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Tax Point of View: Lease or Purchase an Auto
By Derek Morgan
Most business will invariably need at least one company automobile. As a result, the age-old discussion comes to light as to whether you should purchase or lease. When looking at the tax implications of that decision, there are large differences right from the beginning.
First off, if you purchase a vehicle, the tax depreciation allowed depends on the type, weight and purpose. Depending on what you select, your total depreciation could be limited to as little as $2,960 in year one, regardless of the original automobile cost! This means the only other deductible cost related to the automobile would be the interest paid on any financing and upkeep expenses.
The largest plus to the purchase argument is the fact that you have a valuable asset that actually belongs to the company. On the other hand, a leased vehicle allows for all of the cost of the lease to be expensed as a rent expense. This often yields much larger deductions on an average yearly basis. However, at the end of the lease there is no asset for the company to continue to operate or sell.
This gets you a small look at just a few of the operational differences a company should consider when deciding whether to purchase or lease, but this is just a fraction of the tradeoffs that need to be considered. For more information, including personal use issues, vehicle type differences and other important issues, please be sure to consult your tax professional while in the planning stage.
Unfortunately, it is impossible to give comprehensive tax and accounting advice over the internet, no matter how well researched or written. Before relying on any information provided here, contact a tax or accounting professional to discuss your particular situation.