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I am often asked by clients if they should lease a car to obtain a tax write-off for their business. My response to this question is usually the same…NO! I always suggest considering the tax impact before making decisions. However, don’t make decisions based solely on the tax impact.....
In other words, don’t make a dumb financial decision because you get a tax break. The old adage asks, “why would you give the bank a dollar to get 35 cents back from the government?” That is essentially what you are doing anytime you acquire debt payments in order to achieve a tax deduction. The math doesn't add up!
In addition, business owners can generally get just as good of a tax deduction for a car they own. Business owners who use their vehicle for work purposes have a choice whether to take a Standard Mileage Deduction, or use the Actual Expenses Method. The Actual Expenses Method is what allows you to deduct lease payments. However, the Standard Mileage Deduction often provides a larger deduction since you are given a 55.5 cent deduction per business mile driven in 2012. Plus you can deduct interest payments on a car you own using the Standard Mileage Deduction.
Of course the best case scenario is to own a vehicle outright and keep it for many years. This will help you avoid the financial trap many people fall into with cars. Poor decisions with vehicles can cripple your chances at financial success.
** There are always exceptions to the rule. Each situation should be analyzed individually.
Does anybody have feedback on when they believe a car should be leased? Any questions I can answer?