Maximize Tax Savings on Your 2026 Tax Return! Why Purchasing a Used Car is Recommended for Sole Proprietors and Corporations

Depreciation is an accounting method where, when purchasing a high-value asset, the purchase cost is not expensed all at once, but rather divided and expensed over the asset's usable period (useful life). Since vehicles are assets that decrease in value over time, they are subject to this depreciation.

For example, when purchasing a vehicle for 3 million yen, normally you would expense it little by little over several years. However, for used cars, special rules different from new cars apply, which creates significant tax savings.

For new vehicles, the statutory useful life of a standard passenger car is set at 6 years. In other words, if you purchase a new car for 3 million yen, you will in principle depreciate it over a 6-year period. Using the straight-line method, this results in an annual expense of approximately 500,000 yen.

On the other hand, for used cars, you can calculate a shortened useful life by taking into account the "period it has already been used." This is the greatest advantage of purchasing a used car. In particular, for used cars that meet certain conditions, the useful life can be 2 years or less, making it possible to expense the entire amount or a large portion in the first year of purchase.

The useful life of a used car can be calculated using the following formula.

For used cars that have completed their full statutory useful life: Statutory useful life × 0.2

For used vehicles that have passed part of their statutory useful life: (Statutory useful life - Elapsed years) + Elapsed years × 0.2

With this calculation, for example, in the case of a regular passenger car that is 4 years old, the useful life becomes 2 years. Furthermore, when the useful life is 2 years or less, by selecting the declining balance method, you can expense the majority of the purchase price in the first year.

When purchasing a used car, it's not just the vehicle body price that can be recorded as an expense. The following costs are also recognized as expenses.

Purchase Expenses:

Maintenance costs:

However, there are several important conditions that must be met for expenses to be recognized as deductible.

For business use: It is a prerequisite that the vehicle is used for business purposes. If it is also used for private purposes, it must be apportioned according to the usage ratio.

Maintain proper records: By keeping driving logs and records of usage purposes, you can prove business use during tax audits.

Purchase and start using within the fiscal year:  Depreciation begins in the month when an asset is acquired and put into business use. Even if purchased at the end of the fiscal year, if usage begins within that fiscal year, depreciation expenses can be recorded on a prorated monthly basis.

Let's take a look at the specific calculations for why a "4-year-old" used car is optimal for tax savings.

The statutory useful life of a standard automobile is 6 years. For a 4-year-old used car, the calculation is as follows:

(6 years - 4 years) + 4 years × 0.2 = 2 years + 0.8 years = 2.8 years

Since this calculation result is 2 years or more but less than 3 years, the fraction is rounded down and the useful life becomes "2 years".

More importantly, when the useful life is 2 years, the depreciation rate under the declining balance method becomes very high. As of 2026, the declining balance depreciation rate for a 2-year useful life is 1.000 (100%). This means you can expense the entire amount in the first year of purchase.

When purchasing a used car with a useful life of 2 years or less, there are the following significant advantages.

High depreciation rate using the declining balance method: In the case of a 2-year useful life, the full purchase price can be recorded as depreciation expense in the first year.

Special provision for small-value depreciable assets:  For small and medium-sized enterprises filing blue tax returns, there is a special provision that allows assets with an acquisition cost of less than 300,000 yen to be fully depreciated immediately, up to an annual limit of 3 million yen. However, since cases where vehicles cost less than 300,000 yen are rare, the regular depreciation system will typically be utilized.

SME Management Enhancement Tax System:  If certain conditions are met, immediate depreciation or tax credit selection can be applied. However, since this system primarily targets new vehicles and new equipment, it is more common to utilize regular depreciation for used vehicles.

Let's look at the tax savings effect with actual numbers.

Case 1: When a sole proprietor purchases a 4-year-old used car for 3 million yen

For a sole proprietor with taxable income of 5 million yen, calculating with an income tax rate of approximately 20% and a residence tax rate of 10%:

Tax Savings = 3,000,000 yen × 30% = 900,000 yen

In other words, purchasing a used car for 3 million yen can reduce taxes by approximately 900,000 yen in the first year.

Case 2: When a corporation purchases a 4-year-old used car for 4 million yen

Calculating with an effective corporate tax rate of approximately 30%:

Tax savings = 4 million yen × 30% = 1.2 million yen

As you can see, the tax-saving effects of purchasing a used car are extremely significant.

Comparison with New Cars:

When purchasing the same new car for 3 million yen, calculated using a useful life of 6 years and the declining balance method (depreciation rate of 0.333):

First-year depreciation = 3 million yen × 0.333 = approximately 1 million yen Tax savings = 1 million yen × 30% = 300,000 yen

While a 4-year-old used car provided a tax benefit of 900,000 yen, a new car only provides 300,000 yen. The difference amounts to 600,000 yen.

The 2026 tax reform includes several important changes to support small and medium-sized enterprises and sole proprietors.

Complete Mandatory Implementation of the Electronic Bookkeeping Act: The implementation of the Electronic Bookkeeping Act, which has been progressively advancing since 2024, will become fully mandatory in 2026. There is an increasing number of cases where receipts and contracts related to vehicle purchases are required to be stored as electronic data, making it necessary to introduce appropriate systems.

Establishment of the Invoice System:  The invoice system that began in October 2023 will be fully established by 2026. When purchasing a used car, by receiving a qualified invoice, you can properly receive the input tax credit for consumption tax.

Continuation of Green Tax System: Tax incentives for vehicles with excellent environmental performance continue, but primarily target new cars. However, by choosing used cars such as hybrid vehicles or clean diesel vehicles, you may be eligible for automobile tax reduction measures.

Special measures to support small and medium-sized enterprises and sole proprietors will continue in fiscal year 2026.

Small-Amount Depreciable Assets Special Provision: Small and medium-sized enterprises filing blue tax returns can fully depreciate assets with an acquisition cost of less than 300,000 yen immediately, up to an annual limit of 3 million yen. This special provision continues through fiscal year 2026.

SME Investment Promotion Tax System: A system that allows you to choose between special depreciation or tax credits for equipment investments that meet certain requirements. For vehicles, cargo trucks (with a gross vehicle weight of 3.5 tons or more) are eligible.

Employment Income Expansion Tax Credit: This is a system that allows you to receive tax credits when you increase employee salaries. By utilizing it in conjunction with business expansion through vehicle purchases, you can expect even greater tax savings effects.

Filing for Depreciation Method: If you choose the declining balance method, you must file with the tax office in advance. If no filing is made, the straight-line method will be automatically applied, so caution is required. For sole proprietors, assets other than building附属設備 and structures acquired on or after April 1, 2016, you can choose between the straight-line method and the declining balance method.

Consumption Tax Treatment:  The consumption tax when purchasing a used car varies depending on whether the seller is a taxable business operator. If purchasing from an individual, there may be cases where consumption tax does not apply, but in such cases, input tax credits cannot be claimed either.

Accounting Treatment for Lease Transactions: In fiscal year 2026, lease transactions will continue to have different accounting treatments for finance leases with transfer of ownership and finance leases without transfer of ownership. Whether purchasing or leasing is more advantageous must be determined based on individual circumstances.

To claim depreciation expenses for a used car purchase on your tax return, you need to prepare the following documents.

Documents at the time of purchase:

Documents for depreciation calculation:

Documents proving business use:

Other Related Documents:

These documents are required not only when filing your tax return but also during tax audits, so we recommend keeping them for at least 7 years.

For sole proprietors:

Use Tax Return Form B and the Blue Return Financial Statement (or Income and Expenditure Statement).

For corporations:

Use the corporate tax return and Schedule 16 "Statement of Calculation of Depreciation Amounts for Depreciable Assets".

Mistake 1: Calculation Error in Useful Life

Calculating the useful life of used vehicles is complex. In particular, there are many cases where fractional months are incorrectly handled. Remember that if the calculation result is less than 2 years, it should be treated as 2 years.

Countermeasure:  Consult with a tax accountant or use the calculation tools available on the National Tax Agency's website.

Mistake 2: Insufficient Evidence for Business Use Percentage

For vehicles used for personal purposes as well, it is necessary to properly set the business use percentage. If you claim 100% business use without proper justification, it may be rejected during a tax audit.

Solution: Keep a driving log and clearly record the distance and number of days for business use versus private use. Generally, allocation based on mileage is considered reasonable.

Mistake 3: Error in Start Date

Depreciation begins not from the date the asset was acquired, but from the date it was placed in service for business use. If the purchase date and the date of commencement of use differ, the date of commencement of use is used as the reference point.

Countermeasure:  Keep a record of the delivery date or the first day you used the vehicle for business purposes.

Mistake 4: Errors in Handling Incidental Costs

As a general rule, accessories such as car navigation systems and dashcams should be depreciated together with the vehicle itself. Recording them as separate expenses would be incorrect.

Countermeasure: Carefully review the purchase statement and distinguish between items that should be included in the vehicle body price and those that can be recorded as separate expenses.

Mistake 5: Errors in Monthly Proration Calculations

If purchased during the fiscal year, the first year's depreciation expense must be calculated on a monthly pro-rated basis. Fractions of less than one month are counted as one month.

Countermeasure:  Accurately count the number of months from the start of use until the end of the fiscal year and perform monthly proration calculations.

To maximize tax savings, it's important to choose a vehicle that suits your actual business needs, not just one that meets the "4-year-old" condition.

When using as a company vehicle:

Sales vehicles used for customer visits and business meetings are important tools that influence your company's image. Choose vehicle models that convey cleanliness and inspire trust.

For use in delivery and transportation operations:

The balance between cargo capacity and fuel efficiency is important.

When addressing multiple use cases:

Vehicle models that can be used for multiple purposes, such as for both sales and delivery, are also popular.

Consider fuel efficiency:

Not only tax savings, but running costs are also important. Hybrid and clean diesel vehicles offer excellent fuel efficiency, leading to long-term cost reductions.

Price range under 1 million yen:

Recommended for those purchasing a commercial vehicle for the first time or considering purchasing multiple vehicles.

Price range of 1 million to 2 million yen:

There are many well-balanced options available as vehicles that form the core of your business.

Price range of 2 million to 3 million yen:

This is a price range for those seeking higher quality and comfort.

Price Range of 3 Million Yen and Above:

For vehicles used by business owners themselves or vehicles used for special purposes.

CarTree is a used car listing site that partners with reputable used car dealerships nationwide, allowing you to find the perfect vehicle from an extensive inventory. Please take advantage of CarTree to search for used cars that maximize tax savings benefits.

Features of the Car Tree:

Efficient Search Methods in Car Trees:

Car Tree Support System:

At CarTree, we have established a comprehensive support system so that even first-time used car buyers can use our services with confidence.

Leave it to Car Tree to help you choose a used car that maximizes your tax savings. Among our extensive inventory, you'll definitely find the perfect vehicle for your business.

The tax-saving effects of purchasing a used car are fundamentally the same for sole proprietors and corporations, but there are several differences.

Selection of Depreciation Method:

Difference in Name:

Consumption Tax Treatment:

Impact on Social Insurance Premiums:

When using a business vehicle for private purposes, appropriate apportionment is required.

Allocation Method:

The most common method is apportionment based on mileage.

Business use percentage = Business mileage ÷ Total mileage

For example, if your annual mileage is 10,000 km and 7,000 km of that is for business purposes:

Business use ratio = 7,000km ÷ 10,000km = 70%

In this case, you can claim 70% of vehicle purchase and maintenance costs as business expenses.

The Importance of Record-Keeping:

Driving records that serve as the basis for apportionment will always be verified during tax audits. Make sure to keep a record of the following information.

It is convenient to keep records using smartphone apps or Excel.

Reasonable allocation ratio:

The apportionment ratio recognized by the tax office must be reasonable and based on actual circumstances. Generally, the following ratios serve as guidelines.

Important Notes on Apportionment:

Tax savings through purchasing used cars is a legal method, but there are points that tend to be flagged during tax audits. Let's take preventive measures in advance.

Point 1: Is it actually being used in the business?

The most important thing is whether the purchased vehicle is actually being used in the business.

Countermeasures:

Point 2: Is the allocation ratio appropriate?

The allocation ratio between business and private use will be verified to ensure it aligns with actual usage.

Countermeasures:

Point 3: Is the useful life calculation accurate?

If you miscalculate the useful life of a used vehicle, you will end up recording excessive depreciation expenses.

Countermeasures:

Point 4: Is purchasing a luxury car justified?

If you purchase a vehicle that is expensive relative to your business scale or industry, you may be questioned about its necessity.

Countermeasures:

Point 5: Is the Purchase Timing Appropriate?

Purchases made right before the end of the fiscal year may be considered purchases made solely for tax-saving purposes.

Countermeasures:

Preparing for Tax Audits:

By organizing the following documents on a regular basis, you can respond to tax audits with confidence.

We have provided a detailed explanation of tax-saving strategies through used car purchases for the 2026 tax filing. Let's review the important points once again.

Why Purchasing Used Cars is Effective for Tax Savings:

Key Points of the 2026 Tax System:

Important Points for Tax Filing:

Choosing a Used Car on Cars Tree:

To maximize tax savings, choosing the right vehicle is important. Car Tree offers the following benefits:

The tax return filing deadline is March 15th. If you start preparing now, you will have plenty of time to consider purchasing a used car as a tax-saving measure for fiscal year 2026.

Tax savings through purchasing a used car can be a legitimate method that yields significant benefits when utilized appropriately. However, avoid unnatural purchases made solely for tax purposes, and always ensure that your purchase is based on genuine business necessity.

With our extensive inventory and comprehensive support system, we help you find used cars with high tax-saving benefits. Visit the CarTree website now to find your ideal business vehicle.

Navigate the 2026 tax filing season wisely and connect it to further business growth. CarTree supports your business success.