Tax Advantages for a Corporation Buying a Vehicle

By Tom Streissguth

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.

Ready to incorporate your business? Get Started Now


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.

Ready to incorporate your business? Get Started Now
Sole Proprietorship Business Deductions



Related articles

Tax Benefits for Matching Charitable Donations as a Corporation

Corporations commonly use matching programs to increase the amount of charitable donations made by their employees. However, in addition to the intangible benefits of helping needy charities, there are tax benefits of which a corporation can take advantage. For federal income tax purposes, the donations a corporation matches aren’t attributed to employees, but are instead deductible on the corporation’s tax return.

What Can Be Deducted in an S-Corp?

An S corp is a corporation that has elected to be treated as a partnership for tax purposes. This means that the company does not pay income tax; instead, income and deductions flow through to the personal income tax return of each owner. Both an S corp and a C corp have the same deductible expenses; the only difference is who pays the tax.

What Forms Do I Need to File for an S Corp?

An incorporated business is automatically designated by the Internal Revenue Service as a C corporation for income tax purposes. However, certain smaller corporations can elect to be taxed as S corporations without forfeiting the liability protections that the corporate structure affords to shareholders. Making the initial election requires filing an IRS form. Once S corporation status is granted, the tax forms the corporation must file annually will change.

LLCs, Corporations, Patents, Attorney Help

Related articles

Buying Personal Property for a Sole Proprietorship

A sole proprietorship is a non-incorporated business entity wholly owned by a single individual. The sole proprietor ...

What Can You Write Off on Taxes for an LLC?

The Internal Revenue Service treats LLCs differently for tax purposes than other types of entities insofar as members ...

Professional Corporation Tax Advantages

For firms whose main source of revenue is from the provision of professional services, many states allow the business ...

Deduction Categories for a Sole Proprietor

A sole proprietorship is just a business owned by a single individual. The earnings, expenses, profits and losses of a ...

Browse by category
Ready to Begin? GET STARTED