For the accountants out there

[Nmills4]

So, I am a 24 and just purchased a new 2009 A4.

I am buying the car and selling the car that I have now. I am considered a "statutory employee" from work as I work for a firm, yet am a business owner. I pay all my own expenses (phone, mail, rent, etc).

My question is this:

What is better from a tax/write-off standpoint? To have a larger down payment or take the money from selling my car, stick it in the bank and use it to pay the higher monthly payments?

Thanks in advance!

mods: sorry if this is in the wrong forum, please move as needed

[hoganalley]

well.....I'm not sure about the states, but up here you're only allowed so much for a car payment. They'll never allow a $1000 car payment to be deducted. I think the max is like $400. I would look into what that magic number is, and use the full amount for your car expense. It's a perfect balance that way........

[Blake P]

As a pure business expense, my understanding that it is more beneficial to lease than buy. You are allowed to fully deduct lease payments on passenger vehicles, but only allowed a minimal depreciation amount for purchased autos that is typically much less than if you had leased it.

[quattshot]

Hmm?
I dont think it matters whether you lease or finance. There both equally tax deductable.

[Blake P]

Hmm?
I dont think it matters whether you lease or finance. There both equally tax deductable.

My tax accountant advised me that it's equal over the long term (~5 yrs.), but business tax depreciation rules for passenger vehicles do not allow you to depreciate it using normal accelerated depreciation methods and it can typically be more beneficial, financially, to lease than buy.

[Nmills4]

Yea I keep hearing that leasing is better than buying (from a tax point of view) but the lease rates on the car were just astronomical.

[lox1985]

as long as you have a business to write off your expenses to I would lease. Not only can you write the payments off but also gas, depreciation and maintenance as a business expense. At least here you can.

[RLM]

LEASE! I had a buddy of mine write off his Dodge Viper lease for his pizza business..how much he was able to write off I don't know, but typically in a short term stand point, it is more beneficial to lease as far as tax write offs go.

[Blake P]

LEASE! I had a buddy of mine write off his Dodge Viper lease for his pizza business..how much he was able to write off I don't know, but typically in a short term stand point, it is more beneficial to lease as far as tax write offs go.

Talk about fast pizza delivery...!!!

[b6onboost]

A write off is simply a deduction from your taxable income. If you write off $1000 car payment, your taxable income decreases by $1000. Your tax rate is based on the bracket you are in, say the 25% bracket. So By writing off $1000 car payment you only save 25% of that, or $250, in taxes. Essentially the payment still costs you $750. I just felt like pointing that out since many people assume a 'write-off' means Uncle Same fully reimburses you for it, they don't, nothing is free.

Its hard to tell the optimal plan in this situation without knowing the downpayment amount, payment amount with or without the downpayment, interest rate, maximum deduction for business auto payments, ect.

[ZONAWILDCATS4]

Also figure that if you title the car (lease/buy) in the name of the business you will need a comercial auto insurance policy, not your typical personal auto insurance policy. Here in Illinois you can expect to pay twice the amount as a normal personal auto insurance policy to buy a car in the businesses name and obtain a commercial auto policy. Just a little FYI...

[jonan]

it depends on how much you drive. if you don't drive much lease, if you drive alot own. you have to do the math though, the IRS only allows you to write off 50.5 cents per mile and you have to keep detailed logs. you can only use one method though, and once you choose one you have to stick with it over the life of the vehicle.

[VMRWheels]

^^ Jonan pretty much hammered it down. But one thing. You can amortize your down payment over the # of months you get the car for. For example, if you put $3600 down for a 36 month lease, you can add another $100/mo into the monthly lease payment (be sure you substantiate this with written proof).

Also, down payments are not usually worth it, because if you wreck a leased car, sometimes its hard to get the down payment back. Security deposits on the other hand, may work, if say, Audi lowers the money factor.

Ok so back to the tax issue. Generally speaking, IRS lets you write off in two methods:

1. Miles driven for business purpose multiply by cents per mile. Driving Logs are required but you don't need to keep a detailed expense list. This means you cannot write off oil changes, tire changes, new windshield, car wash, gas, insurance payments, interest, etc. (I dont know if you can write off accident repairs). If you drive 10000 miles a year and its .50/mile, then you are at a $5000 deduction. If you drive 20000 miles a year for business, you can write off $10k.

2. Actual expense x percentage utilization in business.

( Lease payment + gas + insurance + maintenance + other stuff ) x (percentage use) = Amount of tax deduction. Not only do you need mileage log, you need to keep the expense logs too. If you drove 10k miles but spent $12000 a year on this car and your car was used in business 50% of the time, its a $6000 deduction.

You can choose whatever way you want to, and certain ways do allow for a higher deduction. In general, I've found that cars over $25000 (if its not a lease) is more beneficial for #2, and I also use this method to determine if its better to lease or buy. Its legal to choose the method that gives you most benefit, but you can't change it afterwards.

Also, once your car value goes over a certain amount, the tax guys might throw curveballs at you to say that you didn't need that kind of car to do a certain type of job... think... buying a bentley to deliver pizzas.

But let me end this by saying that I'm not an accountant and this isn't legal or accounting advice. With the presidential elections around the corner, I'm sure the laws will start changing like crazy come next year.

[MichaelCa]

An accountant’s job is never over and if you are looking for a new challenge and to get away from your current job, I suggest you try : http://www.big4.com/home.html. I don’t regret it and now my life is better than ever.

[Blake P]

An accountant’s job is never over and if you are looking for a new challenge and to get away from your current job, I suggest you try : http://www.big4.com/home.html. I don’t regret it and now my life is better than ever.

HA! You had it right when you said "an accountant's job is never over..." because the big 4 will work you to death if you let them. My life has been better than ever since the day I left.

[burner799]

I'm only an accounting student, but It depends on a lot of things. First and foremost, if this is a personal car that you are purchasing, but want to make look like a business purchase (and you actually give a crap about how your business looks on paper) you want to figure out if you have to account for it as a capital lease. if the lease term is 75% or more of the economic value of the vehicle and/or if the present value of the rent (including the borrowing rate) is at 90% or more of the fair market value of the vehicle........Anyways, there are a lot of things to take into consideration and personally, i don't look at a car as an investment. If you are trying to save money, don't finance a car. Drive what you have and invest your whole down payment....If you are trying to find a point somewhere in between....then that leaves a lot of room for discussion