If you are in business for yourself and need company vehicles for your employees the question of whether or not it is smarter to lease or buy the cars will most definitely come into play. What makes the most sense for your company is going to depend on a number of factors. From the tax benefits to the insurance considerations you need to make sure that you are looking at all aspects when exploring all of your options.
Here are some of the key points you need to think about when trying to figure out whether it is better to lease or buy your company’s vehicles.
Leasing or Buying Company Vehicles from a Tax Standpoint
When thinking about leasing versus buying from a tax perspective there are a few things you need to realize. The amount allowed in terms of annual deduction does vary depending on a lease or purchase. With a lease you can usually deduct more annually as it is based upon a set amount; whereas when buying a vehicle you have to figure in depreciation as far as tax deductions are concerned. In the end after depreciation the allowable amount of deduction works out to be less overall per year.
Additionally there are expenses such as repairs and preventive maintenance as well as annual registration. However for the most part regardless of whether the vehicle is bought or leased the tax deductions for these items will be the same.
Leasing or Buying from an Insurance Standpoint
When it comes to the insurance differences on a lease versus a purchased company vehicle a great first step is discussing the different options with your insurance broker. They will ask you detailed questions about the vehicle and the driver. For instance one of the primary questions they will ask is if in fact the vehicle will be used primarily for business purposes. Others will focus on who will be driving the vehicle.
You need to think about what happens when an employee uses the car for personal use and ends up getting into an accident perhaps even totalling the vehicle. It is therefore important to consider the person driving the car—can you trust them? What type of driving record do they have? And ultimately are they responsible? If this is a new area for you and your business visit our article onhiring commercial drivers here.
The pros and the cons of buying versus leasing and what they mean to your company need to be weighed carefully. Talking to your insurance broker about your options and also discussing the matter with your accountant may provide clarity of which choice might be a better one for you.
