Auto: Lease vs Buy

Hi,

I am a freelance motion graphics artist. I have been thinking about getting myself into a new or slightly used new car. A colleague of mine mentioned the other day that I may be able to lease a new car and write off most, if not all of the cost. Is this at least partially true? Was she pulling my leg? Are there any benefits to leasing a new vehicle rather than buying being self-employed?

Joe from Los Angeles, CA


Hello Joe,

If your business requires you to wow clients with glitter, a new car every two years is imperative, and leasing is probably the better way for you. If you plan to keep the car until people start laughing at your antique then buying is better. Leasing versus owning, however, is generally based on how good a deal you can get, with tax considerations secondary. Any savings in tax deductions must of course be balanced against purchase price, operating expenses and other considerations.

Whether you buy or lease you may deduct only the potion of the car that is used for business. So if you put 10,000 miles on your car and 4,000 of those are for business then you have a 40% auto deduction. If you use the actual method of deducting auto expense you'd get to deduct 40% of the cost (over time) or 40% of your monthly lease expenses. You might want to read Deductibility of a New Truck or Car .

There are advantages to buying rather than leasing if the car is expensive, you use it more than 50% for business and you plan to keep it at least 5 years.


The factors in a lease vs buy decision are:
** How long you plan to keep the car.
** How good a deal you can get.
** What portion of your driving is for business.

Cheers!
June