When someone owns their own business, it could be a real benefit if they lease their personal vehicle to their company. This is a legitimate business expense. It is something that can be claimed on the company’s tax return. In this situation, the business owner will be acting as the lessor, and the company will be the lessee.
It’s important that a small business owner review the laws in their state concerning the leasing of vehicles for business purposes. There are states that require any person who leases vehicles for whatever reason to have a dealership license. This license is what would make it possible for a small business owner to lease their vehicle to their company. In most cases, obtaining such a license will require fees to be paid for administrative costs and more.
A small business owner who is considering leasing their personal vehicle to their company should consult a legal professional to create the lease contract. An attorney will know how a company owner can legally be the lessor and the company the lessee. This document will contain such things as lease terms, lease price, identify who is responsible for any damages, insurance requirements and more. In many cases, it’s possible for the lease contract to stipulate that a company can purchase the car at the end of the lease. The acquisition price and notification requirements will also need to be listed.
When a company leases a vehicle, it is allowed to deduct driving costs if they meet certain requirements. The vehicle must be in use for business purposes a minimum of 50 percent of the time. Proof must be provided for the amount of driving done for the business using the vehicle during the tax year. Only the percentage of time used for business can be deducted on taxes. The actual cost method must be used to calculate the driving deduction. These are the actual costs involved with using the vehicle such as registration fees, repairs, tire replacement, gas, oil and more. When a business leases a high-end vehicle, it may be subject to the inclusion amount, which could result in a decrease in the deduction.
Closed Or Open Lease
When considering the creation of a lease contract, it’s important to determine if a closed or open lease will work best. At the end of an open lease, the lessee will pay the difference between the estimated resale value of the vehicle and the actual resale value. Should the vehicle be driven over the amount of miles that have been estimated for it, the actual resale will be lower, and the lease will cost more. When a closed lease is over, the lessee will only have to pay for any extra mileage as well as any damages that are considered extraordinary.
The technology used with vehicles changes quickly. This is a good reason for a person to lease their vehicle to their company. It will enable them to create a short lease and make obtaining a newer and more advanced vehicle easier. Some vehicle technology that is a novelty during one lease period can quickly become a necessity when deciding the next vehicle to be used by the company.
It is perfectly legal for a business owner to lease their assets to their company. It’s a situation where the business will pay the lease, and the rental payment can be claimed for tax purposes. The company owner as the lessor will be able to deduct administrative costs, insurance, acquisition interest and more. A common legal approach for a company is to own as few assets as possible. This is especially important if a company is in a high-risk industry where lawsuits are common.