Tax Mags - Vehicle Leasing For Small Biz: Does it ever make sense?

[MontuckyFried]

This doesn't effect me so much now, but just kind of planning for the future. I've never wanted to lease for my business before since I used to pack on absurd amounts of miles each year, and it has never made any financial sense to me whatsoever. However, I'm looking to start a new business locally that I will actually need a pickup truck for. Just to be clear, I hate trucks and absolutely do not want this for personal use. It would be nearly 100% for company use.

I was thinking the new Ram with that ecodiesel V-6 sounds like a winner, but might be leaning toward the upcoming Chevy Colorado with it's 2.8L diesel 4 since geez that Ram is hudge. An 8-ft cargo box could be very good to have, though. But that's a discussion for another day, I suppose. /thread drift

Being a new business I wouldn't have the cash reserves to outright buy any of these trucks any time soon, but I feel I kind of have to have one from the get go. I would have zero issue with buying a used pickup, but good God do people want a lot of money for their used trucks. ESPECIALLY diesels, of which there are no older light duty diesels I can think of anyway, hence why I'm thinking about the aforementioned vehicles. Loving the thought of nearly 30 mpg, which means less frequent fuel stops, which means more time actually being productive, which MIGHT translate to more time on the hill on powder days....well...maybe. One can hope, right? Maybe I'm just trying to justify my logic here, but skiing should ALWAYS come into the equation in all aspects of life, right?

Anyway, does leasing a vehicle for work ever make sense tax-wise? Business finance-wise? I understand how fleet vehicles are important for large businesses, but not sure about small businesses with only a handful of employees, if not just myself at first.

[neufox47]

Vehicles are expensed by the mile or based on actual costs, you just have to stay consistent. Figure out which one will give you the lowest actual costs and the highest reportable costs.

You may be able to purchase the vehicle personally then contribute it to the business.

[MontuckyFried]

Vehicles are expensed by the mile or based on actual costs, you just have to stay consistent. Figure out which one will give you the lowest actual costs and the highest reportable costs.

You may be able to purchase the vehicle personally then contribute it to the business.

So would an entire lease payment be considered an actual cost? How about a standard car payment? I believe the current rate for mileage is 56 cents per mile. I'm predicting that I MIGHT have to drive about 5000 miles per year if I average 20 miles driven per business day, and that's probably on the high side, so let's say $2800 in predicted mileage deductions. Seems it'd be pretty easy to be at nearly double that with payments plus maintenance and operating costs. So perhaps I could gain more of a deduction with a lease, but of course that would mean higher operating expenses which of course takes away from net profits. I wish I could pick up a used, reliable truck cheaper these days. Seems like gone are the days where you could pick up a year or two old model for significantly less, especially when it comes to anything 4x4 or diesel.

Side Note: I saw a 2005 Chevy Silverado Duramax on the side of the road the other day so pulled over to check it out. Owner said it had like 350,000+ miles on it. It was evidently VERY well maintained. The interior looked like new. With 350k on the clock, I thought, "Sweet, maybe I can pick this puppy up for like 5 G's." Owner told me he was asking almost 15 grand for it! I just about choked. Umm, nope! I don't care how nice it looked or how it runs (for now). That much money for a 9 year old truck with well past a quarter of a million miles on it seemed absurd, but from what I've seen, truck owners seem to think their extremely-used vehicles are made of solid gold. That's the only reason I'm even contemplating a new truck for the business.

[adrenalated]

My understanding is that if the vehicle is leased by the business, and used only for the business (never for personal use), you can use the actual cost method and deduct everything, including the full lease payments. Note that I am not a tax professional, just a dentist that stayed at a Holiday Inn Express some years ago.

Trucks tend be be built a bit more solidly than cars, and older trucks can be very reliable. I don't know your needs, but leasing a brand new diesel truck seems like overkill for most businesses that I can think of. And used trucks hold their value well in part because they're so goddamn expensive to start out with. I mean, that 05 Duramax could have easily been a $50k+ truck to start out with.

[neufox47]

So would an entire lease payment be considered an actual cost? How about a standard car payment? I believe the current rate for mileage is 56 cents per mile. I'm predicting that I MIGHT have to drive about 5000 miles per year if I average 20 miles driven per business day, and that's probably on the high side, so let's say $2800 in predicted mileage deductions. Seems it'd be pretty easy to be at nearly double that with payments plus maintenance and operating costs. So perhaps I could gain more of a deduction with a lease, but of course that would mean higher operating expenses which of course takes away from net profits. I wish I could pick up a used, reliable truck cheaper these days. Seems like gone are the days where you could pick up a year or two old model for significantly less, especially when it comes to anything 4x4 or diesel.

Side Note: I saw a 2005 Chevy Silverado Duramax on the side of the road the other day so pulled over to check it out. Owner said it had like 350,000+ miles on it. It was evidently VERY well maintained. The interior looked like new. With 350k on the clock, I thought, "Sweet, maybe I can pick this puppy up for like 5 G's." Owner told me he was asking almost 15 grand for it! I just about choked. Umm, nope! I don't care how nice it looked or how it runs (for now). That much money for a 9 year old truck with well past a quarter of a million miles on it seemed absurd, but from what I've seen, truck owners seem to think their extremely-used vehicles are made of solid gold. That's the only reason I'm even contemplating a new truck for the business.

If you are only going to average 5000 miles a year then it seems likely that actual costs would exceed the mileage rate. Sounds like you have some more number crunching to do. I'd number crunch the truck too. Just because a used truck is expensive at $30K doesn't mean you are better off dropping $50K on a new one. Also, only driving 5000 miles means that gas or fuel economy isn't that much of a concern. The wost fuel economy trucks at 10 MPG are only going to cost $1000 more per year for fuel than the new truck getting 20 MPG at $4 a gallon.

[capulin overdrive]

Is there even any accountants here?


My guess is buying would be better if you can swing it. Could write it off, interest is probably deductible, would be less of a red flag than keeping track of using a personal vehicle. Hell you might be able to get a tax credit for the eco diesel?


Really should talk to an accountant. Everybody should use an accountant, unless your TurboTax Geithner.

[wooley12]

I always bought a basic vehicle and went with the mileage deduction. Car was almost a profit center. You'd be surprised by how many miles are "work related". Keep a log. I always kept a blank calender with every years tax records. No one ever asked to see it. Never had an accountant.

[Marshall Tucker]

Your question is letting the tail wag the dog. Speaking as accountant you come out ahead every time buying any verhicle used 2+yrs old paying cash and running it till it falls apart. If you absolutely HAVE to have that new (insert vehicle name) then the only way to drive a new vehicle is a 24m lease where you give back the vehicle. Love to hear accountant's aguring with me otherwise. Taxwise actual deductions. I beleive you can front-load the deductions such that the time-value-of-money makes the back end milage advantage nonexistant. My $.02 I'd keep it out the business but may depend on whether you own a house. Putting it in you have income imputation.

[Shredhead]

We buy new, depreciate them off in seven years. Then bonus or sell them really cheap, to key employees.

[MontuckyFried]

I don't know your needs, but leasing a brand new diesel truck seems like overkill for most businesses that I can think of.

A heavy duty diesel truck, a la Cummins, would indeed be massive overkill, but that's not what I'm looking at. I'm thinking about the light-duty "ecodiesel" V-6, and the upcoming 2.8L 4-cylinder made-in-Thailand "Duramax." Definitely not overkill, and hopefully quite the fuel misers!

And used trucks hold their value well in part because they're so goddamn expensive to start out with. I mean, that 05 Duramax could have easily been a $50k+ truck to start out with.

I do get that, but man, I guess I'm just a bit surprised at how little mileage seems to effect their value! Another reason there is no way I'll be going with a used HD truck. A compact to mid-sized truck will probably do me just fine, as long as it has a functional bed. Anybody see the two-tier setup the new Colorado/Canyon will be coming standard with? You can totally stash your skis underneath for those moments you can sneak in between jobs.

If you are only going to average 5000 miles a year then it seems likely that actual costs would exceed the mileage rate. Sounds like you have some more number crunching to do. I'd number crunch the truck too. Just because a used truck is expensive at $30K doesn't mean you are better off dropping $50K on a new one. Also, only driving 5000 miles means that gas or fuel economy isn't that much of a concern. The wost fuel economy trucks at 10 MPG are only going to cost $1000 more per year for fuel than the new truck getting 20 MPG at $4 a gallon.

I definitely would not want a 50k truck. If I went with the Ram, their work-class trucks are basic, but pretty cheap. The Colorados start right north of 20 grand. So I'm guessing around 30-35 outfitted with 4x4 and Diesel. AND supposedly they're coming with an available 6-speed manual! Take THAT Toyota, who still refuses to import the Hilux that the rest of the world gets to enjoy. (Re: 4x4, diesel, AND stick)

Your question is letting the tail wag the dog. Speaking as accountant you come out ahead every time buying any verhicle used 2+yrs old paying cash and running it till it falls apart. If you absolutely HAVE to have that new (insert vehicle name) then the only way to drive a new vehicle is a 24m lease where you give back the vehicle. Love to hear accountant's aguring with me otherwise. Taxwise actual deductions. I beleive you can front-load the deductions such that the time-value-of-money makes the back end milage advantage nonexistant. My $.02 I'd keep it out the business but may depend on whether you own a house. Putting it in you have income imputation.

I would love to pay cash for a 2+ year old one, but the company's starting from scratch, and will be broke at first. I guess you're right, though. No matter how I slice or dice it, cash is really the best way to go for overall finances. Perhaps I can just make do with a cheap trailer in the meanwhile.

We buy new, depreciate them off in seven years. Then bonus or sell them really cheap, to key employees.

Hook up the employees? I actually like that idea a lot!

[hutash]

I am sure it depends on many factors, but my accountant has always told me not to lease business vehicles. Unless you a big enough business it rarely makes sense, you your mileage may vary.

Used is still the cheapest way to buy, even high demand vehicles. Sure you pay more upfront, but then the resale is high as well.

[AdironRider]

I wouldnt hold out for the Chevy 2.8, diesel, 4x4, with that manual transmission. Believe the new Chevys are only getting sticks on 2WD models.

[adrenalated]

^^^ yep, they've only announced manuals on the 2wd versions and I'd be surprised if that changes. I hope it does, but doubt it will. I also think $30-35 sounds low for the 4x4 diesel version, but hopefully I'm wrong on that too.

I meant a new truck is "overkill" not in terms of capacity, but in terms of cost for what you NEED the truck to do. Again, I don't know your needs, but unless you need the truck to be shiny and new to impress customers, or just want to have really high expenses to deduct from your income (not sure why you'd want to do this since you say you don't even like trucks), an older gasoline compact or full size truck would be far cheaper overall and get the job done. Old Tacoma or T100 or first gen Tundra, for example, would be under $15k, reliable, and carry bulky stuff around just fine. Hell even an old S10 or Colorado would probably do the trick and cost under $10k (but more frequent maintenance). And they'd all be lots cheaper overall than a brand new Colorado even with decreased fuel mileage.

I personally would never buy a brand new truck for work if I thought I'd have employees driving it in the future. Work trucks tend to get trashed by employees in my experience.

You could also consider buying a truck from somewhere else with lower prices and driving it to MT. I know a dude in WY (where trucks are extremely desirable and therefore expensive) that has scored some good deals on trucks from SLC. UT has required safety inspections, and sometimes owners of vehicles that don't pass for stupid reasons dump them cheap. Pretty easy to fly to SLC then drive the truck back home.

[MontuckyFried]

I am sure it depends on many factors, but my accountant has always told me not to lease business vehicles. Unless you a big enough business it rarely makes sense, you your mileage may vary.

Used is still the cheapest way to buy, even high demand vehicles. Sure you pay more upfront, but then the resale is high as well.

It looks like you're right. It's looking more and more like the math just doesn't quite work out for a lease to be much a financial advantage, even if it does help out with taxes. Basically spending several times what I'm simply trying to avoid paying in taxes doesn't make too much sense in the end. I guess I was mainly wondering if there was some major angle that I might have been missing.

I wouldnt hold out for the Chevy 2.8, diesel, 4x4, with that manual transmission. Believe the new Chevys are only getting sticks on 2WD models.

Dangit! You're right. I just looked up the vehicle again, and whereas I remember early reports (last year) showing the manual across all trims, now they're saying it will only be on 2wd base models.

[MontuckyFried]

You could also consider buying a truck from somewhere else with lower prices and driving it to MT. I know a dude in WY (where trucks are extremely desirable and therefore expensive) that has scored some good deals on trucks from SLC. UT has required safety inspections, and sometimes owners of vehicles that don't pass for stupid reasons dump them cheap. Pretty easy to fly to SLC then drive the truck back home.

True that. I would probably do much better to shop elsewhere when the time comes. Just like I would never buy a Subaru around Bozeman for the same reason. People want stupid amounts of money for their old piles.

I suppose that in the end, I will need to go the route you suggest if I want to actually turn a profit at first instead of sinking a bunch of money into a vehicle payment each month. Perhaps someday if the business does well enough, THEN I could upgrade into something a little better.

[AdironRider]

I think the fly down and drive back makes sense if you are spending 15-20k on a vehicle, but a 2k beater wouldn't be worth the trouble.

You say you are only going to put on like 5k miles max, diesel is out of the question, you'll never see the payoff outside of resale.

I assume you are going for the looking professional route? Even then, I find most folks arent going to care that you have a 50k Duramax in their driveway while you do whatever it is that you do. Thats for folks on the Cape or Aspen where being seen is the first priority, not the quality of work. I doubt MT is like those places.

What is it that you do again? Isn't it something in the oil and gas industry? You want a beater I would think.

5k should get you a gasser that you can beat the piss out of. I just paid 2500 for a 72 Ford Highboy to lug steel around and beat on in the winters. Parts are stupid cheap, I put 3k miles on it a year, and I bet I sell it for just what I have in it or even make money when its time to move on.

Now I'm not saying get a 40 year old pickup either, but conceptually you just need something to get the job done, and starting a new business I doubt they would even lease a new truck to you. Most startups get zero financing regardless of your personal credit profile.

You keep it under 5k and you can write the full thing off as a startup cost if you so desire. You

Otherwise on the accounting side you can only expense full boat if it never does anything personal. You cant drive it home for the night. You cant run an errand. You also will greatly increase your risk of an audit by trying to do it that way as opposed to mileage. There's no data to prove this, but in my accounting experience its stuff like vehicles where most people abuse the tax code, and as a result they pay more attention to it. In MT all it takes is some good ol boy seeing you stop by the grocery store on the way back from work and you will be fucked.

So end of the day, get a 5k beater, write off on mileage. This is the best financial scenario for you, unless you want something new and shiny or need it to impress clients. Even then they won't give a shit if you deliver what you promise.

[Buke]

The big misconception among many who aren't self employed is that you get to take advantage of all kinds of tax loopholes when you're self employed. The reality is a little different.

I'm not an accountant but by my accountants advice, I use the mileage deduction and I drive cheap beater cars. You have to track miles driven for work against total miles driven. This is true regardless of the deduction method that you use. If you work from home then you can deduct any mile driven for work. This means that if you go meet a client and while your out and about you stop at the grocery store and run some personal errands the trip is deductible because the primary purpose of the trip was for business. If you work at an office then you can't deduct the miles driven to commute to and from the office. The mileage deduction is a flat rate so you can potentially make money on the vehicle if you can buy and operate it cheap enough.

Regardless, the best advice that I have for any newly self employed person is that the key to success is to keep expenses to a minimum. If you have to have the truck then you have to have it. But make sure that you really need the one that you buy. How many contractors do you see driving $70k trucks with oversized tires and all the bells and whistles. Yes, those add ons are a little cheaper because they used pre-tax money for the purchase but that doesn't mean that they didn't spend the money. At the end of the day you need to have more money coming in than going out. A lot of people forget that when they start out...

[XXX-er]

pretty much this^^ not even remotely an accountant but I did write off a vehical for 15 yrs in both urban and high milage rural settings, I was getting an allowance which was calculated (by some big accounting firm) to reimburse 60% of vehical cost still it all had to be written down, claimed and I also had to depreciate my vehicals. In Canada some vehicals like PU trucks are in a class which is easier to write off more completely, in the city I could get by with cheaper cars but when I was driving lots of kms up here buying newer was better for quality of life & because the repair costs got too high and started to be more than the fuel costs, its also how I know going Diesel doesn't make financial sense when RUG is cheaper unless maybe you are actualy hauling heavy loads constantly but in any case get some real advice and do some math

Buying a vehical is almost always cheaper except when money is expensive to rent like back in the > 14% lending rates and then if you can pay off a vehical really fast doing really big payments, leasing can actually be cheaper than buying BUT... money is cheap right now

if you buy a vehical you can just sell it if you don't need it but getting into a leasing contract is like being married to the fucking vehical ...you made a commitment