Getting a New Car for Business? Buy or Lease? Part 1: Leased Vehicles

Many business owners rely on transportation to achieve the goals and purposes of their business. A car purchased for use in a business has certain tax advantages for the owner. However, many business owners are now leasing cars for business use. More Americans lease autos than ever before because of attractive monthly costs and the ability to change cars frequently to keep up with new technology and safety features. But what’s better for your business, an owned or leased car?

While every business is different as to its transportation needs, there are some basic common considerations. It’s important to determine how long you expect to keep the vehicle. A lease may be a better deal if the car will accumulate a significant amount of mileage, as it will facilitate a quicker turnover of the car. What is the expected total cost of the car over the time period you possess it?

Lease terms to know:

  • The Manufacturer’s Suggested Retail Price (MSRP)
  • The final negotiated price of the vehicle
  •  The down payment
  • The applicable usage or sales tax rate
  • The length of the lease
  • The new car lending rateThe car value at the end of the term, which is known as the vehicle’s “residual value”

When negotiating a lease, it is likely that the dealer will offer either an open lease or a closed lease. An open lease contract is used primarily for commercial vehicles and allows the lessee to pay the difference between the estimated resale value and the actual resale value at the end of the lease. With a closed lease, at its termination, the lessee pays only for extra mileage and extraordinary damages.

The residual value of a lease is the value of the car at the end of the lease period. This value is a function of the amount and rate of depreciation on the car as a business asset. The more the vehicle depreciates, the less its residual value will be at the termination of the lease.

Since leases also have annual mileage limits, it may be economically efficient to pay an additional amount for the extra needed mileage. Otherwise, the additional mileage must be paid for at the end of the lease.

Business enterprises don’t always earn a profit for a particular year, especially new businesses. Entrepreneurs in this situation may be able to obtain some tax relief. The tax professionals at the Thorgood Law Firm can help ensure that all business owners take advantage of all of the tax deductions, exclusions, and credits that may apply to them. If you are the owner of an enterprise doing business in the New York or Tri-State area and have any questions about available tax breaks to reduce your tax bill, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation, call 212-490-0704.Getting a New Car for Business? Buy or Lease? Part 1: Leased Vehicles

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