January 30, 2023
As a business owner, it’s important to understand the tax implications of all major financial decisions, including whether to buy or lease a vehicle.
Both buying or leasing a vehicle can provide a tax deduction for the business, just in different ways.
When your business purchases a new or used vehicle that is solely used for business you may be able to deduct the full purchase price of the vehicle even if the car or truck is being financed. There are specific requirements that you must follow to be able to do that such as the vehicle being over 6,000 pound or that the vehicle has been specifically modified such as truck or van used in a construction company.
Even without the 100% depreciation or using the Section 179 deduction, you could still qualify for bonus depreciation and deduct up to $19,200 from your net income in 2022. And if you’ve financed the vehicle, you are able to deduct the interest expenses to reduce your tax liability as well.
Many times, you can find a car or truck that is a couple of years old at a great deal and still get the deductions for your business.
On the other hand, when you lease a vehicle, you’re not able to use the Section 179 deduction or bonus depreciation so you don’t get a big deduction up front. Instead, you would deduct the monthly lease payments over time. This may be better on your cash flow.
And so buying a vehicle can provide a significant tax deduction in the year of purchase, while leasing a vehicle does not.
We always tell clients to make sure to buy something they can afford and to make sure that any investments into the business are aligned with your cash flow projections and how does it help you grow your business. The tax considerations should be a secondary and bonus consideration.
Tax deductions are only one aspect of a comprehensive tax planning strategy. On average, we help our clients save $54,238 in taxes. We’re able to do this by working with you throughout the year and not just at tax time. Our proactive relationship starts with an upfront tax plan to help you identify tax and business strategies supported by IRS code and court cases. There are thousands of strategies out there that successful companies and wealthy individuals are using, and we will help you find tax savings ideas that are right for you.
This article is for informational purposes only and was current at the time of writing. Tax laws change all the time. To find out if this is an idea that can help your business, schedule a meeting with us.