Business tax write-off (business credit, lease, loan, insurance)

[JLR]

Can anyone tell me....for a company is it better to have a loan on a vehicle.....a line of credit for the company to pay for the vehicle/ or lease it. I'm looking just for tax benefits related to this question....please.

Thanks

[johnrex62]

Not sure if there is a true single answer to that question. If you own and finance, then the company can expense deduct for interest and depreciation and will own an asset that will be dealt with when you sell it. You may have some tax recapture or gain/loss to report. If you lease you can deduct the total payment as expense. The lease is the easiest to deal with in terms of paperwork.

I am not sure how much benefit the loan/line of credit would actually benefit the company...I am not sure if the company will generate a credit score like an individual would or how much the loan would count toward the business credit worthiness. I would think that balance sheets and business payments to suppliers would count much more than a car loan, but I could be wrong there.

[ColoWeb]

There is no one general answer. This all depends on the individual situation, miles used, expanses, tax bracket, and what type of company (i.e. Sole prop, C/S Corp?). Your accountant/tax adviser should be able to tell you.

[Lethal_Poison]

In general, the lease option is not as good as the buy option.


1. For one, the depreciation tax shield and line of credit expense item usually have more value on a tax basis then the lease payment as an expense item.

2. Most often, lease contracts for business equipment assign the repair costs to you, so you dont relieve yourself of those costs.

3. Generally speaking, especially for items that you are going to lease for close to its full useful life, you will pay much more in lease payments then you would have paid in interest and principle on a loan. Often leasing companies have the equipment they are leasing on a line of credit themselves, and are trying to profit by leasing, so do not always expect a competitive lease payment, especially on items with poor residual value.

4. You have absolutey no residual value in the item with a lease. Pointedly speaking, most depreciating items are useful long after their tax life is gone. This provides for the possibility of not only taking off every red cent of its cost by depreciation, plus its interest expense, but then grabbing a gain on sale of the asset. For items that hold their value well, this could be extraordinairly profitable for you. With a lease, the leasing company would reap this if any.

5. Many lease agreements for equipment have a convenient little line wrapped in them, which guarantees a certain cash value at auction when the lease term is up. Its kind of an insurance policy for the leasing company that they will get a certain minimum value for the equipment. Guess what though? You get to pay them the difference if they cant find the value, and this insurance policy gives them little incentive to shop for the best bargain.



I would only recommend leasing in a few circumstances

1. There is no other option
2. The item is a quickly depreciating asset that likely will have little physical value at the end of its tax life, and the lease payment is comparitable to a loan payment, and also, there is no guaranteed residual value clauses in the lease.
3. You need an item for a temporary amount of time and have an opportunity cost in storage space that is higher then the additional cost of the lease.
4. You are gaining such an unbelievably high rate of return on the investment, that somehow the time value dollar figure will exceed the physical value of the asset plus the additional cost of the loan payment over the lease option. In plain English, if the savings you are gaining by leasing, over a certain period of time, invested at your expected rate of return, are worth more at the end of that time, then the value of the asset, plus the value of the savings, then Id say lease.

[GreenMachine]

I don't think it matters.

[Lethal_Poison]

Originally Posted by GreenMachine

I don't think it matters.

This is exactly why so many people sign rip off leases.

[GreenMachine]

Originally Posted by Lethal_Poison

This is exactly why so many people sign rip off leases.

The write off is about the same for either. I don't think leasing gives you any advantages, that I'm aware off.

[Lethal_Poison]

Originally Posted by GreenMachine

The write off is about the same for either....

This is not neccessarily true, as it depends on the lease contract, and not only that, but when doing a lease/buy analysis, there is a whole lot more to consider then simply the immediate tax benefits. Far too many people simply look at the surface of things. I used to work for a company that did that constantly, and they were in a whole bunch of ignorant leases. They never once did more then a basic lease/buy analysis on anything they did (basically what gave them the most tax benefit today), and correspondingly, they through tens of thousands of dollars away at the end of the day.

[GreenMachine]

Originally Posted by Lethal_Poison

This is not neccessarily true, as it depends on the lease contract, and not only that, but when doing a lease/buy analysis, there is a whole lot more to consider then simply the immediate tax benefits. Far too many people simply look at the surface of things. I used to work for a company that did that constantly, and they were in a whole bunch of ignorant leases. They never once did more then a basic lease/buy analysis on anything they did (basically what gave them the most tax benefit today), and correspondingly, they through tens of thousands of dollars away at the end of the day.

If you're talking about one person in biz for themselves, lease or buying is gonna have about the same write-off. Unless your using some kinda fancy pants accounting method.

If you purchase, you write off depreciation. If you lease, you write off half the lease payment (assuming you use the car for personal stuff too.) In both situations you can also write off maintenance and petrol....

end of discussion.

[Lethal_Poison]

Originally Posted by GreenMachine

If you're talking about one person in biz for themselves, lease or buying is gonna have about the same write-off. Unless your using some kinda fancy pants accounting method.

If you purchase, you write off depreciation. If you lease, you write off half the lease payment (assuming you use the car for personal stuff too.) In both situations you can also write off maintenance and petrol....

end of discussion.

Im so glad you get to choose when the discussion ends....

Anyhow, lease payments can be significantly higher, or significantly lower then the total tax benefit of owning. This is largely dependent on the condition, operational life, and status of the equipment being leased. Furthermore it can also be dependent on the lease term, or lease options. There are so many variables that its impossible to just assume indifference.