Is ther a formula to decide if its better for a self employed person to lease or buy a vehicle used in their business?

[Just-Lisa-Now-]

I've never had a client that has leased a vehicle, is there a formula to use to decide if leasing or buying would be more beneficial taxwise for the client?

[Accountant-Man · Accepted solution]

And also consider the final payment at the end of the lease, at least present value of it. Depreciation is also limited for "luxury" cars, whereas leased cars only have a minor addback to the lease cost.

There were such programs in the 1990s to do such present value calcs, I recall.

[abctax55]

CFS has a module to compute/compare....do you have CFS Tax Tools?

[Just-Lisa-Now-]

I do!    I'll have to take a look.  I felt like I saw a calculator somewhere at one point, maybe that's where!  Thanks for the reminder!

[abctax55]

I searched for "Lease" and it came up as Buy vs Lease (Auto).  I can print the blank one & email it to you if that would help.

[Just-Lisa-Now-]

Im not in the office today, I'll check it out next week.  thank you though!

[IRonMaN]

I think you have to look at some key things like, is the vehicle over 6000 pounds, what is the purchase price, how many years are they planning on keeping it, and how many miles do they drive a year.  Sometimes what may sound good for tax may not be so good on the financial side and vise versa.

[Just-Lisa-Now-]

I've always recommended purchasing, overall it just seems like it makes better sense.  You've got come up several thousand dollars up front for a lease, you may as well use that as a down payment and purchase it.   I guess if you drove minimal miles and wanted a new car every 2-3 years a lease would make more sense.

Client called and asked me which would be better, but he didn't have any details on how much lease payments would be for me to do any type of "what if" scenario.  

Was hoping there was some kind of formula or a calculator somewhere that I could plug some figures into that would compare for me   (Im asking a lot I know  LOL)

[IRonMaN]

If you buy an expensive car that is under 6000 pounds, you end up depreciating it over 150 years vs getting pretty much the full deduction when leasing.

[Just-Lisa-Now-]

I just spoke with the client again...its for his wife, she's a hairdresser with a permanent workplace, the couple thousand miles she might drive for business in a year aren't going to be enough to make much difference for tax deductions regardless if she owns or leases.   

It was one of those  "my friend gets to deduct their entire lease payment..." situations.

[abctax55]

Yeah, right....just like the "my friend" is writing off the entire cost of his Tesla in his S-Corp....

[TaxGuyBill]

"If you buy an expensive car that is under 6000 pounds, you end up depreciating it over 150 years"

With the increased limits for 2018, only vehicles over $50,000-ish get caught in the Luxury Limitations.