Business Vehicle – Buying vs. Leasing

Business Vehicle – Buying vs. Leasing

It can be tough to decide whether to lease or buy a vehicle. There is not a universal answer to this question. It depends on both financial and lifestyle considerations.

Here are some points to think about when trying to decide:

Here are a few reasons to purchase a vehicle:

  • If a vehicle that is used for business purposes is purchased, and the standard mileage rate is chosen, the actual expense method can be switched to if it becomes more favorable in a later year.
  • The taxpayer intends to keep the vehicle for more than 4 years and cash is available for at least the down payment.
  • The taxpayer anticipates driving the vehicle a lot of miles or not enough miles to warrant a lease. Leases generally have low mileage limits of 12,000 to 15,000 miles and additional charges will accumulate for every additional mile driven.
  • Once you have paid off the car you will own it and will be able to drive it without paying monthly payments on it.

Here are a few reasons to lease a vehicle:

  • Monthly lease payments are generally much lower than they would be if the vehicle was purchased.
  • The taxpayer intends to purchase a new vehicle within a few years.
  • The cost of interest is included in the lease payments and is therefore deductible when using the actual cost method. Interest on a vehicle loan is not deductible if you are an employee and not an owner of the business.
  • It is easier to turn over the car and get a new one when the lease is up since you won’t have to worry about selling the car or negotiating over a trade-in value – the value was determined at the start of the lease.

If you have any questions or would like more information, please contact Mary Knigge at (302) 656-6632.

 

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