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Vehicle Expenses for 100% business usage

We ended up owing $14K in taxes this year and keep thinking we should have probably gotten the new business vehicle to counter this in expenses. 

 

1) If Leasing a new vehicle: it would be used 100% for the business. From what we understand, the expenses for the lease, insurance, maintenance, registration would all be a dollar for dollar tax write-off expense. Is this correct?

2) To buy a vehicle seems to be complex. Does the purchase include loan and insurance coverage? Does depreciation get factored in? Mileage isn't beneficial option for us, so that is off the table. Considering 100% business usage, how does owning stack up against leasing in this situation?

 

It seems like it would have been advantageous to have the expense of the vehicle lease write off versus owning?

 

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1 Reply
PoojaT27
Employee Tax Expert

Vehicle Expenses for 100% business usage

Your decision to buy or lease your company car depends heavily on your budget, intended vehicle use, and the tax implications. 

It will be better for your business to buy the vehicle due the following reasons:

  • You have enough cash to put down a good down payment to reduce your monthly payments.
  • You want to reduce long term costs by paying off the vehicle in a few years
  • You plan to put on more miles on the vehicle than what the lease agreement allows
  • You are eligible to take 179 expense deduction for all or portion of the cost of the vehicle the year it is placed in service depending on the type of vehicle
  • You can depreciate the rest of the cost over a period of years
  • Take advantage of tax breaks available for purchased electric and hybrid vehicles

When you purchase the vehicle you can deduct all costs related to the vehicle (since you indicated it will be used 100% for business). You will  be able to deduct the interest you are paying every month if you take a loan on the vehicle. Loan payments are not deducted as loan payments, rather you take depreciation expense for the vehicle.

It will be better for your business to lease the vehicle due to the following reasons:

  • You do not have significant amount of cash for a downpayment
  • You are conmfortable with the mileage restrictions on the lease
  • You prefer to avoid the hassle of selling or disposing of your company car at the end of its useful life.

Every business is diferent, therefore I have listed the advantages of leasing or purchasing the vvehicle. Please consider the above information and make the the choice that best suits the needs of your business

 

 

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