Almost every business maintains a fleet of vehicles needed for operation. Since balancing the company bottom line is always a priority; choosing whether to lease or buy a car is a significant decision. Leasing has advantages that may benefit a company in the long run, but there are still many considerations to make before choosing to lease a car.
What to consider before leasing or buying a vehicle for business
The first consideration in deciding whether to lease a car or purchase one outright is the intended use. How often will the vehicle be used for business? Do you want the option to buy the vehicle after the lease expires? The best car lease deals typically provide a buy-out option, but it will still depend on the terms of the contract.
Mileage is another critical consideration because leasing a car means you need to meet strict mileage limits set by the leasing company. If you exceed the mileage limit by the end of the lease term, you may be subject to additional fees.
Lastly, find out the full lease cost throughout the term. Make sure that in reviewing the best lease deals, you are also checking all fees and maintenance expenses added on top of the monthly rental fee and down payment. Comparing the total lease cost with the cost of buying a vehicle will help you determine which option is more financially sound for your business.
Tax write-offs for vehicle lease payments
One of the reasons why many companies choose to lease a car is because the cost is tax-deductible. But the total you can write-off is based on the percentage of actual use intended for business purposes. Writing off taxes paid on leasing a luxury car, on the other hand, works a bit differently. The “lease inclusion amount” found in the IRS form will reduce the amount you can deduct for leasing a luxury car.
When does leasing a car make sense for a business?
The option to write-off lease expenses in preparing business tax returns sounds like a compelling enough reason to lease instead of buy. But before you start checking lease deals, here are examples of when renting a vehicle makes the most sense for business.
- You do not intend to put high mileage on the car over the term of the lease.
- You only need the car for a short-term rental.
- Your company requires vehicles to be upgraded regularly.
- When comparing the costs, you found out that leasing is more affordable than buying.
- You do not mind keeping up with maintenance requirements.
- Your business credit rating does not allow you to qualify for a car loan.
Leasing a car for business also gives you access to the latest car models with outstanding technology and safety features. If it is a consideration that the company maintains the latest cars, leasing is an excellent way to lessen the financial commitment, yet maximize the benefits. Nevertheless, strict adherence to the terms of the lease is crucial to avoid paying additional fees at the end of the lease term.