What Every Business Needs to Know About Leasing a Vehicle

Leasing a car is always an attractive option for businesses. Not only does the company pay less each month, but you can also switch to the latest car models as frequently as needed. This is great considering how positively it will impact the company’s image. But leasing a car does come with several considerations. How do you know it is the best choice for your company? This article will discuss some of the most important aspects of car leasing that every business needs to understand.

Closed lease vs. open lease

When you start negotiating car lease deals, the dealership will likely offer you two options: a closed lease or an open lease. What is the difference between these two? An open lease typically pertains to contracts dealing with vehicles leased for commercial use. In an open lease, the lessee will pay the difference between the vehicle’s estimated residual value and the actual resale value when the lease term ends. If the car has been used heavily, the real resale value will be much lower than estimated, which means the lessee will pay more. Compared with a closed lease, you will only pay for damages or extra mileage, if any.

The importance of residual value

A term that will always come up as you check the best lease deals is residual value. It merely refers to how much the car is worth when the lease ends. It is similar to how business values an asset at the end of its lifecycle in hopes of selling it for profit. What is essential to understand here is that the more the car depreciates, the lower the residual value. As such, if the residual value is higher, the monthly payments are lower. But for a company that intends to buy the vehicle at the end of the lease, a higher residual value may be the most advantageous.

Lease fee and other payments

In looking for lease deals, you will likely come across attractive offers such as zero down lease deals. But before you get enticed by these offers, you need first to understand the basic cost of leasing a vehicle. In addition to monthly payments, dealers may also add an acquisition fee and other charges. It is always worth a try to negotiate with the dealer if it is possible to do away with some of the additional costs.

What about taxes?

Since leasing a car is a business expense, paying taxes is another consideration. Some qualifications need to be met so that you can maximize the deductions.

• You need to prove that the leased vehicle was driven at least 50% of the time for business purposes. Only this portion of the cost is tax-deductible.
• Once you have identified the qualifying amount, you need to calculate using the actual cost method.
• Lastly, a high-end or luxury vehicle may be subject to an “inclusion amount”.

When it comes to sales taxes, there is no exception. If you want to pay less in sales taxes, you need to keep the cost of leasing low.