Should I lease or buy my new car?

It’s the Holiday Season, and you are excited to get a new ride for yourself before the end of the year.  But have you thought about the purchase process itself?

As a business owner, you should look into the practicality of getting a vehicle even when it is for commercial purposes. One of the first questions you should ask yourself is, “Should I lease or buy my new car?”

Leasing a vehicle means that you’re only using it for a specified period. Usually, the vehicle will be in your custody for a certain number of months before you either turn it over to the dealer or purchase it yourself at the price stated in the lease contract. 

One of the definitive benefits of lease ownership is that you don’t have to spend a fortune on maintenance. The downside to this is you won’t be able to customize the vehicle. That means no holiday paint jobs or making your bumper look like the end of a sleigh unless you choose to purchase it for yourself.

Buying your new holiday ride is the other purchasing option, and it has its own benefits. One of which is, you can treat it 100% as yours even while you are making payments to the bank.  

If you still aren’t sure about leasing or purchasing a vehicle for the Holidays, ask yourself what exactly do you need it for?

You only need the vehicle for a certain amount of time, for example, then perhaps a lease would be the best option. If you need it for a more extended period of time, or for life, then buying the vehicle outright might be the better choice. 

Something you may not have considered is, your vehicle purchase will significantly impact your tax situation for the year. 

There are two methods for deducting your automobile expenses: mileage or actual expenses.  Which is better for you? This answer varies from situation to situation. 

If you are driving a small car with excellent gas mileage and you drive a lot of miles, your answer will be mileage. The cost of running this inexpensive automobile is much less than the standard mileage allowance determined by the Internal Revenue Service (the exact amount varies from year to year).  On the other hand, if you are driving an expensive Suburban, you may need to weigh out your cost per mile to see which is better. Also, if you do not drive your car many miles, your actual cost of maintaining your vehicle could exceed the advantage of claiming the mileage allowance. 

Mileage is often a large deduction for the business owner but a new purchase may have other deduction considerations.  

There are special deduction options for vehicles exceeding 6,000 lbs. of gross weight.  This deduction may be of great value in tax savings but needs to be used with caution. Depending on your circumstances, it could become subject to recapture of the excess depreciation taken.  This will give you a tax hit at a later date down the road. It is better to leave these calculations up to your tax professional to determine the best method for your deductions. Just be sure to provide him with the proper information to make this decision on your behalf.  Be sure to include the interest you have paid on your car loan as well as tolls paid, parking, car wash bills, and totals of all other repairs and maintenance, to be sure to get every dollar of deduction you deserve.

Many people frequently ask, “Should I lease or buy my new vehicle?” 

While the answer is different for different people, as a general rule, we go back to, “It is always better not to have a deduction than to have an unnecessary expense.” Leasing is usually more expensive than buying.  If the lease offers more advantages to you in your circumstance, it may be the best thing for you to do and worth the extra cost. However, from a practical perspective, generally, it is not better to pay more for something simply to have a tax deduction.

You must CALL YOUR TAX PREPARER BEFORE you make your purchase! You may be surprised where this professional advice leads you. When you factor in your tax savings as a business owner, your vehicle cost will be much different than the price tag on the window!

Your best takeaway here is – Don’t go spending your holiday budget on a shiny new pair of wheels without knowing all the options first!