- Is having a new vehicle every 2-3 years without major repair risks more important than long-term cost?
- Or are long-term cost savings more important than lower monthly payments?
- Is having ownership in your vehicle more important than lower up-front costs?
- Is it important to you to pay off your vehicle and be debt-free for a while, even with higher monthly payments?
Know the differences
Regardless of how many miles you drive it, when you buy, you pay for the entire cost of the vehicle including sales tax. Later, you may decide to sell or trade the vehicle for its depreciated resale or market value.
When you lease, you pay for a portion of a vehicle's cost during the time you drive it, and pay sales taxes on the monthly payments. The finance rate charged called the money factor, is similar to the interest on a loan. At lease-end you would buy it if the value of the vehicle is equal to or higher than the predicted residual or market value.
- Buyer Beware -
Car dealers are enticing customers with goodies including 72-month loans. Buy within your means; a good rule of thumb is to pay off a new vehicle within 48 months.
- Lessee Beware -
Understand the lease's complexity; for example, if they are charging a factor of .003, that equates to a 7.2% rate. There are also other hidden costs for early-termination, excess mileage, gap insurance, among others.
Business Tax Write-Offs
Regardless of whether you buy or lease, when filing your first tax return after your new vehicle goes into service, sole proprietors must choose either the Standard IRS Mileage method or the Actual Car Expense method for their business travel deduction. The 2009 standard rate is 55 cents per mile. Actual costs include gas, lube, insurance, repairs, auto interest, etc. plus depreciation. If leasing, actual costs exclude advance payments and you may have to reduce your lease payment deduction by an "inclusion" amount.
KEEP THE BIG PICTURE in mind. While it's smart to evaluate tax impacts of a buy/lease decision, taxes are only one piece of your total financial analysis
If you are or will be contemplating a decision such as this, contact us for a full analysis at 206-522-0110 or at www.accountabilityservices.com.