Business Vehicles: Buy or Lease? | Legal > Tax Law from AllBusiness.com
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Business Vehicles: Buy or Lease?

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If your business has reached the point where you need a vehicle dedicated solely to the company, one of the biggest decisions you'll need to make is whether to buy or lease your wheels. Your business size, credit rating, and cash-flow situation will affect your decision. Let's take a look at the pros and cons of owning vs. leasing.

Pros of Buying

If you buy your company vehicle, you can purchase any model of car, minivan, truck, or hybrid vehicle you want, new or used. Once you buy a vehicle, you can customize it any way you see fit, to haul your company's equipment or have your company logo airbrushed onto the paint job, for example.

Business owners can also reap tax advantages when they purchase a vehicle. Depending on current state and federal laws, you may be able to take a deduction for the sales tax on the vehicle or write off some of the purchase price as a business cost.

Cons of Buying

Congratulations, you now own a depreciating asset. Your vehicle’s value will decrease over the years depending on a number of factors, making it hard to predict the future resale value. If the car is in an accident, or you drive the vehicle extensively, its value will decline even more than the average sale prices you'll see in references such as the Kelley Blue Book.

Buying a company car forces you to either spend a significant amount of cash to pay for the vehicle upfront or obtain an auto loan and pay its required interest payments. Neither option is particularly palatable for most businesses, but if a company vehicle is a necessary business expense, you’ll need to decide which option best suits your situation. If both are prohibitive, leasing may be a better option for you.

Pros of Leasing

The ability to lease a company vehicle is especially helpful for cash-strapped businesses because a vehicle lease is based on a price much lower than the purchase price. As a result your down payment and monthly payments are substantially lower than if you buy a car. You'll make monthly lease payments, which will include tax, but you won't have to pay a big lump of sales tax upfront like you would with a purchase. Lease payments are typically a deductible business expense.

By leasing your vehicle, you take the uncertainty out of the future by prenegotiating the value the car will have at the end of the lease. You'll also likely have a maintenance and repair contract included in your lease, so these headaches won't cause unexpected out-of-pocket costs.

Cons of Leasing

You may not be able to get the vehicle you want on a lease, especially if you want a used car or a specialty vehicle, such as a delivery truck. Lease deals are usually offered only on specific makes and models of new vehicles.

If you decide you want a different vehicle before your lease is up, your options may be limited and you might have to pay off the lease if you can't find someone else to take it over. And dealerships may not be willing to exchange your lease for a new lease on another vehicle.

Business reporter Carol Tice contributes to several national and regional business publications.

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