Vehicle Leasing Can Provide Tax Advantages for NJ Businesses

One of the most frequently asked questions accounting services receive from their clients involves “should a small business lease vehicles or purchase vehicles?”  Business owners have the option of either financing/purchasing or leasing their company cars. There are pros and cons to both options. Listed below are some of the advantages and disadvantages for leasing vehicles as compared to buying vehicles to help you determine which strategy is right for your business. 

The length of time for leasing a vehicle versus buying it can affect your decision making process.  Vehicle leases are typically at least three years. You will make payments into a car you do not own at the end of the lease. No residual asset value is a concern for some business owners looking for ongoing transportation. 

The main advantage to leasing is that you might be able to secure lower payments on the vehicle when you lease it. Leasing is basically an extended rental program where you put money into a vehicle you will never get out of it.  If you want to keep the vehicle for a longer term, you might as well pay for the vehicle so you have some capital for the next one. 

Currently low interest rates make payments on the purchase of a new vehicle versus leasing it about the same. Some of the big car company’s like GM and Chrysler have reduced their leasing programs while others are aggressively seeking leases. The calculation used to determine which option makes sense will change if interest rates begin to rise because the payments on a lease will be less than the financing/purchase option. Have your accounting service provide an analysis of the options. An experienced firm will be able to help you compare the advantages between leasing and financing/purchasing a car for your business.

The author: Dawn Contardi, owner of Sharp Bookkeeping Service, a Certified QuickBooks ProAdvisor and a member of the American Institute of Professional Bookkeepers with 25 years of experience can be reached at 732-458-3800 or contact us.