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Many business owners start to wonder if it is better to lease a vehicle through their business. There are several things for you to consider, and one of those is the tax advantages of leasing a vehicle.
Leasing or a Loan
If you are buying a car, most people require a loan for a set amount. They will then pay that loan back over time. And no matter what the value of the car is, the repayments will remain the same. There are occasions where a vehicle can be in an accident and cost hundreds to repair, or be a write-off – but the loan will still need to be paid. (By the way, if you get injured in an accident, consulting a car accident lawyer can help, whether you ultimately decide to lease or purchase your vehicle.)
A vehicle lease, however, works in a more beneficial way for the lease owner. The lease cost at the end of the lease can be reduced. And, if you get a closed lease, you have the option to walk away without a penalty.
Leasing for Business
When it comes to your lease car, the tax, interest, upkeep, and maintenance are all tax-deductible when it is leased through your company. This will include inspections, tires, oil changes, and more.
You will use a standard mileage deduction and the cost of gas is deductible too.
It is important to note that you cannot use the standard mileage deductions if your lease car is used to hire. This means taxis, limos, or a vehicle that is part of a fleet. You will also not be able to deduct fines for traffic or parking violations.
Confused about credits and deductions? This podcast on Credits or Deductions? Can help.
Personal and Business Travel
One of the critical things for your leased car to be considered a business expense is that it must only be used for business purposes. When you are a sole proprietor or an independent contractor, you are likely to be asked to demonstrate that you have a vehicle that you use for personal use.
If you want to know more about driving personal cars for business use, then check out that blog post.
It is essential that you keep detailed records. These will keep track of all of the costs associated with your company vehicle. Here are some of the things you will need to keep track of:
- Mileage logs
- General maintenance
- Receipts for fuel
Limits on Lease Payments
There are occasions where you cannot deduce the lease payments. This is typically when you will own the vehicle at the end of the lease period. This is referred to as lease-to-own arrangements.
Type of Vehicle
Carefully consider the best type of vehicle for your needs. You don’t want to be paying a large chunk of profit out on wheels, just because it looks nice. Something practical is usually better. To that end, that is the reason that many tradesmen opt for vans.
If you really love the idea of a new van, then check out 10 Meetups About Vw Transporter Lease You Should Attend for cool options.
There are many tax advantages for leasing a vehicle, and in most situations, it is wise to talk to a qualified tax consultant. They can let you know the deductions possible, as well as any other business perks. Situations vary from business to business, but the deductibles can make it more than worth it.