Look, I like to make money and I like to save money. That’s just the way it is and being a small business owner, I’m going to have the company pay for as many of my expenses as possible so I don’t have to pay out of my own wallet. That’s the American Dream.
As any money-savvy business owner knows, there are always ways to save money without sacrificing quality. Obtaining a company car is no different. Being a business owner, I am always working, 24/7, and while driving the car or getting gas, is no different. While it may seem more financially sound to own the company car, here are three reasons why leasing is a much better option.
1. Leases are Tax Write Offs
While it’s somewhat of a pain, you will need to log all the time spent in the car, focusing mostly on miles. The IRS will allow you to write off either the standard rate or the actual cost of the miles used. The standard rate is set each year and can be checked on the IRS’ Website.
Once obtaining the standard rate, to find the standard rate deduction, multiply the activity miles by the standard rate. To find the actual cost deduction, divide business miles by total miles. Then multiply by the total cost.
It’s also important to keep track of your annual lease payments. As with miles, this is tax deductible. To find how much is available, deduct the business-use percentage of the lease payments.
2. Maintenance and Gas is Tax Deductible
Car maintenance and gas are inescapable aspects of any type of car ownership. Except with a leased business car, when you get an oil change, it’s tax deductible. Just remember to keep track of it.
Any type of car maintenance and gas used for business purposes is tax deductible. The percentage of available tax-deduction is relative to the percentage of business use that you are claiming.
Remember, the higher the percentage of business use, the higher the tax-deductible amount.
3. Car Insurance as a Business Expense
You will naturally want to have car insurance for your leased car. Be sure to have insurance that covers liability, damages and other losses. These premiums can be deducted. Again, instead of paying for your car insurance yourself, the company now does it. If you think about it, by transitioning your car payment and insurance to your company, you can save yourself around $500 to $700 per month in personal expenses, not to mention gas.
Of course, conditions apply. The amount that can be claimed depends on factors like claiming the standard mileage reduction and the percentage of business use. If you use the IRS’ standard mileage rate, you can’t deduct insurance because it is already taken into account.