Leasing a vehicle can be a great option for business owners who need reliable transportation for their work. Leasing through your business allows you to take advantage of potential tax deductions and other benefits not available with a personal lease. Here’s what you need to know about leasing a car for your business.
Choosing the Right Vehicle
When leasing for business purposes, carefully consider the type of vehicle that would best serve your needs. Think about cargo capacity, passenger room, fuel efficiency, and other practical factors. You’ll also want to project the vehicle’s resale value, as the higher the residual value, the lower your lease payments. Shop around and compare multiple models in your price range.
Qualifying for Business Leasing
To qualify for a business vehicle lease, you’ll need to meet the leasing company’s requirements. This typically involves submitting business documents, such as articles of incorporation, EIN, business licenses, bank statements, and tax returns. Your personal credit will also be evaluated. Expect the qualifying process to be stricter than personal leasing.
Benefits of Business Leasing
There are several potential benefits that make leasing through your business worthwhile:
– Lease payments are generally tax deductible as business expenses. Consult your accountant to determine deductibility.
– You can lease a more expensive or luxurious vehicle than you may qualify for personally.
– No down payment may be required, which preserves working capital.
– Maintenance costs are low on newer vehicles under warranty.
– You can lease again after 3-4 years and always drive a newer vehicle.
– If business needs change, you have the flexibility to adjust terms or return the vehicle.
– Vehicle signage and wraps can promote your brand.
Things to Look Out For
While business leasing has advantages, there are some important things to keep in mind:
– Read the fine print! Understand mileage limits, wear-and-tear clauses, buyout terms, and all lease stipulations.
– Avoid leasing for longer than your typical business vehicle turnover cycle.
– Watch out for open-ended or adjustable rate leases with unstable monthly payments.
– Don’t customize leased vehicles too extensively, as added improvements may not recoup value.
– Understand any disposal fees you may owe if not purchasing or leasing again.
Following Best Practices
By understanding qualifying requirements, weighing costs and tax implications, reviewing all lease terms diligently, and selecting the right vehicle, you can make business leasing work for your company. Consult with your accountant and attorney to be sure you follow state and federal regulations. Carefully determine the lease structure that gives your business the necessary transportation access with the most favorable financial benefits overall.
Common Questions
What business entity should I use to lease a vehicle?
You can lease under whatever structure your business is organized as – sole proprietor, partnership, corporation, etc. Speak to your accountant about the best option for tax purposes.
Can I lease a car then use it for personal driving?
Personal use of a business-leased vehicle must be limited. Keep meticulous mileage logs separating business and personal use to avoid tax implications.
What maintenance costs am I responsible for?
You must perform required maintenance based on mileage intervals. Replacement tires, wipers, fluids, etc. are your responsibility unless you purchase a maintenance package.
Can I lease a used car for my business?
Yes, you can lease either new or used vehicles. Used car leases may have lower payments but warranty coverage may be less comprehensive.
Are there fees if I turn my leased car in early?
Review your contract, as some leases charge disposition or early termination fees. You’ll also owe for excess mileage and any damage.
Conclusion
Leasing a car through your business can provide advantages like tax deductions, flexible terms, and driving a nicer vehicle. To make the most of business leasing, research vehicles thoroughly, understand all lease terms and rules, limit personal use, and follow best accounting and tax practices. With the right preparation, a business vehicle lease can be a win-win.
