As you've likely heard by now, the wildly successful Cash for Clunkers program has been a little too wildly successful -- it's ending on Monday at 8 p.m.
So if you're a business owner who had been thinking about buying a company car through the Cash for Clunkers program, here are the questions we figure you're probably asking -- and the answers.
Who is eligible? Just about everyone, says Linda Merlotti, a corporate accountant and tax expert on
JustAnswer.com. "The program is open to include corporations, companies, firms and partnerships, as well as individuals." And the program is applicable to not just buying a car, but leasing it.
Interesting. What are some other random facts you can throw at me and confuse me with? Only new cars can be bought -- 2008, 2009 and 2010 models -- for tax credits of $3,500 to $4,500. The car can't cost more than $45,000, and you have to buy it before November 1, 2009, and it may end sooner, if funds run out again. Your clunker has to be able to be driven into the dealership, and the person on the title must be the same person buying the car. And how's this for random? You're not actually applying for the credit; the dealer applies for it. Or, no, this is even more random: impress your friends by telling them that the Cash for Clunkers program's official name is Consumer Assistance to Recycle and Save Act of 2009 (CARS).
Why should I think about doing this? "By purchasing a more fuel efficient car, the savings to you in gas expenses could be significant," says Merlotti. "Experts are still predicting that gas prices will continue to climb in the next few years, and many are saying that by 2012, we could see average gas prices of $4 to $5 a gallon. Think of the savings this can mean to you, driving a more fuel efficient car."
What are some of the tax implications I should be aware of? Well, there are several. The most important ones include:
The $4,500 tax credit isn't considered taxable income. OK, that may already be kind of obvious to you, but it can really pay off when trading in a vehicle -- even more so than if you sold your old car, says Randy Williams, CPA, the small business expert on
SmallBizSmarts.com, a site mostly about business finance and insurance.
"For example," says Williams, "if the business can sell the vehicle for $6,000, and it's in the 30% tax bracket, it would have only $4,200 after paying $1,800 in taxes. If the business, instead, trades in the vehicle, under the federal program, it can get a credit of up to $4,500, without incurring any taxes, with the result being that it's $300 ahead."
Depending on where you live, there may be less sales tax to pay. John Spatcher, partner at
BlumShapiro, one of the largest accounting, tax and business consulting firms in New England, says that "many states have taken the position that the credit received should be treated as a 'trade-in,' and in states where trade-in allowances are exempted from sales tax, the buyer will benefit from a reduced sales tax liability." Hey, that's nice.
And even better, Spatcher has his own example. If you buy a $30,000 vehicle that's new, and you get that $4,500 credit, then the buyer only pays the sales tax on the net $25,500, saving sales tax on $4,500.
"In a state with 6% sales tax, this amounts to an additional $270 savings," adds Spatcher.
You won't be able to replace an entire fleet of cars. Only one credit is allowed per individual or entity, says Spatcher, meaning that if you own a rental car company and were hoping to replace your entire fleet, then ... well, as you probably already know ... sorry.
Appreciate that you can depreciate. "If you currently have an older vehicle that you are using in your business, then chances are that it's already fully depreciated," says Merlotti. "Purchasing a new vehicle will allow you to once again start claiming a deduction for the depreciation, which will, of course, lower your taxable business income."
Why should I think about not doing this? "The voucher value replaces the trade-in value and doesn't add to the trade-in value. Hence, small businesses should evaluate their decision on whether to utilize the voucher program based upon the value of their trade-in vehicle," says Renu Vardhan, who has a decade of experience in the finance field and another expert with Just Answer.com. "If the trade-in value is greater than the voucher amount, it may not be beneficial to apply to this program for your old vehicle. On the other hand, if it is worth less, then you certainly will want the higher voucher value."
Is there anywhere else to turn to if I still have more questions? Yep.
Cars.gov. It's an exhaustive web site, answering numerous thorny questions for both consumers and business owners.
