A company can, in fact, lease a vehicle. When you are purchasing a car,
you can ask the auto dealer for a business lease or corporate lease. The
main advantage of doing so is that your corporation can deduct from
its revenue the cost of leasing and operating the car for business
purposes. However, personal use of the car will dilute the tax benefits.
Your company has provided you with a leased vehicle to be used for
business purposes. The Internal Revenue Service views the business
use of a vehicle as a business expense of your employer. They
also view the personal use of the vehicle as a taxable fringe
benefit to you.
Wheels, Inc.: Personal Use FAQ
If you use your car in your job or business and you use it only
for that purpose, you may deduct its entire cost of operation
(subject to limits discussed later). However, if you use the
car for both business and personal purposes, you may deduct only
the cost of its business use.
Internal Revenue Service: Topic 510 - Business Use of Car
Some car companies, such as GM and Ford, provide special business services
to assist your company in leasing a car. Note that fleet services are
meant for companies that purchase and operate multiple cars every year,
but no fleet is required to benefit from business services in general. You
can sign a corporate lease without operating a fleet.
GM Fleet: Small Businesses
Ford Fleet: Business Preferred Network
Aside from the tax deduction for business use, leasing can be advantageous
because you pay sales tax only on the lease payments rather than on the
full price of the vehicle. For a general treatment of how to evaluate
the overall cost of leasing versus purchasing, see the following article.
When analyzing a lease transaction, it's best to begin by finding
out the car's capitalized cost. This is essentially the amount
for which the dealer is "selling" the leased vehicle. This
should compare favorably with the cost of the same car in a
The next critical factor is the car's residual value (expected
worth when the lease expires). This amount frequently is
expressed as a percentage of the car's original price. The
residual value should compare favorably with the book values
of corresponding used cars when the lease expires.
The car's residual value is a key element that will make
monthly lease payments less than the corresponding payment to
buy the same car. When a car is purchased outright, the buyer
pays for the entire vehicle; with a lease, the lessee pays
only for depreciation during the lease term, plus an interest
equivalent. The greater the vehicle's residual value, the better
the lease transaction will be for the lessee.
LookSmart: Journal of Accountancy: Purchase vs. lease of an automobile
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