Car Leasing Tax Advantages
When acquiring a new vehicle, one important decision is whether to lease the vehicle as opposed to purchasing it. Although there are pros and cons to both options, leasing can offer certain tax advantages, especially for a business owner. Tax laws are subject to change, so it is important to consult with a tax adviser before making a final decision.
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Depreciation
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If the vehicle is leased for business purposes, the amount of depreciation limits, or the dollar amount you are able to deduct on your tax return for normal "wear and tear," is higher for leased vehicles than purchased vehicles. This means that at tax time you should be able to deduct a larger portion of your monthly payments.
Deductible Payments
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If you are self-employed or work for a company, you may be able to deduct a portion of your monthly payment from your taxes if the vehicle is leased for business purposes. The amount you are allowed to deduct will be based on the percentage of business use as opposed to personal use.
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Expenses
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You may also be able to deduct related vehicle business expenses. This would include gasoline, insurance, maintenance and the number of miles driven up to a preset limit. This would also be determined by the amount of business use compared with non-business use.
Sales Tax
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When purchasing a vehicle, you would normally pay a sales tax based on the entire purchase amount of the vehicle. When leasing, you pay sales tax based on the value used during the lease. Also, the tax is included as part of your monthly lease payment so it does not have to be paid as a lump sum.
Open-End Lease
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If you select an open-end lease, meaning you purchase the vehicle at the end of the lease period, your monthly payments may be higher than with a closed end lease, because of the lower residual value (value of the vehicle at the end of the lease term). However, this can result in greater tax savings as a result of the higher amount of the monthly payment that will be tax-deductible.
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