If you run a small business, you’re probably focused on saving money at all possible opportunities. It’s a basic stand you simply have to take. The economy is only now starting to dig itself out of the massive recession it has been in over the past several years, and most Americans just don’t have that much disposable income to play with these days. So if you’re selling a retail product or service, you can’t rely on the public spending more heavily than what you’re seeing right now. Since revenue probably won’t be on the rise anytime soon, your attention has to turn to cutting expenses. You can trim to your heart’s content from the monthly budget of the business, but the best way to save above and beyond that is through tax savings. And one of the best ways to do that is to take advantage of the many tax benefits of leasing a car for business.
There are several ways you can take this, but any claimed deductions will always relate to the way your business is using the vehicle. The most common situation is when you use your vehicle partially for business purposes, and partially for your personal use. This is the case for contractors and freelancers, especially if you generally work out of a home office. The basics are pretty standard. The amount of time you use your vehicle for business purposes can be deducted from your tax bill, and the remainder of time spent in personal use will fall on you.
There are some cases in which the vehicle is used entirely for running the business. This is often the case with livery services, or in construction if you have to buy a truck that only leaves the driveway when there is a job to do. In these cases, you can deduct 100% of the expenses around the vehicle from your corporate tax bill. Just remember that it all comes down to the paper trail. If you are ever audited, you are going to have to prove that the expenses you deducted were truly business expenses. That means you must keep receipts for absolutely everything. This includes your lease payments, any repairs you have to pay for, and even gas and tolls. But if you don’t have the receipts, you won’t be able to claim the expense.
You’ve got two basic ways to handle this during tax season. These are referred to as actual costs or standard mileage. If you choose the standard mileage rate, that means you are ignoring all of the general expenses and simply claiming the cost of every mile you drive. Check the standard rates, as they change every year. This rate builds in wear and tear, so all the expenses will fall under this simple equation. Just make sure you keep a detailed mileage log, with dates, starting and ending mileage counts, and the specific business reason for the trip.
If you go with the actual costs model, you will have to keep those receipts. And remember, it isn’t just the basic operating expenses of the vehicle. You can also include auto insurance, license renewal, registration fees and anything else you could possible imagine. Just remember that since you are leasing the vehicle you won’t be able to deduct depreciation expenses. Lease payments you can include, however.