Business Vehicle Needs: Lease vs Buy

If you’ve ever brought up the topic of leasing versus buying a vehicle, you’ll probably get an earful. Plenty of strong opinions swirl around that debate. When you bring the discussion to the business world, things get even more conflicting.

Factors to account for in your quest for the perfect car are use, financing, and insurance. Have you looked into car insurance for business leases? Insurance for business vehicles is a hot topic among employees and employers alike. 

Read on for some clarity when it comes to acquiring your business vehicle. There is no single answer, and most of the factors depend on you.

Primary Use of Your Business Vehicle

Buying a vehicle for your business depends entirely on your intended use. Here are some straightforward questions to determine whether buying or leasing is best.

How many miles will you put on the vehicle per year?

This makes the debate pretty cut and dry. If you estimate driving your business vehicle more than 10,000 miles a year, you need to purchase your car. Most leases have a 10,000-15,000 mile limit on their vehicle.

How much wear and tear do you expect?

If you need your business vehicle for a construction site or service, it’s best to purchase it. Leases have strict policies that expect the car to be in excellent condition upon return. If you return a leased vehicle in less than optimal condition, you’ll pay a fee.

If you need to retrofit your vehicle to fit your business, you need to purchase your vehicle. There is little wiggle room for altering a leased car.

What image do you project for your business?

If, for example, you need a business vehicle for your sales business, you might be a great candidate for leasing. Likewise, a lease is an excellent choice if you need your company to leave a stellar first impression.

Leasing is your best choice if you plan on upgrading to the newest and latest cars every 2-3 years. The break-even for purchasing a vehicle is usually after 5 years.

Another advantage of leasing is sheer convenience. Your time might be better spent comparing cloud communications platforms than keeping track of routine car maintenance. Leasing takes care of maintenance for you.

Paying for Your Business Vehicle

Your business’s financial situation also bears consideration. Here are some points of comparison for the financial side of buying a business vehicle.

Owning a Business Vehicle

If you can purchase a used vehicle for cash for your business, you set yourself up for a strong start. By buying used, the most significant chunk of depreciation has already happened. Plus, by owning the vehicle outright, you have an actual asset with a cash value.

Financing your business vehicle can be stressful. Because you own the car, you are financially responsible for repairs, maintenance, and loan payments. You also may be required to put a significant amount of cash down to qualify for the best loan.

Leasing a Vehicle for Business

Leasing is an excellent financial option if your business has a limited amount of cash for money down. Leasing is also easier to calculate monthly costs because routine care and maintenance are included in the monthly payment. 

Tax Advantages for Leasing and Buying 

While talking to your tax advisor is imperative when you choose a business car, here are some talking points to help guide you. 

Purchasing and Depreciation

Many business owners opt to buy a new business vehicle shortly before the end of the year for tax purposes. You can use the depreciation value for a tax write-off.

In some scenarios, you can even write off the entire vehicle value on your taxes. Navigating this option is best with a tax professional’s guidance.

Deducting Lease Payments 

You can use your lease payments for a business tax write-off. Be prepared to prove the car is strictly for business use if you opt for this write-off. It helps to keep a detailed log of your business vehicle usage.

Standard Mileage Deduction

The standard mileage rate is the most common way to deduct a car from your taxes. Keep track of every mile you use the vehicle for business and the current rate for the deduction. Even if you drive the car for business exclusively, you will want a detailed log to prove it to the IRS.

Insuring Your Business Vehicle

The biggest debate in the business vehicle conversation is whether to insure your vehicle under a commercial auto policy or use your personal auto insurance. While you may face cheaper monthly premiums with personal insurance, you may end up paying more if you file a claim.

Commercial auto insurance can be almost double the monthly cost of a personal policy. But commercial auto insurance can cover multiple drivers, even when those drivers operate other vehicles for your business.

Insuring a Leased Business Vehicle 

Most leasing companies have strict requirements for the insurance you will buy for your leased vehicle. So yes, you have to provide your own insurance for the car even when you don’t own it. 

Leasing companies require you to carry comprehensive coverage. This is assuming you choose to insure as a personal vehicle and decide to file for business reimbursement. I

If you lease in the business’s name, you will carry commercial auto insurance, which is considerably more expensive. Commercial insurance is most important for industries like construction companies and other service companies where multiple people drive the same vehicle. 

Insuring an Owned Business Vehicle

A vehicle that is financed is often required to carry full coverage insurance and other stipulations by the lender. However, if you buy and insure your business vehicle as a personal car, you have the option to carry minimal insurance. 

Not carrying comprehensive insurance on a personal vehicle used for business is risky. You might be gambling that your business insurance will cover any accidents that happen on company time. But at least when you own the vehicle, you are in the position to make the decision yourself. 

During the whole process of taking on a business vehicle, ask questions from those that can help. Talk with an insurance agent about the pros and cons of insuring a business vehicle as a personal automobile. Discuss with an accountant which tax route is wisest to get the optimal write-off or reimbursement. 

At the end of the day, you are the one who gets to make the call. Leasing can provide good short-term outcomes and offer more stability in monthly costs. But buying a business vehicle is almost always the better financial choice in the long run.