Business Benefits of Leasing a Car

If you run your own business or use your personal vehicle for a lot of things related to your job or business, you should consider leasing instead of buying your next vehicle. While it’s not always an easy decision, there are many benefits to leasing that you should consider.

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Tax Benefits Of Leasing A Car

Generally, everyone understands how important tax deductions are. You should always talk with your tax professional before deciding, but most work-related automobile use is tax deductible -- as long as you can prove you use the vehicle for business purposes at least half of the time.

With a vehicle lease, generally the full monthly payments can be deducted (less the percentage used for personal purposes.) When you purchase a car, only the interest on your vehicle loan can be deducted. In either scenario, you can also deduct the business-related operating expenses, either through using the standard mileage rate or the actual expenses. If you own the vehicle, you can switch between the two choices year to year, choosing which is more advantageous to you. But if you lease, you must choose one method and use it for the term of the lease.

Because you don’t own a leased car, it’s not subject to depreciation for tax purposes. In most cases, the monthly payment deduction becomes an advantage in that regard, plus you don’t have to track the annual depreciation over the lifetime of the vehicle. There is an exception (isn’t there always?) The tax code limits the depreciation on “luxury” cars, which are vehicles that cost about $19,000 or more. Therefore, it also limits how much is deductible for lease payments on such cars. The IRS calls this the lease inclusion amount. The more expensive the car, the greater the amount excluded from your deduction.

However, the luxury auto limits do not apply to vehicles with a gross weight of over 6,000 pounds, which includes many sport utility vehicles and trucks. So if you want or need a large SUV or pickup, whether the vehicle is being used for hauling freight or just wheeling around town, you can take advantage of that larger deduction.

Get a New Vehicle Sooner

With car leases, you can stay competitive and look more professional with a new vehicle every few years. Your vehicle will never look dated, old or rusty, and it will be more reliable and -- in most cases -- will still be covered under warranty. This enhances your business image and will help you feel better about your business in general. In addition, it’s easier to upgrade frequently if the need arises for a different style or purpose for your business vehicle.

If you purchase a vehicle with a loan, you might have difficulty upgrading because the vehicle’s value has dropped below the loan balance. You may be “locked in” to that vehicle for the life of the loan or until you can afford to buy out the loan and put a down payment on a new vehicle.

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Smaller Payments and Better Cash Flow

It’s much easier to lease a car because you don’t need to try to get a vehicle loan with a bank. If you are going through a rough patch in your business or are struggling to get to that next level of sales, leasing a new vehicle is far less difficult. The payments are generally lower, and because many terms are negotiable, leases can be customized to fit your payment needs and cash flow. Many times, you can get approved within 24 hours, depending on the leasing company.

And, for startup businesses or those in growth mode, the lower payments offered through leasing can free up extra cash for your other business expenses. This can allow you to grow faster and spend your money on more important things for your business. The only downside is that you never own the car, so there’s no equity built up and no asset listing on your balance sheet.

Leasing is Preferable as the Vehicle Price Goes Up

As the price of the car goes up, leasing usually becomes preferable. This is because expensive cars usually hold their value better, increasing the residual value. Because your lease payments are based on the difference between the purchase price and the residual value, the closer those two values are, the lower your lease payments will be. And if you like the vehicle at the end of the lease, you can buy the car, depending on the type of lease you signed.

No Hassle of Selling the Vehicle

Once it's time to move on to the next vehicle, you won’t have to worry about selling your car or taking a value hit on the trade in. When you sell a business vehicle that you own, there is either a taxable gain or a deductible loss, and any gain due to depreciation will be taxed as ordinary income. You’ll need to track the gain or loss, the depreciation, and report it on your next tax return.

If you lease, the car is simply returned to the leasing company, and you get to pick a new car that better fits your needs. When you return your leased car to the dealer, there is no taxable gain or loss. A bonus is that newer cars will have better safety features and more upgrades than what were available when you chose your last car. And you get to enjoy that new car smell!

If you’re ready to talk to us about leasing a Subaru, stop by Neil Huffman Subaru in Louisville. We’d be happy to show you our line of new Subarus and talk with you about your leasing options.

 

 

 

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