Buy a used car or lease one for business use

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ig77
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Buy a used car or lease one for business use

Post by ig77 » Thu Apr 12, 2018 4:49 pm

What are the tax implications of buying a used car vs leasing a car that'll primarily be for business use?

I have a small business and am in the market for a car. Currently I use the mileage method to deduct the expenses of my personal car. I've never considered buying a new car as a good investment, so I am thinking of either buying a used one or leasing one in the business name.

PFInterest
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Re: Buy a used car or lease one for business use

Post by PFInterest » Thu Apr 12, 2018 5:23 pm

lease and write it off.

fredjohnson
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Re: Buy a used car or lease one for business use

Post by fredjohnson » Thu Apr 12, 2018 7:15 pm

Not enough info in your post for an accurate answer. Is your business a Schedule C, a C corp, an S corp, etc? Personally, I don't like leasing for a business or for personal use because there is less value to you than in purchasing. Leasing is simply another way to finance the car, that's all it is. Remember that you can't deduct the personal use portion of the vehicle and the mechanics to calculate that depend on what tax entity you are, so that's why I said there isn't enough info.

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Re: Buy a used car or lease one for business use

Post by LadyGeek » Thu Apr 12, 2018 7:24 pm

This thread is now in the Personal Finance (Not Investing) forum (buy or lease).
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ig77
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Re: Buy a used car or lease one for business use

Post by ig77 » Thu Apr 12, 2018 9:06 pm

fredjohnson wrote:
Thu Apr 12, 2018 7:15 pm
Not enough info in your post for an accurate answer. Is your business a Schedule C, a C corp, an S corp, etc? Personally, I don't like leasing for a business or for personal use because there is less value to you than in purchasing. Leasing is simply another way to finance the car, that's all it is. Remember that you can't deduct the personal use portion of the vehicle and the mechanics to calculate that depend on what tax entity you are, so that's why I said there isn't enough info.
It's a S-corporation. It'll be used primarily for business. Doesn't deducting the monthly payments on the lease make it an attractive option?

ig77
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Re: Buy a used car or lease one for business use

Post by ig77 » Fri Apr 13, 2018 4:58 am

PFInterest wrote:
Thu Apr 12, 2018 5:23 pm
lease and write it off.
Are both the monthly payments and the down payment deductible? Wouldn't buying a car let us deduct the depreciation on it?

jbuzolich
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Re: Buy a used car or lease one for business use

Post by jbuzolich » Fri Apr 13, 2018 6:55 am

Typically with a lease the full amount paid each year can be claimed as a business expense against revenues earned. I think there might be a situation where larger startup costs of a lease if any have to be spread over the life of the lease for claiming but I could be wrong. When buying, the price plus tax and anything else becomes your cost basis in the vehicle and is not claimed as an expense. Your basis has to follow the depreciation schedule for that asset type. Most basic vehicles are five years I believe but you can look it up. So assuming five years, you only claim one fifth each year as an expense against revenues until fully depreciated or sold. What you pay as a down payment doesn't matter since that's not an expense, it's only a cash output being exchanged for a vehicle asset.

ig77
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Re: Buy a used car or lease one for business use

Post by ig77 » Sat Apr 14, 2018 6:29 pm

jbuzolich wrote:
Fri Apr 13, 2018 6:55 am
Typically with a lease the full amount paid each year can be claimed as a business expense against revenues earned. I think there might be a situation where larger startup costs of a lease if any have to be spread over the life of the lease for claiming but I could be wrong. When buying, the price plus tax and anything else becomes your cost basis in the vehicle and is not claimed as an expense. Your basis has to follow the depreciation schedule for that asset type. Most basic vehicles are five years I believe but you can look it up. So assuming five years, you only claim one fifth each year as an expense against revenues until fully depreciated or sold. What you pay as a down payment doesn't matter since that's not an expense, it's only a cash output being exchanged for a vehicle asset.
Is the depreciation equally distributed over 5 years? I plan to buy a used car (most likely a 2015 model). I'll probably be able to depreciate one for the next two years? If I sell it after the depreciation period ends (say 2020), any tax implications?

ig77
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Re: Buy a used car or lease one for business use

Post by ig77 » Sun Apr 15, 2018 8:37 pm

Thanks for the replies. Appears that leasing is more beneficial from tax perspective. Any other thoughts?

gr7070
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Re: Buy a used car or lease one for business use

Post by gr7070 » Sun Apr 15, 2018 9:57 pm

ig77 wrote:
Sun Apr 15, 2018 8:37 pm
Thanks for the replies. Appears that leasing is more beneficial from tax perspective. Any other thoughts?
What's the most beneficial from financial perspective to the business?

jbuzolich
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Re: Buy a used car or lease one for business use

Post by jbuzolich » Tue Apr 17, 2018 9:14 pm

ig77 wrote:
Sat Apr 14, 2018 6:29 pm
jbuzolich wrote:
Fri Apr 13, 2018 6:55 am
Typically with a lease the full amount paid each year can be claimed as a business expense against revenues earned. I think there might be a situation where larger startup costs of a lease if any have to be spread over the life of the lease for claiming but I could be wrong. When buying, the price plus tax and anything else becomes your cost basis in the vehicle and is not claimed as an expense. Your basis has to follow the depreciation schedule for that asset type. Most basic vehicles are five years I believe but you can look it up. So assuming five years, you only claim one fifth each year as an expense against revenues until fully depreciated or sold. What you pay as a down payment doesn't matter since that's not an expense, it's only a cash output being exchanged for a vehicle asset.
Is the depreciation equally distributed over 5 years? I plan to buy a used car (most likely a 2015 model). I'll probably be able to depreciate one for the next two years? If I sell it after the depreciation period ends (say 2020), any tax implications?
I can't see the depreciation schedules from my phone but you can look them up on the IRS website assuming you're in the US. I do believe though passenger vehicles are five year straight line depreciation meaning the same each year. Could be wrong so please confirm.

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