Operations

Operator Finance Q&A: Should I Lease Or Buy A Fleet Vehicle?

Posted on November 24, 2009

Expert Don Coolbaugh of Advantage Funding continues a weekly series of questions and answers for chauffeured transportation operators on all matters related to financing and leasing fleet vehicles.

Question: What are the tax advantages to leasing vs. buying?

Answer: The tax advantages of leasing versus buying depend on the type of lease you are entering into. The tax benefits may include higher write-off of lease costs and smaller upfront sales tax outlays, depending on the jurisdiction.

Some states allow the collection of tax based on the payment as opposed to paying it all upfront on the sale amount. This way your tax liability would only be for the portion of the lease you use. (i.e. 8% tax rate on a $60,000 purchase would be a $4,800 tax liability on a finance contract).

For those states that allow tax to be collected on lease payments only, there would be no upfront tax liability hence you would only pay tax on the payment each month up until you close the lease.

In addition, many leases are structured for tax purposes as an off balance sheet arrangement thus allowing for payments to be made as a rental expense as opposed to depreciating the interest only on a finance contract. The deduction to the company would be much higher, so your after tax savings would be greater.

Any information as it relates to taxes and liabilities should always be discussed with your tax professional for the best possible solution in your distinct situation.

Source: Don Coolbaugh, vice president of sales, Advantage Funding Inc.

E-mail finance and leasing questions to: [email protected]

Related Topics: Advantage Funding, Don Coolbaugh, lease financing, leasing companies, vehicle leasing

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