Are There Tax Advantages to Leasing a Car Under Your Business?
If you currently own a business and are considering leasing a car for it, then you might be wondering if there are any tax advantages to doing so. After all, you’re able to deduct business expenses like office supplies, fuel costs, and even additional, so why not a car lease payment? It turns out that it’s not as simple as it sounds, but luckily, there are some tax advantages to leasing a car under your business.
There are some eligible tax deductions when leasing a car
If you do lease a car under your business, then you’ll be happy to know that there are some eligible tax deductions that go along with it. According to Chron, the payments, interest, tax, upkeep, and maintenance are all tax-deductible. This includes maintenance services and items like oil changes, tires, and brakes as well as the registration costs and parking fees.
Fuel costs are deductible as well, however, you must use the standard rate deduction of 57.5 cents per mile driven for business use, according to the IRS website. However, just note that for medical and moving purposes, the current rate is 17 cents per mile.
Things to keep in mind
Just remember that if you’re leasing a car for your business, then it can only be used for business-related purposes. Before leasing a car for your business, The Balance recommends that you figure a few things out first.
- Who will be driving the car? As a business owner and sole driver of the car, you will be able to keep a closer eye on the mileage and maintenance needs, however, if your employee is driving it, then it could be harder to do so.
- How many miles will the car be driven each year? Again, it’s important to keep track of the mileage on the car. But when you initiate a lease you need to know how many miles you will plan on driving each year (10,000, 12,000, or 15,000) in order to ensure you get the correct lease structure.
- Is the additional cost of maintenance necessary? Depending on how often and how many miles you plan to rack up on the car, it might worth it to opt for the added routine maintenance package as it could save you a lot of money in the end.
- What do you want to do at the end of the lease? At the end of the lease term, you can either give the car back to the dealer, buy it outright, or trade it in for a new one. It’s good to decide what you will want to do beforehand.
How are the lease payments deductible?
According to the IRS, you can either deduct the lease payments or the standard mileage rate, but not both. And if you do happen to deduct the lease payments, then “only the business-related portion of the payment is deductible.”
Always remember to keep a record
Although we’re sure that you already keep a good record of all of your business expenses, it can’t be said enough that if you plan to lease a car under your business, then it’s imperative that you track all of the expenses around it. Turbotax states that the “IRS can be fussy about writing off the cost of vehicles” and the last thing you want to do is make them fussy about your vehicle write-offs.