Is it better to buy or lease a car that you use a significant amount of time for business?

Hi Rob,

Although I'm not an accountant, I can tell you from my experience that it's better to lease. With a lease, you can write off the entire monthly payment (every month of course), whereas with a purchase you cannot. A purchased vehicle can only have a portion of the expense written off. For a more thorough answer and expert insight into your question, I will forward it on to my accountant for you. And if you're looking for an accountant, I can certainly recommend him.

Best,
John Wolforth

Answered 1 year ago by John Wolforth

First for a business tax deduction standpoint significant amount of time has to mean that more than 50% of the mileage on the car is for business purposes. (commuting miles do not count) So I am going to assume that you meet that first hurdle and will continue to meet that threshold in all future years you posses the car.

Now additional tax considerations are that if you purchase the car, you can take a first year depreciation and possibly sec 179 writeoff which can save you a significant amount of tax in the first year of use. Typically you will have lower tax benefit in later years because most of the tax benefit from purchasing a vehicle comes in that first year. If you lease the car you don't get that first year benefit, but you do get to write off a percentage of total lease cost based on the ratio of business usage to personal usage of the vehicle. You get the write off every year. Operating costs don't really vary between lease or own so those issues are irrelevant to this discussion. From a strictly tax viewpoint buying will usually give you a larger tax writeoff over the life of the car.

The advantage to leasing is you typically save cash flow. That is important, because you should never make your decision solely based on tax consequences, but look at the whole economic picture of your decision. If you are the type of person who buys a car and then drives it for 10 years, buying will usually be a better option in the long term. The upfront costs and monthly costs to lease are typically lower than buying a vehicle. This gives leasing an edge if you tend to look at replacing your car frequently. and work under the assumption that you will always have a monthly car payment to make, or if you are looking to conserve your cash right now. There is also an intangible value to leasing in that at the end of the lease you just turn the car back in and don't have to worry about trade in or resell value.

Before you enter into a lease you do need to have a good idea of your annual driving habits as the lease will have a mileage allowance and the cost of going over that allowance during the term of your lease can jack up the cost of leasing substantially.

Answered 1 year ago by Wray Rives CPA CGMA

There are pros and cons, BUT for a small to medium business with modest capital expenditures AND profits, the ability to expense the capital item (buy) helps preserve your capital. I am not a tax practitioner, but this seems to be fairly straight forward under the stated conditions.

Answered 1 year ago by Allen Hobbs CMA

The most relevant question is how often you want to change your car. If .the answer is 3 years or less then leasing probably makes sense if it is more than 3 years purchasing makes more sense, The reason is that you probably do not want be in the business of selling your car every 3 years

Answered 6 months ago by George Wall