Leasing has come to dominate the way people drive luxury vehicles today, and judging by television commercials, it’s a major tactic for “moving the metal” across the mainstream automotive spectrum, too. Lower monthly payments, compared to conventional financing, remain a key draw to leasing, along with the ease of switching vehicles every few years.
But the biggest advantages come to those who lease a vehicle with at least partial business use. They enjoy a whole other set of tax-related benefits that can further reduce costs. Premier Financial Services can show how with the PFS Simple Lease.
Vintage or New – The Same Benefits of Leasing
Some could make a case for business use in a new Bentley Flying Spur. We know some clients who can even do so with a 1961 S2 Continental Flying Spur that’s 50 years old, and PFS can write a lease for either one. For a new car or vintage model, leasing offers hard-to-ignore benefits beyond the usual mileage deduction and depreciation that apply with purchased vehicles used for business.
Leasing can be good for business with the biggest benefit in having your company lease the vehicle being pre-tax dollars that are used to make the monthly payment, creating a tax savings for the individual and an expense for the company. And that can hold true even if only a portion of the payment can be expensed. Of course, you should consult with a qualified tax advisor before leasing a vehicle for business.
Depreciation Has Its Limits
The next key benefit to leasing versus purchasing a car for business centers on depreciation. With a purchased vehicle, whether paid in cash or financed, you can depreciate a maximum of $15,060 over five years, with $11,000 of that depreciated in the first three. Those limits apply whether you’re driving a $50,000 Mercedes SUV or a $300,000 Bentley. You can also deduct the cost of interest if the purchase was financed.
Now, consider what happens with a premium vehicle leased for $2,000 per month, one that, according to your tax advisor, could be treated as a business expense for, say, half your usage. Over five years, that’s $60,000 – four times what’s allowed under depreciation. Plus, you can amortize the down payment and first month’s payment over the life of the lease, yielding an additional deduction.
The cost advantages continue when you consider sales tax. On a purchase, even when financed, you must pay any applicable state sales tax up front in full (which, if you have financed the sales tax, means you’re also paying interest on it in a finance contract). With leasing, in most states, you pay sales tax only on each monthly payment. If you live in a state that does not allow a sales tax credit on a trade-in, the cost advantage can be even bigger, especially when moving from one lease to another every 36 months.
Not Your Grandfather’s Oldsmobile Lease
Not all leases are equal, however. The traditional automobile lease that’s used to move everything from Honda Civics to Jaguars is more like a long-term rental agreement, and ending that agreement early usually triggers penalties that can wipe out the savings from the lease’s lower monthly payments.
Aside from enabling you to put classic cars into the mix, the PFS Simple Lease offers benefits not found in garden-variety leases. Here’s how it works for you:
You and PFS agree on a lease-end residual value for the vehicle, and while the lease is in place you make payments based on the difference between the amount financed and that residual. Let’s say you’ve got some time to go on a Ferrari FF you’ve been leasing through your business, and the Bentley Bentayga proves too hard to resist. The PFS Early Termination Program lets you end your lease early by paying the balance owed, which is calculated based on a simple interest formula.
You also have the option to switch vehicles within a lease period without penalty – simply pay any difference in value between the two vehicles. The lease’s residual value and payments remain unchanged.
And, there’s no rocket science needed to interpret your choices at the end of the lease term.
- Still love the uber-luxury sedan you’ve been leasing? Keep it. Pay the residual and the car is yours.
- Love the benefits of leasing just as much as the car? Ask PFS to write you a new lease on the same car.
- Does it appear that you could sell the car for more than the residual? Sell it and keep any difference.
- Or, trade in the car; the dealer pays the residual, and you keep any difference.
The Best Part – A Lease Customized to You
If the lease deals you see advertised, even for some premium luxury vehicles, seem cookie-cutter, it’s because they pretty much are. That’s not the case with the PFS Simple Lease, however. Each lease is crafted for the individual’s needs. If a vehicle is leased for business, PFS will work with your advisor to ensure the lease is structured ideally for that purpose.
Written by Jim Koscs, Audamotive Communications
For Premier Financial Services