Need a Car? Consider Leasing

When you own a business, leasing a vehicle provides tax advantages a consumer doesn't get.

Check with your financial advisor or tax accountant first, but in general you'll be able to deduct auto lease payments as a business expense, providing that the vehicle is used strictly for business. If you also use the car as a personal vehicle, that limits your tax deduction.

When evaluating the advantages of leasing, take into account the number of miles you drive each month, and keep close tabs on company car use. If you plan to lease a fleet of vehicles, calculate annual mileage, maintenance and gas costs. Also find out what the estimated residual value of the car will be at the end of the lease--what it might be worth when it's time to turn it in--so you can decide whether to roll over the lease to trade up to a new car or buy the leased vehicle outright.

Hard-pressed to pony up a down payment? Most leases require a lower down payment and lower monthly payments than an outright purchase requires. Plus, all you have to do to drive the latest model is update the lease. Monthly payments can be 30 percent to 60 percent less than payments for purchasing a car, according to newcar-leases.com.

Unlike consumers, business owners usually have a choice of two types of leases: closed-end and open-end, says Al Hearn, CEO ofLeaseGuide.com. A closed-end lease provides a fixed residual value at the end of the lease, based on a specific annual mileage (typically 15,000 miles per year), he says.

That means a closed-end lease might be a better value if a business owner can accurately estimate the number of miles driven annually. An open-end lease might be more appropriate if mileage is unpredictable.

However, payments on an open-end lease could be higher because of a lower lease-end residual, Hearn says. Moreover, if the vehicle's market value is less than the residual, the lessee is liable for the difference when the vehicle is returned. For a small business with limited finances, this might be an unacceptable risk.

Leasing a company car is akin to renting. You pay a portion of the vehicle's price for the period you have agreed to use it. At the end of the lease, if there's still value left, you don't have to pay it if you return the car to the dealer.

For example, if a car costs $40,000 new and you use it for a couple of years, it will still have a residual value of perhaps $18,000 at the end of the lease. You don't have to cover that unless you decide to buy the car. Your monthly payments, therefore, would be based on $22,000 rather than $40,000.

If you lease a fleet of vehicles, most auto manufacturers will customize their business leasing programs to suit your finances. Check out Ford's Business Preferred Network, Red Carpet and Commercial Lease programs at FordCredit.com for a variety of leasing options. Also, consider General Motors' Business Choice for small businesses and GMAC Commercial SmartLease plan atgmacfs.com, or visit GMAC's dealerships for information.

Before you sign, go over each clause in the lease contract carefully. Note mileage requirements and payment default penalties, and ask about repairs and maintenance.

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