Transportation expenses are one of the biggest concerns of a small company. Tough they’re tax-deductible, several factors can affect how much you can actually save. For example, if you travel to a different worksite, like a construction site, your fare or gas can qualify for a tax deduction. But if you stop over a coffee shop after meeting with a client outside the office, you’d be guilty of tax fraud if you’ve written that down as a transportation expense.
These tricky scenarios can make choosing between a company car and ridesharing a bit challenging. Buying a company car has many perks. The biggest of such is the tax advantages. Mileage and other travel expenses the company car incurs can be written off. In addition, a company is covered by commercial auto insurance instead of a personal one. As such, if it gets into an accident, your personal finances won’t be affected.
But there are also considerable advantages to ridesharing. Fares can be cheaper than fuel, and you can dodge maintenance costs. Also, you won’t face the risks of your employees using the car for personal purposes.
Still, it’s not that simple to decide which one of the two to choose. Both pose risks that won’t just affect your finances, but the lives of your employees, too.
Let’s get down to the nitty-gritty of a company car versus ridesharing:
Company Car: Pros and Cons
Again, the biggest advantage of a company car is the tax deductions. The deductions come into two parts: the deduction for acts due to the car and the deductions from the costs of using the car for business.
The cost of the car itself as a business asset and the costs of using the car are both deductibles. However, if you bought the car for a particular employee, its costs cannot be deductible. The interest of the car (assuming it’s loaned) isn’t deductible either. The owner of the car cannot deduct any expenses that haven’t been reimbursed.
Therefore, the tax advantages are only maximized if the car is bought as a business asset. You can deduct its depreciation rates as soon as the car is used for business. You can also write off general auto expenses, such as mileage, fuel, and tires. The percentage of the interest that is used for business is also deductible.
Despite its attractive perks, a lot could go wrong if you buy a company car. The car’s model, make, and size of the car can lead to major losses. For example, you bought a luxury car thinking it would bolster your company image. But its maintenance is more than you can handle, and your employees aren’t skilled drivers.
If you bought the car for an employee, they can’t deduct the expenses the company didn’t reimburse. They may need separate commercial auto insurance for it, too. Personal auto insurance doesn’t cover costs from business use, after all. This poses considerable risks. If your employee drove the car during lunch break and got into an accident, the commercial insurance may not cover it because the car wasn’t used for business at the time. But since the car isn’t covered by personal auto insurance either, the employee will be forced to pay out-of-pocket costs.
Ridesharing: Pros and Cons
Ridesharing has proven itself reliable since it began in 2012. Uber and Lyft make tens of millions of trips worldwide, and they’re generally considered safe. Their convenience is top-notch, too; just download the app and book a trip. You can also check the drivers’ profiles to see their ratings and reviews. If you chanced upon a highly-rated driver, it means your ride will surely be safe.
And for your company, ridesharing means you can avoid maintenance and insurance premiums. Fares incurred from business trips are also deductible, so you can get tax savings, too.
In a single year, 103 Uber drivers were accused of criminal activities, and 31 were convicted of forcible touching, false imprisonment, and other criminal and civil cases. In addition, as per Uber’s 2019 Safety Report, they had 58 fatalities out of the 1.3 billion rides they had in the U.S. That number may seem small, but it’s still worrisome especially if your business travels occur during accidents’ peak hours.
On a positive note, you can hold Uber accountable for accidents through the help of an experienced Uber accident lawyer. But if your employees’ lives will hang in the balance, perhaps using a company car may be the safer choice.
But that’s not free of risks either. Anyone using a car, whether a private one or a ridesharing auto, has a chance of meeting an accident. So it all boils down to the driver’s skill. If your employees can be trusted behind the wheel, then a company car would make a safe bet.