Pamperme

I heard a CPA say once before, that if you own a business, you actually save money when u lease every 3 years, vs buying and holding on to a car for a long time because of the tax savings. Is this true?

tex2670

Don't get tax advice from an internet Lexus forum. Call your accountant or a tax lawyer.

Pamperme

I wish I got the name of that CPA that said that. My current CPA said its not true. I was just curious if anyone on here may have been familiar with the idea that leasing is better for business owners.

mmarshall

Truth on both sides here. One usually does not need to get legal advice to know that, in a very broad and general business sense, lease-payments are generally deductible on Federal taxes if the vehicle is actually used for business...that's common knowledge. (Like, for example, real-estate agents that chauffeur their prospective clients around to look at homes). But, for details, red-tape, and doubts/gray areas, tex2670 has a point....then it's probably best to get the scoop from a professional.

Pamperme

Thanks for the feedback. This may be a silly question, but why would lease payments be deductable, but car payments wouldn't?

wasjr

While I do hold an active CPA certificate, I don't prepare taxes nor participate in a traditional CPA practice, but I can give you a definite....it depends.

It depends if you typically get a new vehicle every 2-3 yrs or drive the vehicle until it drops. It depends on the deal you get. It depends on if you go over mileage allotment in the lease. Etc.

Leasing is much simpler as you just deduct the lease payments. If the business owns the vehicle you set up depreciation schedules, loan amortization (you only deduct the interest, not the principal portion of the note payment), etc.

I have a buddy who leases an MDX on a 36 month lease and always goes over his mileage. Acura has a very liberal mileage policy as at the model year change (when there are incentives offered) close to the end of year two he will roll the vehicle into a new 36 month lease at close to the same payment (or even less a couple of times) with no out of pocket money. He has done this at least 4 times. Leasing works very well for his business.

While I believe a generally accurate statement (note I said generally) would be that you save taxes by leasing over owning, but to know if you save "money" you should have your accountant perform a lease/purchase analysis.

mmarshall

Not a silly question at all....in fact, it's a good one. Actually, before 1986, private-loan interest for a car purchase WAS deductible in the U.S. But, in the Tax Reform Act that year, Congress took that deduction away.....presumably to generate IRS income. Congress did, though, with that act, keep the existing mortgage-interest deduction in place., So, what some car buyers then started doing, to keep the interest-deduction, was to take out home-equity loans for car purchases, though, for obvious reasons, that can be a risky venture.

mmarshall

Isn't a certified or licensed CPA, by the training they get and from what they have to pass on the certification-examination, qualified to do taxes? Or, to an extent, is that apples and oranges?

SW17LS

The answer is: It depends.

It used to be pretty open and shut that leasing was better from a tax standpoint for a business owner...but its gotten muddier. Its a whole lot easier to deduct lease payments than it is to depreciate the vehicle, then worry about recapturing depreciation. Then theres the bonus depreciation you can take if you purchase an SUV or truck over 6,000 lbs GVWR.

If you're going to trade every 3 years, its definitely better to lease. If you're going to keep it 5+ years, especially if you're going to buy a big SUV...then its probably better to buy.

Car loan interest is still tax deductible if the vehicle is purchased for business use. So is business credit card interest.

FrankReynoldsCPA

Frequent trades can hurt you as the like-kind exchange reduces your basis in the vehicle each time you trade.

Pamperme

Is this true whether u lease or buy each time? I would think that if u lease, then you are "forced" to replace (or buy the lease if u choose), versus buying where u don't have those terms.

SW17LS

Only if you buy. if you lease you don't have to worry about the basis, the car is just an expense that you deduct as long as you have it, and stop deducting when you no longer have it.

wasjr

I am involved in various financial endeavors and only keep my CPA certificate active as I serve on the audit committee of a public company. It is common practice that folks believe that any CPA is a tax expert, but that is not the case. There are many specialties within the CPA profession (and even within a tax practice). In my case re taxes, I have spent a lot if time around corporate merger transactions and partnerships and know enough to talk about the taxation of of those transactions, but, while I know there are special rules about depreciating passenger vehicles in a business I do not know what they are. It also surprises my family when I am asked a simple personal tax question like dealing with energy or child credits, or even the standard deduction amount and I don’t have a clue.

Re your comment about the exam, I passed the CPA exam in 1976 and there have been many tax changes since then ( Although all states have continuing education requirements to maintain an active certificate).

SW17LS

Yup, it's like saying that any doctor is fully versed in every speciality, or that any attorney is fully versed in every facet of the law.

bitkahuna

iTrader: (20)

pamperme, is the car for any kind of personal use, or ONLY for business?

if you buy OR lease your PRIMARY vehicle (used for personal and business) i've had several accountants tell me it's a bad idea to expense the lease or purchase to the business as it's a big audit red flag. instead, you can get reimbursement for the milaeage used strictly for business, and you have records showing such.