group 】
