Can You Lease a Vehicle Through Your Business?

One of the questions I get most often this time of year is around whether or not to lease a vehicle through your business. There is a lot of bad information out there. Since we are approaching the end of the year, here are a few guidelines to follow for business use of a vehicle as well as handling vehicle expenses in your business.

Business use of a vehicle and deducting vehicle expenses

Before we discuss leasing a vehicle for your business, let’s address the basics of vehicle use for your business and what you are able to deduct as an expense in general for a car you own.

Mileage

The 2022 standard mileage rate is 58.5 cents per mile driven for business use. Remember that the IRS requires that you maintain a timely log of business mileage. Here is what that log must be able to prove:

• The number of miles driven for each business-related trip.
• The date and time you take each trip.
• The destination for each business-related trip.
• The business-related reason for traveling to this location.

No double-dipping

It’s important to note that if you claim mileage, you can’t double dip by also writing off expenses such as fuel and repairs. You can use the standard mileage rate but must opt to use it in the first year the car is available for business use. Then, in later years, you can choose either the standard mileage rate or actual expenses.

Also, if you use a vehicle for at least 50% business use, you may qualify for the Section 179 expense or bonus depreciation. This is something your CPA business advisor can help you determine.

Now, on to the question I hear a lot this time of year…

Should you lease a vehicle through your business?

There are a few important considerations to weigh before doing this.

First, if you want to lease a car under the business name, it may be harder to qualify for a loan or lease with a new business. Banks will want at least three months of bank statements and financial statements.

Also, if you lease a vehicle for use in business, whether you lease it personally or under your business name, you may not deduct both lease costs and the standard mileage rate.

You may either:

• Deduct the standard mileage rate for the business miles driven. If you choose this method, you must use the standard mileage rate method for the entire lease period (including renewals).
• Claim actual expenses, which would include lease payments. If you choose this method, only the business-related portion of the lease payment is deductible. Eligible expenses include your gas, oil, tires, tune-ups, registration fees, and insurance. Keep track of those receipts. And, remember, if the business use of your vehicle is 30% (for example), only that percentage of expenses is allowed as deductible.
• If you drive the car for personal trips, you can’t deduct the entirety of your leased car’s costs. Of the total miles driven during the year, find the percentage of the total miles driven for work, excluding commuting.

Finally, just like the purchase of a vehicle, if you use a vehicle for at least 50% business activities, you may qualify for a Section 179 expense or bonus depreciation.

Need a partner with tax and financial expertise who can help you be proactive financially and tax efficient? Owning a business can feel overwhelming. Business owners deserve to reach their full potential without feeling limited by what they don’t know.

Call us today for a complimentary consultation at (404) 668-4713, and we’ll help you get 2022 wrapped up and 2023 off to a great start.