Should our Arizona clients buy or lease a car, truck or SUV? The argument for leasing in Arizona

Should our Arizona clients located in Phoenix, Scottsdale, Chandler, Tempe or Glendale, Arizona  buy or lease a car, truck or SUV?  Section 179 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!

 I believe that our Arizona business owners who are clients of our Phoenix CPA firm should lease when they want  a vehicle that weighs under 6000 pounds AND can limit their driving miles.

 

At one time I was opposed leasing unless our Arizona tax clients wanted a new car every year.

 

Now, I am a strong supporter of leasing.

 

When and why do I support leasing?:

 

1. When you are self-employed as a majority owner of a Arizona corporation or partnership.

2.  When you can legally support an administrative office in your home located in Phoenix, Arizona, Scottsdale AZ.  Tempe, AZ, Chandler, Glendale and Mesa,  and other cities in Arizona.  We have developed with the assistance of other CPAs intellectual property called Office Admin Expense deduction for our Arizona clients.

3.  When you can be disciplined enough to use a personal car for most of your personal mileage.

4. When you do not drive more than 20,000 miles per year for business

5. When you want to drive a vehicle under 6000 pounds.

6. When you want to conserve cash

7. When you keep your car in good shape.  I have peripheral vision problems so I would routinely back into walls and parking bumpers. Now with the modern safety features I rarely have a problem. But,  if you do have body damage then you need it to be repaired before turning the vehicle back to the dealer at the end of the lease.

 

Let us look at #5:   When you want to drive a vehicle under 6000 pounds.  The President only allowed the Section 179 depreciation for another year. And vehicles over 6000 pounds have limited write off if the bonus depreciation is discontinued.  Gas prices will definitely rise and the trade in value for a vehicle over 6000 pounds will plummet.  Also insurance costs are higher because of the increased damage when these vehicles collide with another vehicle or building in Arizona.

Let us look at #6 :Best Car to buy or lease for tax purposes. When you want to conserve cash a lease is your best choice if you can limit your driving mileage on the lease vehicle.

For example, we traded in a used vehicle whose brakes no longer worked against a Lexus E350 with all of the safety features with a lease for 27 months and ended up paying only $345 including tax per month! We do not have to pay for the auto tags. The leasing company pays everything except for gas, insurance and repairs.  Our outlay is $9,315 over 27 months less tax savings of $3,995.  The total cash outlay after tax savings is only about $5,200!

Several years ago in Phoenix, AZ.  I bought a used Cadillac Seville for $30,000 cash.  The advantage of buying used is you get a better price. But the disadvantage is that you can not find cheap financing and usually have to pay cash.

 

Since the vehicle was under 6000 pounds the depreciation on the vehicle was pitifully low!

27 months later the vehicle was in a traffic accident in Phoenix due to another vehicle going through a red light.  The insurance company paid us $7,100 for this vehicle that only had 27,000 miles on it!

 

I could have leased a business vehicle for much lower and would have received a much higher tax deduction on my federal and Arizona tax returns each year!

 

 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.   I drive under 20,000 miles per year
  7.   I am in the highest tax bracket
  8.   I am willing on a sample basis to keep track of my personal versus business miles.
  9.   I want to conserve my cash.

 

 

 WHEN TO BUY in ARIZONA?

  RECOMMENDATION:   Arizona residents should Buy or finance vehicle instead of leasing when the following facts fit your situation.

 

Example: John lives in Phoenix, Arizona. John should buy instead of leasing if the following facts fit his situation.  And he should buy an Arizona used car or vehicle if possible since economically John will be ahead even with lower tax deduction.

 John says:

 

  1.  I have kept all my vehicles for over 10 years and drive a ton of miles per year.
  2.  I only like a new car when my car costs more to repair than it is worth.
  3.   I want a SUV for protection and to store my business  inventory.
  4.   I own my own business and I have my administrative office in my home.
  5.   I rarely use the car for personal use.
  6.   I have another car for personal use.
  7.   The vehicle is not a vehicle under 6000 pounds.
  8.   I drive over 20,000 miles per year
  9.   I am in the lower tax  bracket.
  10.   I am willing on a sample basis to keep track of my personal versus business miles.
  11.   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 for Arizona residents is because leasing costs are generally lower, you can lease a vehicle that you couldn’t afford to buy.

 




 

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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