Leasing Vs. Buying a Car for a Small Business
As the owner of a small business, you should realize that obtaining a company vehicle may be of importance to the success of your business. When you do obtain that car, you will have to decide between leasing or buying it. Either scenario could be to your advantage, depending on your individual business situation.
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Payment
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One of the differences between buying and leasing an automobile for your business is the amount of the payment. As a general rule, leasing a car gives you a lower monthly payment than if you bought it with financing. If your business is strapped for cash and you need to keep your monthly expenses low, leasing can help you secure a lower payment than if you purchased the same car with a loan.
Tax Considerations
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When you buy a car for a business, you can deduct the amount of your interest payment on your taxes. When you lease a car, you can actually deduct the entire amount of your payment minus an amount that is taken from an Internal Revenue Service table. This allows you to deduct the majority of your monthly payment on your taxes at the end of the year. Depending on how big the payments are, leasing could provide you with a bigger tax deduction.
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Mileage
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Another factor to consider when trying to decide between leasing and buying for your business is the amount of mileage that the car will get. With a lease, you have a certain number of miles that you are allowed to drive. If you go over the mileage limit, you have to pay a penalty for each mile above the limit. These penalties are not cost effective and can significantly add to the total cost of the lease.
Time Frame
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The amount of time that you plan on keeping your car should also play a role in your decision. If you want to keep the car longer than five years, buying would generally be in your best interest. This way, as long as the car holds up, you can have a company car without any kind of payment attached to it. If you want to get a new car every few years, the lease may work to your advantage.
Down Payment
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When trying to decide on buying or leasing, you may have to factor in the cost of the down payment on the car. When you buy a car, you may or may not be required to make a down payment, depending on the financing incentives. When you lease a car, you may have to put a down payment on it to buy down the monthly payments to an affordable level.
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