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Old 11-02-2007, 12:26 AM
 
Location: in drifts of snow wherever you go
2,522 posts, read 463,958 times
Reputation: 692

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Question for the accountants out there. I'm a sole-proprietor and I want to buy a car, which I'll use 50 percent for business and 50 percent for personal use. Is it better for me to buy or lease a vehicle?

Say I buy a car for $30,000. My loan payments are $550 a month. I can write off 50 percent of the interest on my loan payments, depreciation, gas, and maintenance.

But if I lease that same car, say I put $1,000 down on the lease and my monthly lease payments are $350 a month. (I'm guessing.) I can write off $175 a month of the lease payments plus gasoline and maintenance.

Does it make sense for me to lease a car?

Thanks,

Greenie
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Old 11-02-2007, 03:06 AM
 
Location: Cary, NC
2,408 posts, read 7,436,891 times
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I'm not a tax person, but I think it'll have a lot to do with how much you drive your car too. You can take Standard Mileage Rate deduction or Actual Expense Method when you purchase a car. Run some sample #s. I think you might be able to write off more from the depreciation than you would the lease expense but I'm just guessing at this point. I know you're a spreadsheet genius (thank you so much Greenie!) so just crunch some #s.
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Old 11-02-2007, 05:27 AM
 
Location: NE Florida
17,833 posts, read 21,651,280 times
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Another thing to keep in mind is how much driving do you do. Leases have become stingy in the number of miles they allow, i actually saw one lease where you could only put 10k a year on the car. The over mileage charge is hefty. You can "prepay" for extra miles but if you don't use them you don't get the money back.
Also with leasing sometimes your auto insurance can be higher, plus Gap insurance which will cover what you owe vs what the car is worth should something happen can add even more to your insurance.

as jinxor suggested run a complete set of numbers including the insurance differences
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Old 11-02-2007, 08:15 AM
 
Location: New England
786 posts, read 125,136 times
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The real question is NOT what saves you more taxes, but which option MAXIMIZES after-tax wealth. The big variable here.... lease payments are GONE. But if you buy a car, it will always have some residual value once you're done driving it.

Also, bear in mind... you cannot use the standard mileage rate on a leased vehicle. You must use actual cost method and track not only your business miles, but also all the actual costs. If you buy a car, you can use the standard mileage rate and there is no cap on the number of miles driven per year that rate can be applied to.

In case you haven't figured it out, I'm not a huge fan of leasing. But if all you're worried about is short-term cash flow, it may work out better in the short-run. But rarely in the long-run, imo.
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Old 11-02-2007, 09:05 AM
 
2,120 posts, read 5,446,076 times
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I know from direct business experience, the way to go is to purchase not lease. I've seen mulitple other small/medium-sized business go from the fleet leasing model to just purchasing because it really works out better in the end to do so (each of 3 companies learned the hard way - first by leasing a fleet). The write off isn't the major difference, it's the cost of insurance, the ability to keep a vehicle beyond lease terms without extra cost, and most importantly the asset value you have at the end of the term with a purchased car that makes a difference.
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Old 11-02-2007, 10:38 AM
 
Location: in drifts of snow wherever you go
2,522 posts, read 463,958 times
Reputation: 692
Quote:
Originally Posted by jinxor View Post
I'm not a tax person, but I think it'll have a lot to do with how much you drive your car too. You can take Standard Mileage Rate deduction or Actual Expense Method when you purchase a car. Run some sample #s. I think you might be able to write off more from the depreciation than you would the lease expense but I'm just guessing at this point. I know you're a spreadsheet genius (thank you so much Greenie!) so just crunch some #s.
Oh, thanks, Jinxor. I think you're referring to my Expense Tracker spreadsheet. I actually got that from someone on the web and modify it to fit my own purposes. I also now have a Auto Loan spreadsheet for working out monthly car payments.

If anyone else is interested in my Auto Loan or Expense Tracker spreadsheets, send me a PM.

Greenie
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Old 11-26-2009, 12:38 PM
 
1 posts, read 75,206 times
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Quote:
Originally Posted by GreenMachine View Post
Question for the accountants out there. I'm a sole-proprietor and I want to buy a car, which I'll use 50 percent for business and 50 percent for personal use. Is it better for me to buy or lease a vehicle?

Say I buy a car for $30,000. My loan payments are $550 a month. I can write off 50 percent of the interest on my loan payments, depreciation, gas, and maintenance.

But if I lease that same car, say I put $1,000 down on the lease and my monthly lease payments are $350 a month. (I'm guessing.) I can write off $175 a month of the lease payments plus gasoline and maintenance.

Does it make sense for me to lease a car?

Thanks,

Greenie
I read your postings. Would love the expense tracker you referred to in a thread about lease vs. purchase. My partner and I just leased a 2010 Prius, which will be used for work 50-80% of the time. We are now thinking we should have purchased. Anyway, we are trying to figure out the best way to write-off business expenses. We have a business and we are also sole proprietors; the car will be used for both business purposes.

Would you share the spreadsheet?
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Old 11-26-2009, 02:36 PM
 
Location: NW San Antonio
2,519 posts, read 5,611,148 times
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If a transaction is treated as a lease, the purchaser/lessee reports the periodic payments as gross rental expense. If the transaction is treated as a purchase, the purchaser/lessee reports the periodic payments as payments of principal and interest and also reports depreciation expense or deduction with respect to the purchased asset.
Quote:
When analyzing a lease transaction, it's best to begin by finding
out the car's capitalized cost. This is essentially the amount
for which the dealer is "selling" the leased vehicle. This
should compare favorably with the cost of the same car in a
cash transaction.

The next critical factor is the car's residual value (expected
worth when the lease expires). This amount frequently is
expressed as a percentage of the car's original price. The
residual value should compare favorably with the book values
of corresponding used cars when the lease expires.

The car's residual value is a key element that will make
monthly lease payments less than the corresponding payment to
buy the same car. When a car is purchased outright, the buyer
pays for the entire vehicle; with a lease, the lessee pays
only for depreciation during the lease term, plus an interest
equivalent. The greater the vehicle's residual value, the better
the lease transaction will be for the lessee.
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Old 11-30-2009, 07:15 PM
 
954 posts, read 1,441,240 times
Reputation: 381
Quote:
Originally Posted by GreenMachine View Post
Question for the accountants out there. I'm a sole-proprietor and I want to buy a car, which I'll use 50 percent for business and 50 percent for personal use. Is it better for me to buy or lease a vehicle?

Say I buy a car for $30,000. My loan payments are $550 a month. I can write off 50 percent of the interest on my loan payments, depreciation, gas, and maintenance.

But if I lease that same car, say I put $1,000 down on the lease and my monthly lease payments are $350 a month. (I'm guessing.) I can write off $175 a month of the lease payments plus gasoline and maintenance.

Does it make sense for me to lease a car?

Thanks,

Greenie
Seems like a good sample problem for an accounting student but there are so many variables that you cannot accurately forecast so why not just take the $0.55 per mile IRS deduction for business use (a good deal) and save the calculating energy for increasing revenues?
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Old 12-13-2009, 11:39 AM
 
52 posts, read 241,175 times
Reputation: 23
Hi Greenie,
I tried to PM you but it wouldn't take. We have similar driving habits. In the end, which option did you choose? I'm in a similar boat-
Thanks
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