I read an article that said if you are self employed there is an advantage to leasing over buying a vehicle because more is deductible on schedule C. Would any of you care to weigh in on this statement?

I'm not a tax accountant, but I would think it would depend on your particular situation and personal philosophy. I would think that mileage would ALWAYS be the largest tax deduction. I'm probably not the best person to respond though as 1, I would never use a new car for something that puts as many miles on it as mystery shopping does, 2, I would never buy a new car anyway unless I was just loaded (as in millions upon millions loaded), and 3, I don't do debt except for my mortgage and my next house won't have one of those.

^^ I'm with the above poster. With a lease, there is a limit on how much mileage you get per year and if you go over, the penalties are REALLY steep. I have a 2001 Corolla that I bought used for cash 7 years ago. Runs like a charm and
1) no debt
2) it gets 40 mpg's
3) lower insurance costs for an older, more basic car (leases will often require you to carry more insurance than the bare minimum
4) It's got 105k miles and my mechanic assures me it will easily make it to 200k miles.
5) At the end of the day, I have an asset that I own & can sell for cold, hard cash, if need be. With a lease, you pay all this money and it's not yours in the end.

Here's an interesting article about leasing vs buying:

[www.nytimes.com]

The problem with leasing and mystery shopping is that if you go over a set amount of miles the penalties are high. With the amount of miles I do it just wouldn't be worth it.

It's going to depend entirely on your complete tax situation, whether you have a loan if you buy, how many miles you drive, what the car is worth, if you're trading in your old car (complicates the depreciation component), all sorts of things go into the computation. Best to discuss it with the tax person who is familiar with your situation.

If you are trying to maximize your deductions for the current year, buying gives you more options to do that, but you will have smaller deductions in future years. If you want to minimize your deductions for the current year, to save some of it for future years when your income is higher, leasing will help defer some of those deductions.

That's why you need to consider all your income and your entire tax situation before choosing a method. It's not always the best strategy to write off as much as you can as fast as you can if doing so creates a loss. A deduction against self-employment income will reduce how much income the 15.4% SE tax applies to. But if you create a loss, you don't get that 15.4% as a refund. So it's better to break even and carry the expense forward by careful consideration of depreciation options. If taking the deduction this year saves you $100 but taking it next year would save you $500 -- well, which would you rather have?

Talk to a professional.

Even when you go over miles on a lease (as I routinely do), you can avoid penalties by trading it in for a new lease vehicle before the end of the lease term. Great incentives are often offered.

How is never owning a car a better deal than getting a car paid off and having no lease/car payments at all?

What if you wanted to do tire rotations and oil change shops? Could you still do those kinds of shops on a rental car?

I usually drive beaters. I did just buy a van to save on hotel expenses as I am travelling more now and I can car camp in the van for a few nights. I am financing it but will have the 3 year loan paid off in just over 8 months. Then it is all mine. I did go to a dealer that guarantees the engine for life and gives free oil changes for life as well (required to get the engine warranty). I let them know they would see me a lot. First oil change was in 5 weeks...

On a lease vehicle, you are responsible for the routine maintenance.

I suspect doing an oil change or tire rotation on a rental car would violate the rental contract, although I'm not certain about that.


Reporter Wrote:
-------------------------------------------------------
> What if you wanted to do tire rotations and oil
> change shops? Could you still do those kinds of
> shops on a rental car?

I've been self employed for 25-plus years, and have always taken the mileage deduction rather than actual expense deduction, on advice of my tax accountant. He tells me the standards for being able to take actual expenses are higher than taking directly related business mileage. I don't know the ins and outs, but you have to be able to prove that the vehicle is used for business purposes the vast majority of the time. I have to record mileage on the odometer on January 1 of every year, then on Dec. 31, and keep track of the miles I drive for business purposes. I can deduct for 100 percent of those miles, even if they're not the majority of the miles driven. Even if I could take actual expenses, I think mileage would work in my favor. One year I could have taken either, and my tax guy said it was better to take the mileage anyway (I think because he said once I started taking actual expenses, I'd have to keep doing so in subsequent years--but I can't really remember; it was a long time ago).



Edited 1 time(s). Last edit at 09/30/2013 11:44AM by BirdyC.

BirdyC,
You may want to shop for a new tax advisor. The ONLY time that you can select which method you use for car expenses on taxes is the first year that you place the vehicle into service for business purposes. That election then commits you for the life of that vehicle to that method. Please see the IRS publicatuion on line for easy confirmation of this.

Second, if not using the "per mile" method, you do not need to prove that you use the vehicle for business "the vast majority" of the time. All you do is note ALL mileage each day and then apply the percentage of total miles for the year that was for business to total allowable actual costs (fuel, repairs, tires, deprecition. etc.) You can also just use a tax prep program, which will walk you very easily through either the two options (or both is you are placing a vehicle in business ervice for the first time and want to decide which system you want to commit to). Since you have to trck miles anyway for the other way, it really is little different, except that you will need to keep records of car expenses. (Your credit car records will be acceptable proof for IRS purposes, BTW.)

You may also want to consult the excellent advice and links to IRS publications in the Taxes thread in the New Shoppers area of the forums.

malesmaven, the year in which I could have elected either method WAS the year in which I placed a new vehicle into service; thus I believe my tax guy's advice was correct. You assumed I was talking about "changing" methods with the same car; I was not. I have had the same car now for more than six years, so there has been no "choice" to make, since I elected to use mileage instead of expenses in that first year. I know you have to choose which method you use when you change cars and then stick to it....

Also, it does seem I was indeed mistaken when I assumed that you need to, when taking expenses instead of mileage, prove the vehicle is used for business the majority of the time. When my tax guy figured out the math, he said for me to take mileage since the amount of expenses I could take was so limited, because most of my mileage is NOT for business. The way he put it led me to assume (mistakenly) was that I "couldn't" use the expense method. Apparently the deal was I could but I "shouldn't," to get the best tax benefit.

The "standard" seems to be, based on your explanation, what one's expenses are in proportion to the percentage the vehicle is used for business, not what the overall percentage is that you use the vehicle for business. Is that correct?

So, what it now sounds like to me is that it's not mandatory to use your vehicle primarily for business in order to take expenses, but you have to have enough in actual expenses for the percentage amount to be higher than the mileage deduction in order to really benefit.

Birdy, your last paragraph is absolutely correct; i.e., that it depends on your circumstances and expanses which method is best for you.

I did not mean to leap to a conclusion about the advice that you had a choice. I was, however, concerned that both you, and shoppers who are not accustomed to doing Schedule C and making business tax elections, understand very clearly that the choice is not an annual one. The costs of getting that wrong could be high, in penalties and interest. I'm glad that you clarified. We have had quite a number of shoppers post who were clearly getting very bad tax advice (from accountants) and I am glad to see that you are not one of them.

You CAN switch methods (unless you lease) -- but you have to account for the "depreciation" component of the standard mileage deduction that you have taken and adjust the basis of the car for depreciation purposes if you switch to actual expenses, and there are restrictions on the depreciation method you can use. If you took actual expenses the first year, you can only switch to standard mileage IF you took only "straight line" depreciation when you were taking actual expenses.

From the IRS website: "Choosing the standard mileage rate. If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use either the standard mileage rate or actual expenses.

If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that is after 1997.

You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. You cannot revoke the choice. However, in later years, you can switch from the standard mileage rate to the actual expenses method. If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation."

Also: "Standard mileage rate not allowed. You cannot use the standard mileage rate if you:
Use five or more cars at the same time (such as in fleet operations),

Claimed a depreciation deduction for the car using any method other than straight line, for example, MACRS (as discussed later under Depreciation Deduction), ***********note, you would only have take depreciation if you were using the "actual expenses" method ************

Claimed a section 179 deduction (discussed later) on the car,

Claimed the special depreciation allowance on the car,

Claimed actual car expenses after 1997 for a car you leased, "


Talk to someone who knows what they are talking about; there is a wealth of misinformation on that Tax thread in the new shopper area. Some of the information given early in the thread is changed by the author later on; if you don't read through the entire thread you won't see where that happens.

Tax laws change frequently; most of the information in that thread was not posted recently.

It's far better to talk to a professional or consult the IRS website directly. This is one of those "your mileage may vary" (no pun intended) situations. What is appropriate for one tax payer may NOT be the best approach for another. A person who is single, no children, and no other source of income than mystery shopping is NOT in the same situation as one who is married, has a spouse with income, has children, and who also has a part time job as an employee. The strategy for writing off business mileage to optimize the tax result may not be the same between two people if their situations differ. Even whether you own a home and are paying a mortgage may change the strategy regarding business deductions, home office deductions, and lease versus buy strategies. Your total income will affect how much depreciation you can write off.

Please don't take the one-size-fits-all advice given in this forum, except the advice that suggests you do your own research and talk to your own tax professional.

Definitely, anyone who is self employed in any capacity and files a Schedule C needs to consult a real, live tax professional.

I would never even think of doing my own taxes, especially since I usually have more than one source of self-employment income and more than one Schedule C to file.

And I also wouldn't rely on the IRS instructions, either, because they're not always without confusion. Someone who's a professional understands what means what! (Or, most of them do.)

And get a pro who is willing to work numbers both ways for you and who won't "assume" what's better for you. The way one depreciates equipment, takes vehicle mileage/expenses (as this thread demonstrates), whether or not you can deduct home-office space and expenses, whether you should file married filing jointly or married filing singly, etc., should be worked out for you so you know you're getting the most out of your SE income! My guy always figures things out more than one way for us and charges us such a low fee I sometimes feel guilty! Of course, since I hand him everything on spreadsheets and totalled, it's not too hard for him to do all this (he's thankful for that, too!). But, even though I "have" all the numbers, I'm not qualified to know what the best way is to arrange them. Especially equipment depreciation--I just let him figure that out, and I don't care to know anything....



Edited 1 time(s). Last edit at 10/01/2013 12:07AM by BirdyC.