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Leasing your Company Vehicle

A company vehicle can be a real asset to the business depending on the industry. When deciding to lease a company vehicle there are many factors you must consider:

 

Type of vehicle

Age of vehicle

Use of vehicle

Tax implications

Lease structure and term

 

Type of vehicle

When a business or a self-employed/contract worker needs a vehicle, he or she may feel they

have free reign to lease whatever they want as long as their cash flow is sufficient to cover the debt. That is not necessarily the case. First, the Federal Government may see it as unallowable expense or asset to be claimed by the business – check with a tax professional. Second, most lenders will only lease a true business asset, meaning a Ferrari, Maserati, or Bentley may not be the right vehicle, unless your business is to race them. The type must be appropriate for the business both for leasing and tax implications.

 

Age of vehicle

In most cases the vehicle must be high enough value to have a useful life, meaning after

accounting for depreciation the vehicle still has value. Most vehicles depreciate beyond their value in about five years. I know, the GEO Metro you drive as your personal vehicle is nearing three hundred thousand mile and still works great. Yet for a business it must have a useful life. Leasing in most cases will only go to five years old on the vehicle however older vehicles often times can be an exception.

 

Use of vehicle

The use of the vehicle needs to be appropriate. Having a Lamborghini to get from home and work may not classify as a needed business expense or asset. Be sure it makes sense to be financed as a business lease, if you’re not sure, contact a tax professional.

 

Tax implications

This may be the most important aspect for leasing because at the end of the day the biggest

reason you are requesting a company vehicle as a business expense – to get the tax benefit. The

things to consider we have already discussed have a great impact on leasing a vehicle and if it is an allowable business expense/asset. You wouldn’t want to lease something and find out later you can’t expense the lease or interest and depreciation.

 

Loan structure and term

In most cases the maximum lease term will be five years. Three years may be more appropriate for a smaller purchase amount or a used vehicle. If the vehicle is significant amount of $100,000 or more and an appropriate expense, seven years might be warranted. Be prepared to have a down payment, especially if the purchase is over $100,000.Typically, 20% is the standard down payment requirement but in many cases a 100% lease amount is available.

If you are ever unsure about whether a company vehicle will be considered a true “Business

Expense” consult your tax professional.

Specialty Funding excels in commercial vehicle leasing programs. Vehicle and fleet leasing is the foundation of our business. We have always favored vehicle leasing as our core business because that is what we do best. Going on 40 years of vehicle leasing experience our team knows how to tailor a leasing contract to best fit your business needs. We are always happy to work with you and your accountant to find the best solution for your business.