A cargo van may be considered an item that can be classed as a listed property vehicle, depending on its intended use.
Listed property vehicles are:
- Motorcycles, trucks and buses used to transport passengers or goods
- Automobiles weighing less than 6,000lbs and not intended for personal use
When deciding to geta cargo van you need to know if it is expected to be used for business or personal use. This is beceause a cargo van must be expected to be used for business purposes at least 50% of the time if it is to be considered a listed property item.
The Purpose of Listed Property Vehicles
Listed property vehicles are a concept introduced by the IRS. The introduction of this concept was to stop people from claiming expenses for vehicle business usage when they were in fact being used for personal use.
Since its introduction, any vehicle expected to be used for business purposes, and thereby qualify for tax deductions, must be registered as a listed property for that business. In other words it must be registered as a business vehicle.
In order to be able to claim for expenses in the use of that listed property vehicle, you must keep accurate records regarding its business usage.
This also means of course that the purchase of a listed property vehicle can also be claimed. In subsequent years claims can be made for the depreciation in value of that listed property vehicle.
Accurate records of the business usage of a listed property vehicle are essential as, if the business use drops below 50% of the vehicle’s overall use, expenses cannot be claimed. In these circumstances even a portion of previous claims may have to be reimbursed.
You Can Claim a Registered Cargo Van’s Expenses
If you are going to use your cargo van for business purposes more than 50% of the time then registering it as a business asset is obviously financially beneficial in terms of tax deductions. The largest tax reduction will of course be on the initial purchase of the vehicle but later, maintenance and fuel costs can also be classed as deductions.
Business Owned Van Insurance Can Cost More
The downside to listing your cargo van as being used for business is that you will have to insure it as a business owned vehicle which could be more expensive than as a personal vehicle. Fortunately commercial insurance will also cover the cargo van for personal use,so you do not have to purchase both types.
Cargo Vans Are Not Automatically Listed Property
A cargo van is a van which has one frame encompassing both the cab and the freight areas. They are usually smaller than other types of van, such as box vans. Whilst the smaller size of a cargo van will usually mean they are easier and more comfortable to drive, the downside is that they are not as powerful as larger trucks and vans.
With their relatively low weight and power, often cargo vans are considered the same as cars in most circumstances. This means that unlike larger box vans they are not automatically considered as business vehicles unless they are used as an ambulance, hearse or other obvious business purpose. This means that a cargo van must be specifically registered as a listed property by a business, and supporting proof of this use must be continually produced.
This proof will consist of accurate mileage records discriminating between what miles are for business and which are for private use. It should be noted that the transporting of a business owner or any of their employees from their home to the business premises, is not considered business usage. The reason for this is that costs incurred commuting to work is claimed as a personal tax deduction.
Larger businesses with various vans will already be aware of the need to keep accurate mileage records for their vehicles. A small business however, may have to set up its own systems of recording individual mileage for their cargo van.
Cargo vans are often considered ideal for small business use, not only because they are relatively cheap to run but also they can be customized both internally and externally.
These customizations can enable a small business to fully utilize the space within the cargo area or add external roof racks or clamps to hold ladders. This plus the fact that seats can easily be added in the cargo section, makes them very versatile, becoming perhaps the only vehicle a small business may need.
The reason why cargo vans are not automatically classed as business vehicles is because of their versatility. With an ease of driving similar to a large SUV, a cargo van can make a great personal asset, with some people customizing them as a compact camper vehicle.
Expenses Claims Cuts Costs for Small Businesses
Many small businesses have limited funds at their disposal if they are to remain financially viable. Even so, owning a cargo van is essential to some businesses, such as maintenance contractors, plumbers, florists and caterers. These are all businesses to which transport is essential to get them to the site of their business instead of just waiting for the business to come to their premises.
This means that for these types of small business, a cargo van or other means of transport are an essential part of their business, as are the associated costs such as fuel and maintenance. Once these essential vehicles have been registered as being business-owned and listed property, they can at least claim tax reductions on these expenses.
Often it is these and other tax deductions which allow a small business to remain viable, as without them, a full tax bill could be devastating for the business.
You Can Claim for Fuel Costs Expenses
With the price of fuel always on the increase, getting tax relief on those costs can help ensure a business survives.
You must take care to ensure that the costs of fuel for business purposes always exceeds 50% of the van’s total fuel costs. This means that if a small business owner does use their cargo van for personal use, they shouldn’t perhaps use it for a road trip or family touring vacation.
Using it locally for both business and personal purposes will often work out financially beneficial though.
You Can Claim for the Initial Purchase Expense
The initial purchase of a cargo van for business purposes, if registered as a vehicle owned by the business, will provide a healthy deduction on the business’s next tax return.
A small business owner should also remember that other items as well as vehicles, can be registered to the business as listed properties, and also provide the owner with further deductions.
Conclusion
Whilst a cargo van may not be automatically classed as a listed property of a business, they often are applied for as that status. Basically a listed property is a piece of equipment which is fundamental to the running of a business and so the IRS recognizes it as being an item which can attract deductibles.
Not all items used for business though can be registered as listed items and so guidance on what can and cannot be classed as listed property can be found here.
Any item registered with the IRS as a listed property will still incur maintenance and other costs throughout the year but at least much of those expenses can be counted as deductibles at the end of the tax year. It is therefore important for any small business to ensure that any item which can qualify as listed property is registered as being owned by the business and so is therefore not a personal possession.
It is generally considered that the system of listed properties for IRS purposes is not perfect but it is also generally agreed the system can work until the IRS devise something better.
With the ability to customize a cargo van to a business’s unique needs and its relatively cheap running costs, they have become a very popular investment for small business owners. However, in order to make them the most cost effective option, they must be owned by the business and not be personally owned by the business owner.
Being the property of a business and being customized accordingly, a cargo van’s easy maneuverability, compact size and fuel efficiency means they are also ideal for personal use. Providing of course the personal use of the van is restricted to less than 50% of the van’s total use.
