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Old 11-30-2012, 04:54 PM
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akaMomo akaMomo is offline
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Location: Los Angeles, CA
Join Date: Oct 2003
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Originally Posted by Chris90 View Post
Maybe someone can answer this: I always hear that leases are good if you own a small business since you can write it off. Well, a buddy of mine is a contractor, and he had an old GTI, and he writes off $8000 a year (16k miles * 55 cents/mile) driving that car.

That's higher than a typical lease payment, so what is the advantage of leasing vs taking the mileage writeoff on an old car?
It varies by situation of course. Business use can be made by a company or individual and either can be in differing tax scenarios.

For a personally owned vehicle you can write off actual cost of USE (maintenance, fuel, etc) or the per mile allowance the IRS sets annually ( .55 was for 2009, it was .51 in 2011 for example). Parking costs come in addition to either of these. That is for business USE on a personal return. On a personal return you are already using post-tax dollars. You buy the car with money after taxes. You don't need to worry about the accumulating asset in a tax sense.

A business is paying with PRE TAX dollars (gross income before taxes are due on profit). Depending on the structure of the business and your ownership in it, you may need to concern yourself with money that is piling up in the business. Buying a car with a business can be this situation. The vehicle itself is an ASSET. The business owns the vehicle, it makes payments, that money goes from the business checking account to an asset account (car) and has a split that goes off to the interest paid or cost of loan. The money doesn't leave your books it merely becomes a different type of asset (the physical car). The issue here is the $50k "spent" on the car is still on the books and will have to be taxed at some point. Even though you are spending that money it is being retained by the car you are accumulating. That retained asset will be taxed. You will owe that tax, either at the business level or depending on the business entity, at the personal level. Or both.

The business can depreciate part of that asset on a schedule of a certain number of years or all at once to a limit (section 179 deduction) to get it off the books. But a business that pays a lease is spending ALL of that payment on vehicle RENT and therefore it is 100% going from asset (money) to expense and off your books. No tax. You have paid for that vehicle with pre-tax dollars and there are usually a lot more of those around each year than post tax dollars. Have a look at your paycheck as one example.

Clearly situations vary. But if you own the right type of business entity it just might make sense to lease. Its like this whole thread, redux, and about six times more variables. This is why we pay accountants, or should, especially when you start earning and spending more. Or own a business. Or both.

I am not an accountant. Mine tells me to lease. I trust him and have seen him save me money over and over again - FOR MY SITUATION. They are all different, every last one. Accountants vary too along with their advice. If you are expecting any real kind of tax benefit your strategy should come from your accountant and not here, that's for sure. Ask him or her.

Last edited by akaMomo; 11-30-2012 at 05:32 PM.