Is a Car Lease for Business Tax-Savvy?

Dear Driving for Dollars, 

I use a car for my business to visit clients and so forth. Currently, the car I use is older and I own it, and the expenses aren't very high. So, I use the standard mileage rate deduction. I'm looking at getting a new car and someone told me that if I lease I could deduct my full lease payment, since I won't own the car. Is that true?

- Scott

Dear Scott,

Leasing a car that is used in business can provide more tax benefit than buying a car, but it depends on your personal situation.

According to Jeff Schnepper, author of "How to Pay Zero Taxes," with both leasing and buying a car the amount that can be deducted from your taxes for business use is directly related to what percentage you use the car for business.

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Schnepper says that whether you buy or lease the car, you should be keeping a log of the miles you drive and the business purpose. This serves as a record for the IRS, but it also gives you the data you need to calculate the percentage of business use each year. Use that percentage when you calculate the deduction of your total car expenses, which would include your car lease or car loan payments, as well as costs of car insurance, fuel, repairs and maintenance. Car lessees have restrictions on car lease payments comparable to car owners.

Your best course of action is to gather all the numbers for the car lease you are considering and the car you are considering buying, as well as your projected business use of the car, and then ask your accountant to confirm which option is the best for your situation.

If you decide on leasing a car, read about five mistakes to avoid.

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