The Internal Revenue Service provides relief for taxpayers who use a car for business purposes and don't receive reimbursement for their expenses. When analyzing the benefits and risks of leasing an auto for business or blended use, carefully examine how it will affect your tax bill. For the best results, research your historical costs, accurately track future expenses and consult a licensed tax professional to verify your conclusions.
Standard Mileage Deduction
Those who lease must choose between two types of deductions, according to the IRS. The first choice is the standard mileage deduction, which is based on the number of miles you drove for work but didn't get reimbursed for. IRS rules state that once you choose the standard mileage deduction, you must use it for the duration of the lease -- in other words, you can't use the mileage deduction for year one and switch to the second choice -- actual expenses -- for year two. For this reason, many who use their autos for work without company reimbursement often choose to deduct actual expenses. Consult the IRS or a tax professional for updated standard mileage deduction amounts.
Actual Expenses Deduction
The actual expenses deduction covers a variety of costs associated with leasing a car. Deductible expenses include your annual lease payment total, license fees, gas, maintenance costs, insurance, tires, parking fees and tolls. How much of these expenses you can deduct depends on how much you use your car for business. For example, if you drive your car 75 percent of the time for work, you can deduct 75 percent of these total costs. Also, the IRS will require you to take an inclusion against your expenses that makes the tax benefit of leasing similar to buying. How much the inclusion totals depends on the type of car you lease and when you leased it.
Making the Lease Work for You
Which plan works better for you -- and whether or not to lease vs. buy -- depends largely on how much you plan to drive and the type of car you want. Tax professional Hans Kasper recommends buying if you are planning to drive more than 15,000 miles per year because buyers can deduct the loan interest expenses in addition to mileage. However, enrolled agent Eva Rosenberg suggests leasing a car if your planned vehicle will cost in excess of $500 per month, because the IRS limits how much you can depreciate on a new vehicle.
If you're planning to take a tax write-off for your auto lease, don't wait until the last minute to keep important records. Scrupulously record how many miles you travel for business as well as how much you spent on gas while traveling. Save your receipts for repairs and maintenance costs as they occur for tires, oil changes, brake jobs and more. Parking fees and tolls are deductible, too. Remember, you may not deduct any expenses for which you were reimbursed. It's also wise to consult a tax professional, especially if you are self-employed, to learn the latest IRS rules.
Lisa Bigelow is an independent writer with prior professional experience in the finance and fitness industries. She also writes a well-regarded political commentary column published in Fairfield, New Haven and Westchester counties in the New York City metro area.