When you own a business, leasing a vehicle provides tax advantages a consumer
doesn't get.
Check with your financial advisor or tax accountant first, but in general
you'll be able to deduct auto lease payments as a business expense, providing
that the vehicle is used strictly for business. If you also use the car as a
personal vehicle, that limits your tax deduction.
When evaluating the advantages of leasing, take into account the number of
miles you drive each month, and keep close tabs on company car use. If you plan
to lease a fleet of vehicles, calculate annual mileage, maintenance and gas
costs. Also find out what the estimated residual value of the car will be at the
end of the lease--what it might be worth when it's time to turn it in--so you
can decide whether to roll over the lease to trade up to a new car or buy the
leased vehicle outright.
Hard-pressed to pony up a down payment? Most leases require a lower down
payment and lower monthly payments than an outright purchase requires. Plus, all
you have to do to drive the latest model is update the lease. Monthly payments
can be 30 percent to 60 percent less than payments for purchasing a car,
according to
newcar-leases.com.
Unlike consumers, business owners usually have a choice of two types of
leases: closed-end and open-end, says Al Hearn, CEO of
LeaseGuide.com. A
closed-end lease provides a fixed residual value at the end of the lease, based
on a specific annual mileage (typically 15,000 miles per year), he says.
That means a closed-end lease might be a better value if a business owner can
accurately estimate the number of miles driven annually. An open-end lease might
be more appropriate if mileage is unpredictable.
However, payments on an open-end lease could be higher because of a lower
lease-end residual, Hearn says. Moreover, if the vehicle's market value is less
than the residual, the lessee is liable for the difference when the vehicle is
returned. For a small business with limited finances, this might be an
unacceptable risk.
Leasing a company car is akin to renting. You pay a portion of the vehicle's
price for the period you have agreed to use it. At the end of the lease, if
there's still value left, you don't have to pay it if you return the car to the
dealer.
For example, if a car costs $40,000 new and you use it for a couple of years,
it will still have a residual value of perhaps $18,000 at the end of the lease.
You don't have to cover that unless you decide to buy the car. Your monthly
payments, therefore, would be based on $22,000 rather than $40,000.
If you lease a fleet of vehicles, most auto manufacturers will customize
their business leasing programs to suit your finances. Check out Ford's
Business Preferred Network, Red Carpet and Commercial Lease programs
at FordCredit.com for a
variety of leasing options. Also, consider General Motors' Business Choice
for small businesses and GMAC Commercial SmartLease plan at
gmacfs.com, or visit GMAC's
dealerships for information.
Before you sign, go over each clause in the lease contract carefully. Note
mileage requirements and payment default penalties, and ask about repairs and
maintenance.