Having a small business can be incredibly difficult at times. From juggling all of the day to day responsibilities to worrying about profits, it can be overwhelming. But one huge advantage of owning your own business is that you can lease a car through your business.
Here’s your how-to guide on leasing a car through your business.
What are the advantages of leasing a car?
Leasing a car isn’t for everyone; some people prefer buying a car so that they can customize it, drive it on their terms, and ultimately have an asset at the end of their payments. But leasing has some distinct advantages that work better for some people.
The monthly payments are lower
When you lease a car, the payments will be much lower than if you choose to buy a car and finance it. In fact, car leases are typically between 30-60% less than financing payments.
You can drive the latest car
A lease period is typically only a few years, so you can get the newest car when your lease period is over. If you like to have the newest cars and technology, leasing is likely a good fit for you.
You generally don’t have to pay for repairs
Lease periods typically line up with warranties, so you generally do not have to pay for most repairs.
You need less money up front
When you lease a car, you are not usually required to make a down payment. Additionally, any fees that may be required up front can be rolled into your monthly payments. This means you don’t need a lot of money to get a lease.
No need to sell your used car
When your lease is over, you can simply hand the keys back over to the dealership. You don’t need to deal with the hassle of selling your used car (which can be a real pain sometimes).
You can write off your lease payments
One of the biggest advantages to leasing is that you can write off your lease payments if you are a business owner (or self employed) and use the car for business purposes. Even if you do not own your own business, you may be able to write off part of your lease as a usage credit depending on what state you live in.
How to lease a car through your business
If you are looking to lease your car through your company, you will need to find a dealer that handles commercial leases. That doesn’t mean that you will need to get a commercial style vehicle, but it means that they have different programs and financing options.
Select your car
Determine what car works best for you and your business. Is a simple passenger vehicle sufficient? Do you need cargo room for heavy hauling? Determine what type of car will work best for you and your business.
Determine if you should lease or buy
As a business owner you are also eligible to write off car payments, but they will be significantly more than a lease payment will be. The answer will depend on what type of business you have and what your business finances are like. If you buy a car, you have an asset at the end which can be a good thing. But the higher payments may not make it worth it. Evaluate which option is better for your situation.
Bring your business’s financial documents
You will need to prove that your business is capable of making payments on the lease. They will want to see cash flow, revenue, and debts, all of which will affect your ability to repay the lease. You want to bring anything that will help to prove that your business is financially stable and that you will not have an issue paying for your monthly lease.
Be prepared to guarantee the loan
If the bank does not feel that your business is in good enough standing to warrant a lease, they may require you to guarantee the lease personally. This means that if anything should happen, you will be responsible to make payments on the lease and your personal credit is on the line. Be sure you are comfortable taking on this responsibility.
Iron out the details and negotiate
When you are approved for the lease, be sure that you are comfortable with all of the fine print. Fees, mileage limits, the lease term–be sure that everything is correct. And that’s it! Once the papers are signed, the lease is yours.
How to write off a car lease for your business in 2023
If you are eligible to lease your car through your business, it can save you a lot of money in taxes. But even if you lease your car through your personal finances, you can still benefit from write offs.
You can determine your “business portion”–the portion of your lease that’s eligible to be written off–by determining how many miles you drove for personal use and how many miles you drove for business use. If you drove 10,000 miles on your lease, and 4,000 of those miles were for work and the rest were personal, your business portion would be 40%. When you write off these expenses, there are two ways you can do so.
Use the actual expenses
Your first option is to use the actual expenses to determine your write off amount. You are eligible to write off any costs that are related to driving, such as:
Your lease payment
Fuel
Insurance
Repairs
If your total cost for the year was $12,000, you would calculate what your business portion of those costs would be (i.e. $12,000 x 40% = $4800) and that is the amount you can write off on your taxes.
Use the standard mileage deduction
Alternatively you can choose to write off per mile. The IRS has a set number that you can write off per mile (in 2022 it was $0.585 per mile for the first six months, then $0.625 per mile for the rest of the year). You can determine how many miles you drove that year, multiply it by the standard deduction, and then multiply that by your business portion.
That’s everything you need to know about leasing a car through your business.
Leasing a car can be a great option for many people, especially business owners and those who are self employed. And if you love your car by the end of the lease, you can always purchase your car with a car lease buyout loan. Auto Approve specializes in car lease buyout loans, so we can help you (and your business) stay in the driver’s seat.