Don't Lease a Car For the Business

Tony wants to know what Dave thinks about leasing a car in his situation. He has the cash to buy one outright but isn't sure it makes sense. He likes the tax deduction aspect of leasing for his business.

QUESTION: Tony in New York City wants to know what Dave thinks about leasing a car in his situation. He has the cash to buy one outright but isn’t sure it makes sense. He likes the tax deduction aspect of leasing for his business. Dave can’t see a reason to lease a vehicle regardless.

ANSWER: Owning a car and straight-line depreciating a car is also a good tax deduction, or writing the mileage off. If you have two trucks and you sell one of them and get the cash, why would you not just write a check and buy the car you want?

I think you ought to write a check and just buy it. Also, here’s a thing to remember about a car that you’re going to put on the road—the last thing you want to put on the road is a brand-new car because whatever you run miles up on, you’ll destroy its value. From a business perspective, we want to destroy the least expensive thing we can destroy because basically this car is overhead for your new business venture.

You are buying the car to run the road with it. That’s the purpose of buying the car. Whatever you run the road with, you run the value down. We don’t want to destroy a $110,000 car; I would rather destroy a $10,000 car. You want something that is reliable and reasonably comfortable because you’ll be spending a bunch of time in it, but past that it doesn’t matter much.

Whatever miles you put on this, you’re going to cause the value to drop rapidly. The more miles, the more rapidly. That portion of the vehicle purchase, not the personal use, is going to be used up by the business expense. So limit the size of your expense. If you are going to make three copies a month, you don’t buy a $25,000 copier. You buy the minimum or you go to Kinko’s.

Treat this like it’s a business expense and not a vehicle purchase. That makes you look at vehicles differently because that’s what they are in the business.