Should I lease or buy my vehicle?

This is not a question that has a black and white answer. Choosing which is better between leasing or buying your vehicle depends on various factors. When making decisions such as these, you should use your specific circumstances to determine which is best for you.

Keep in mind that with a lease, there will often be a limit to the miles you can drive without incurring additional expenses in any given year. Just to give you an idea, this is usually between 12,000 and 15,000 miles per year. You will need to know the lease contract amounts as well as the miles you think you will incur in that year before committing to a lease. This alone could be the deciding factor.

Whether you consider it good or bad, you are simply "renting" the car in a lease. Some individuals like the fact that you can trade the vehicle in at the end of the lease for a brand new vehicle. Others dislike a lease because they will never actually own the vehicle. You will need to know the difference and make your decision accordingly.

The good news is, whether you lease or buy, if you use your vehicle for business, you can deduct the expense. This takes us to our next topic. How do you take the expense?

What is the difference between the standard verses actual vehicle expenses?

When you use your vehicle for business, you may be eligible to deduct this as an expense. You can either take the standard mileage rate or use actual expenses. The standard mileage rate for 2014 is .56 per mile. The actual vehicle expense would be calculated using a percentage of business to total miles multiplied by actual expenses incurred.

Buying: If you want to use the standard mileage rate, you must use this in the first year the vehicle is placed into service. After that initial year, you may alternate between standard and actual, using which ever method is most beneficial.

Lease: If you want to use standard mileage rate for a leased vehicle, you must use this method through the entire length of the lease.

Some additional facts to keep in mind:

The standard mileage rate is not allowed if you have more than 5 vehicles that you are using at one time. This does not count if your business is not using all 5 vehicles at one time.

Personal Property Tax: whether you use standard or actual, you can always deduct personal property tax.

Parking fees and tolls: whether you are using standard or actual, you can deduct your business related parking fees and toll expenses. (This would not include parking fees for parking at your place of work.)

What are considered actual expenses? You could count vehicle depreciation, licenses, gas, oil, repairs and maintenance, interest, lease payments, insurance, etc. If you use your car for both business and personal, you would need to know the following:

a.) How many miles did you put on your car in the year in question?

b. ) How many of the miles were for business?

c.) If you divide business miles into total miles, you get a percentage. This percentage would be applied to your actual expenses to determine your expense.

While using the standard mileage rate is usually more beneficial, there are occasions where actual expenses could outweigh the standard deduction. We recommend keeping track of both so the calculation can be determined at year end once all of the information is complied.

In conclusion, leasing verses buying depends on your specific circumstances. You should consider your own personal preferences in conjunction with  consulting your tax advisor to discuss which is best for you and your tax situation.