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Aug 3, 2008 10:04 am

Looking at leasing or buying a Mercedes E350. Is this to over the top for my clients and gross production?  I'm indy here doing about $225k gross. One man show very little overhead.

Aug 3, 2008 10:24 am
ezmoney:

Looking at leasing or buying a Mercedes E350. Is this to over the top for my clients and gross production?  I'm indy here doing about $225k gross. One man show very little overhead.



I don't see anything wrong, but you better ask your clients and gross production.

Aug 3, 2008 12:59 pm

I'd be reluctant to share with clients that I leased a car, given what a crummy deal a lease is.

Aug 3, 2008 1:01 pm

you think a lease is a bad deal huh?

Aug 3, 2008 1:14 pm

I got a 2005 E320 CDI about a year ago.  I am really enjoying the car and the nearly 40mpg it gets.  I was a litte apprehensive about how clients would react, but they have all been very supportive and many telling me I deserved it! 

 
It is funny how owning a fancy car will make some clients think they pay you too much and others will want to work with you more because they will view you as more successful.
Aug 3, 2008 11:16 pm
Bodysurf:

I'd be reluctant to share with clients that I leased a car, given what a crummy deal a lease is.

Oh, really?  What if I own my own firm and a lease is tax deductible?  Trust me, I looked at all the angles and a lease works very well for the self employed, particularly when you consider luxury depreciation limits.  Apparently, the big three have recently come to the conclusion that leasing is generally bad business for THEM.  That speaks volumes to me.
 
Blanket statements like this only serve to make you look foolish later.
Aug 3, 2008 11:20 pm
ezmoney:

Looking at leasing or buying a Mercedes E350. Is this to over the top for my clients and gross production?  I'm indy here doing about $225k gross. One man show very little overhead.

 
The conservative side of me wonders about the timing of your lease when (1) your clients are seeing their balances slide and (2) your gross may suffer as a result.  Don't drive a POS, but you might consider moderation...at least until the economy cheers up a bit.
Aug 4, 2008 8:39 am
Indyone:
Bodysurf:

I'd be reluctant to share with clients that I leased a car, given what a crummy deal a lease is.

Oh, really?  What if I own my own firm and a lease is tax deductible?  Trust me, I looked at all the angles and a lease works very well for the self employed, particularly when you consider luxury depreciation limits.  Apparently, the big three have recently come to the conclusion that leasing is generally bad business for THEM.  That speaks volumes to me.
 
Blanket statements like this only serve to make you look foolish later.
 
Just curious, how do you justify expensing your auto lease?  I realize you are indy, so you can effectively try to "expense" whatever you want.  I just wonder how the IRA feels about it. 
Aug 4, 2008 8:44 am
ezmoney:

Looking at leasing or buying a Mercedes E350. Is this to over the top for my clients and gross production?  I'm indy here doing about $225k gross. One man show very little overhead.

 
Depends on your community.  I live on the shore.  There is wealth here.  But many of the very wealthy drive pickups and Chevy's (self-made millionaire business-owner types).  The only one's driving Mercedes and the like are lawyers and some of the "slicker" advisors.  I'm generalizing, but the fact is, many of the millionaires in my community would be turned off by it (they are business-savvy enough to know you probably earned it honestly, but might not like working with the "lavish" type).  A lot of them own marinas and boat shops and garages and "working-type" businesses.
 
Now, you go inland to some of the more urban locations, where the millionaires (or at least drive fancy cars like one) are businessmen and lawyers and managers, etc., plenty of people drive real nice cars.  So it depends on your area.
Aug 4, 2008 8:50 am

Indyone, You're a CPA also right? So what you're saying is a lease is the way to go for a business owner.  Do you have the math to substantiate this point. Thanks.

Aug 4, 2008 9:10 am

It's pretty simple.  You can deduct the % of the lease that is used for business purposes (say 50%).  There is a certain limitation for leases over a certain amount, but I am not sure what it is.  You can also deduct gas, insurance, maint, repairs, etc.  Take these amounts at your marginal tax bracket and see what you save.  Compare that to buying.  If your Mercedes costs $650/mo. to buy, and the after-tax cost to lease is $250/mo., it might be a no-brainer.  You also must factor in residual value (fairly high for Mercedes) on the ownership side (considering you could own it ouright or sell it), versus having to re-up your lease.  One more thing to consider is discounted cash flow on the payments (in other words, would you invest the difference each month).  Keep in mind, if you can justify writing off lease expenses, it means you can also justify writing off mileage (or actual expenses) for an "owned" car.  So factor that in as well.  With a Mercedes, Lexus, BM'er, etc. I would still have a hard time seeing the lease coming out on top (the residual value being so high), after all things considered, but it sounds like Indy has done the math. 

 
Indy, I have a degree and  background in accounting and finance, but I was not a CPA.  Correct my facts if they are wrong.
Aug 4, 2008 9:14 am
B24:
 
Just curious, how do you justify expensing your auto lease?  I realize you are indy, so you can effectively try to "expense" whatever you want.  I just wonder how the IRA feels about it. 
 
HMMM, my gut take on this is that the Irish Republican Army could care less about Indy's car lease.
 
 
Aug 4, 2008 9:33 am

The big three are dropping leasing, or curtailing it because of falling truck and SUV prices. Leases are calculated on a TVM basis with a profit kicker thrown in. It's impossible to calculate a lease unless all the values are known at the start. Right now one of those values, the vehicle's wholesale lease end value, is in flux and is unknown.  Thus the exit from the leasing biz. The big three will now throw that leasing money at incentives to stimulate conventional purchases.


Leasing of SUVs and trucks has become amoot point anyway. With sales already flagging demand for these vehicles, regardless of financing method, is very low. On top of the higher operating cost of these vehicles because of high fuel prices, with the drop in wholesale lease end values, leasing has become, or would have become, prohibatively too expensive.
 
At the same time the wholesale value of economy cars is climbing. This will ultimately lead to either lower lease prices or higher profits for car makers.
 
 
This is a win for those who already lease the vehicles in question. Those who leased three years ago and are now getting towards the end of their term now have no worries about the reduced value of their vehicle. It's not their problem.
Aug 4, 2008 11:00 am
ezmoney:

Indyone, You're a CPA also right? So what you're saying is a lease is the way to go for a business owner.  Do you have the math to substantiate this point. Thanks.

 
I'm not saying it is always the best for self-employed, but the tax code makes it make much more sense for a self-employed, and in my case, when I ran the numbers side by side for the same vehicle, it wasn't even close.  Chrysler's rate factor (I drive a 300 limited) seemed ridiculously low when compared to conventional financing (less than 3% in my estimation), but that was back in February when they really wanted to move cars and were still hot on leasing.  Because I have to make an almost daily bank run, the business use of my car is almost 100%.  I log personal miles separately and will put those on my W-2 at the end of the year at the IRS rate.  Everything, and I mean everything related to the car flows through the corp...gas, maintenance, insurance, lease payments (of course), even trips through the car wash.
 
If you know what the same vehicle costs to purchase outright and what conventional car loans cost, and residual values are, it's not hard to figure out what a lease is really costing you, and in my case, when I factored in tax savings, a $33,000 car costs me less than $300/month.  If you don't finance, it's still not hard to figure out your cost, based on the lease residual.  One more important point is that if you are prone to driving significantly more miles than your lease allows, it's generally not a good deal due to penalties unless you plan on purchasing the vehicle at the end of the lease.  Your CPA may have a different take on all of this, so as always, ask him/her befor you enter into a contract.
Aug 4, 2008 2:26 pm
BondGuy:
B24:
 
Just curious, how do you justify expensing your auto lease?  I realize you are indy, so you can effectively try to "expense" whatever you want.  I just wonder how the IRA feels about it. 
 
HMMM, my gut take on this is that the Irish Republican Army could care less about Indy's car lease.
 
 
 
 My Bad.
Aug 4, 2008 2:30 pm

I think another BIG factor is how long you want to have the car.  If you are OK keeping a car 10 years, then I don't think there is even a discussion.  Obviously, if you guys are leasing, you like to keep newer cars.  But if cost is the big factor, simply keeping a purchased car longer trumps all.

Aug 4, 2008 2:52 pm

true, but who wants to drive the same car for ten yrs? Man that's no fun if you have the jack to lease a different one every 3.

Aug 4, 2008 4:16 pm
Indyone:

I own my own firm and a lease is tax deductible.  Trust me, I looked at all the angles and a lease works very well for the self employed

 
I'm not in this business yet, so this may be completely wrong, but even if you pay cash for your vehicle and use it for business, isn't a portion of that tax deductible?
Aug 4, 2008 4:41 pm

Absolutely.  You can depreciate your vehicle, SUBJECT to luxury limits and and a useful life determined by the IRS.  How would you like the IRS saying your car is too nice so you can only depreciate a portion of $25,000, instead of the full $50,000 it costs?  Depreciation rules suck, so I just decided to avoid them altogether with a lease.

Aug 4, 2008 5:09 pm