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Ask Dave

Car Lease and Depreciation

When you lease a car for your small business, all you're paying for is the devaluation of the car.

QUESTION: David has a small S-corp business. He leases cars right now and wonders what a better alternative would be when he drives tens of thousands of miles.

ANSWER: When you lease, you pay for the devaluation of the car. When you turn the car back in, the leasing company doesn’t lose money on you. If you take a $30,000 car and put 50,000 miles on it, you’re eating $10,000 or $15,000 somewhere, especially if you are over the allotted mileage. You can depreciate the car based on miles, a straight-line depreciation.

As far as the economic side goes, you are in business and you’re going to destroy the value of something and pay for its loss in value. You either destroy the value of a $50,000 car or a $10,000 car. Which would you rather do? Buy the minimum that will supply your needs and get the job done.