Should I buy or lease a car, truck or SUV? Section 179 By Jeffrey Brooks, CPA, CFP, MBA for JBrooks Wealth Advisors in Phoenix, AZ

Section 179 will be increased from $25K to $500K for 2014.

 

This will definitely happen so now is the opportunity to take advantage of buying or financing a purchase of furniture, fixtures and equipment and SUV over 6000 pounds that is used more than 50% for business!! The house has passed one year extension, the senate has the votes to pass and the President has said he will sign the legislation.

 

Question:  It is very confusing what I should do. RECOMMENDATION:  LEASE VEHICLE and trade in current vehicle. Shop around because some dealers will give you a higher value on a trade in to get you to lease.

 

 

  1.   I like a new car every two years.
  2.   I want a vehicle that is sporty and small.
  3.   I own my own business and I have my administrative office in my home.
  4.   I rarely use the car for personal use.
  5.   I have another car for personal use.
  6.   The vehicle will cost me $45,000 Should I buy or lease the vehicle?
  7.   I drive under 10,000 miles per year
  8.   I am in the highest tax bracket
  9.   I am willing on a sample basis to keep track of my personal versus business miles.
  10.   I want to conserve my cash.

 

 

Question: But what if I want to buy a used SUV over 6000 pounds for $35,000 and I have already taken Section 179 depreciation over $25,000. Can I still get a write off of the entire amount?  If the vehicle is used in your business for delivery (please see previous blog I have written for non-passenger vehicles), than if you follow the rules you can deduct the entire $35,000 as long as you have enough taxable income to absorb the $35,000. 

 

But if the vehicle is for your personal and business use (over 50% business), you can only write off through Section 179 for amount of up to $25,000 times business percentage. The auto log is the documentation that you must maintain.

RECOMMENDATION:  Buy or finance vehicle, do not  lease. Buy used if possible since economically you will be ahead even with lower tax deduction.

 

 

  1.   I like a new car when my car costs more to repair than it is worth.
  2.   I want a SUV for protection and to store my business  inventory.
  3.   I own my own business and I have my administrative office in my home.
  4.   I rarely use the car for personal use.
  5.   I have another car for personal use.
  6.   The vehicle is not a vehicle under 6000 pounds.
  7.   I drive over 10,000 miles per year
  8.   I am in the lower tax  bracket.
  9.   I am willing on a sample basis to keep track of my personal versus business miles.
  10.   I am only getting .50% in the bank and have extra cash that I do not need for investment.

 

What if the vehicle was less than 6000 pounds and I use the vehicle for less than 75% and I like a new car when my car costs more to repair than it is worth?
We would need to run the numbers through our program but the likelihood of coming out ahead by buying a used vehicle will probably be better.

 

 

 

 

 

When you buy, you own the vehicle free and clear after you repay the loan. So you get the trade-in or sale value of the vehicle when you decide to get rid of it.

 

When you lease, the dealer or leasing company owns the vehicle and you pay for its use over the lease term. When the lease ends, you can either buy the vehicle for a “residual value” stated in the lease or walk away and get a new vehicle.

 

 

Leasing requires less money up front and lower monthly payments. Consequently, leasing leaves you more cash. That’s an advantage you must account for in your cost calculation.

 

Another key factor in the comparison is how much you can save on taxes using each option. The key tax difference involves tax deductions for depreciation, i.e., recovering as tax deductions the money you pay for the vehicle over the period of time that you use it for business.

 

 

 

When you buy, you own the vehicle free and clear after you repay the loan. So you get the trade-in or sale value of the vehicle when you decide to get rid of it.

 

When you lease, the dealer or leasing company owns the vehicle and you pay for its use over the lease term. When the lease ends, you can either buy the vehicle for a “residual value” stated in the lease or walk away and get a new vehicle.

 

 

Leasing requires less money up front and lower monthly payments. Consequently, leasing leaves you more cash. That’s an advantage you must account for in your cost calculation.

 

Another key factor in the comparison is how much you can save on taxes using each option. The key tax difference involves tax deductions for depreciation, i.e., recovering as tax deductions the money you pay for the vehicle over the period of time that you use it for business.

 

If the vehicle’s fair market value is more than $18,500, you might be leasing a luxury vehicle.

 

With a luxury-vehicle lease, you add a luxury dollar amount to your business income based on the vehicle’s fair market value.

 

You must add back to your W-2 what is called the “lease inclusion amount” or IRS could throw out the entire lease deduction.

 

Although cost is important, keep in mind that there are also personal factors you need to consider in deciding between lease and buy, such as:

 

·

How often you want a new vehicle—leasing gives you a big push to get a new vehicle every three years or so, when the lease ends.

·

How much you trust the dealer—leasing is a more complex transaction that requires closer contact with and more dependence on the dealer.

·

How much you drive—leased vehicles are subject to mileage limits as well as fees for excess damage, which may be a major bummer if you plan to drive the vehicle a lot and treat it roughly.

·

The stability of your personal life—you may be much better off not being hemmed in by a lease if you’re not sure what your family or business situation will be in a couple of years.

·

Status considerations—because leasing costs are generally lower, you can lease a vehicle that you couldn’t afford to buy

By Jeffrey Brooks, CPA, CFP, MBA for JBrooks Wealth Advisors, PC, a Professional CPA and CFP Firm  jeff@jbrookswa.com  602-292-2009  Please consult with your professional tax CPA regarding your specific circumstances!

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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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JBrooks Wealth Advisors, PC.

Certified Public Accountant
Address: 4647 N 32nd Street, Suite B245
Phoenix, Arizona 85018
Phone: 602-292-2009
Email: jeff@jbrookswa.com