An important decision faced by small business owners is whether to buy or lease the vehicles they need for their business. While buying gives them the advantages of ownership (once the loan payments have been completed), leasing offers benefits that may not be available to a purchaser. One important factor to consider in choosing between the two financial approaches is the number of miles your business plans to put on the vehicles, since vehicle leases often include an excess mileage charge.
Lower Monthly Payments
With a lease, the monthly payments are typically lower than when buying, which can free up additional capital to be used in the business. This can be especially beneficial when you are just starting your business venture and your cash flow is tight. The extra savings can be used to purchase needed equipment or added to your marketing budget.
If your business involves working with the public, leasing allows you to enhance your image by being seen driving newer cars. With a two- or three-year lease, for example, you can simply turn the car in at the end of the term and lease a new vehicle. This is beneficial if you're a business person who needs to impress clients, such as a real estate agent.
Tax Benefits and Depreciation
You may be able to deduct the full amount of your monthly lease payments from your income taxes. According to CarsDirect, a car depreciates in value from 20 to 40 percent during the first year alone. When you lease a vehicle, you're paying for the depreciation via your monthly payments. In most cases, the amount of the allowable depreciation deduction will be higher than your monthly payments, so you're likely to come out ahead. Tax laws are subject to change, so you should always consult with your tax advisor regarding your own situation.
Since you're leasing a new vehicle and keeping it for a relatively short period of time, there's a good chance that your vehicle will always be under warranty. This will save your business the extra expenses associated with costly vehicle repairs. If you rely on your vehicle to conduct your business, you'll want to be sure that the warranty provisions provide for a replacement vehicle if yours does need repairs, or that the leasing company offers this as a benefit.
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