When choosing to purchase a vehicle for business purposes you have two basic choices: buy or lease. Determining which choice makes more sense for you depends on two main factors, how long you plan to keep the vehicle and how many miles it will be driven. After you nail down those two things, you can make a clearer determination which decision matters more to your company.
Do you want to get a new vehicle every two to three years with no risk of major repairs, or is it more important to have the security of long-term savings by owning the vehicle for a number of years? Here are some of the advantages of leasing and purchasing.
Vehicle Leasing Advantages
When leasing, businesses generally enjoy a significant tax advantage by leasing rather than purchasing company vehicles. If the vehicle is strictly for business purposes, you can also deduct the full cost of all monthly payments as well as all operating costs. Other advantages include:
Tax Advantages. Monthly payments are deductible; purchased vehicles must be depreciated over a number of years.
Maintenance and Repairs. The cost of maintenance and repairs for purchased vehicles, excluding items covered under warranty, is covered by the business.
Don’t Need to Sell. Turning in a leased vehicle eliminates the need to sell older vehicles in your fleet.
Vehicle Purchase Advantages
The main reason to purchase a company vehicle instead of lease it, is that you plan to keep it for at least five years. After five years, the financial advantages of leasing decrease. Here are some other occasions when buying a company vehicle makes more sense:
Customization. If the vehicle must be customized, buying could make more sense.
Extreme usage. Most leases allow 12,000 to 15,000 miles per year. If the vehicle will be driven more, the lease will charge a per-mile fee for that use.
Eco-friendly vehicles. Not all hybrids qualify, and programs can change or be phased out, so stay current on requirements and tax breaks.
Lease if you want a new vehicle every two to three years, desire lower monthly payments, and want a vehicle that is always under warranty. If you drive a low number of miles, do not customize the vehicle and don’t want to build asset value through long-term ownership, then lease.
Buy if you plan to keep the vehicle more than five years and are willing to make slightly higher monthly payments with the idea that down the road you will have paid off the vehicle and will have an asset.
When wrestling with this and other important business decisions, let Wheeler Financial give you the input you need to help you make an informed and wise decision for your company. If you have financial questions about your business, we can help.