Leasing vs. Buying Vehicles: Which is best for your company?

October 11, 2016 Company News

As a business owner, having at least one company vehicle can help you effectively run your business. However it’s a controversial topic whether it’s more cost-efficient to lease or buy a vehicle. This often leads to an analysis-paralysis—a term in which you over-analyze something that makes you fail to make a quick, important decision. We hope this article helps you weigh both sides and make a quick, tactful decision.

Owning company vehicles can help save you cash and even bring in income to your business in the long run. Still, some business owners prefer to use their personal cars for business but as your company grows larger, this may not be scaleable.

To help you decide whether you should buy or lease a vehicle(s) for your business, consider asking yourself these questions:

  1. How long do you plan on keeping the vehicle?
  2. How much is your budget for a brand new car?
  3. Is your capital large enough to buy a new car in cash?

 

Finding Out Which Option Is Better for Your Company

Like any other business decision, it’s inevitable that taxes come into play for the choices you make for your company. The primary deduction of taxes on whether you bought or leased a vehicle will affect the amount of taxes you will pay.

If you use an IRS-set standard mileage rate for your vehicle, it will show that leasing one would yield a larger annual tax deduction than personally owning a vehicle. As a business owner, tax deductions are beneficial for you since it saves you money, whether the deduction is big or small. This is one big factor you should consider.

Also consider who will be the one driving the vehicle. If you will be driving, chances are, you can control your mileage. If someone else will drive, it will likely exceed the annual mileage limit (if you are leasing). If the latter one would be the case, it’s better to just buy a car rather than leasing it.

Leasing vs. Buying Vehicles

Aside those mentioned above, there are other things to consider when getting a vehicle for your business. We’ve listed the pros and cons of leasing and buying vehicles—read and compare below!

Leasing Vehicles

Pros

  • Monthly lease payments are subject to tax deductions because they fall under traditional business expenses.
  • The lease covers vehicle maintenance.
  • Easy disposal of the vehicle. When the lease expires your responsibility for the vehicle disappears.

Cons

  • Mileage is limited to 12,000 to 15,000 miles a year. Some may let you set the mileage for the first year but you’ll have to go through with it for the rest of the lease.
  • What you see is what you get for the vehicle. You can’t customize it (unless the contract says so), or you’ll be penalized.
  • Be careful of the fine print in the contract (Early termination penalties, additional fees, etc.).

Buying Vehicles

Pros

  • You can get money back your investment by selling the vehicle anytime.
  • Freedom to customize as your work requires
  • Tax advantages because it’s treated as a depreciable business expense. This means it’s subjected to a decrease in value or price over time.

Cons

  • Maintenance and repairs are expensive.
  • You need to sell it when it’s time to phase out your older vehicles.
  • You could be paying for full cost of the vehicle at the moment of the purchase.

Take Time to Consider These Options

In conclusion, it’s your decision whether to lease or buy a vehicle for your business. Factors such as mileage, cash flow, and other issues may help you in making your decision. Do a little research on what’s beneficial for your business before plunging on getting a vehicle, and consult with your tax advisor to see which option might be the most advantageous.

Make the right choice to avoid any vehicle or cash problems in the near future!

 

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