Wheels

Aug 3, 2008 2:04 pm

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 2:24 pm

[quote=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.[/quote]

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

Aug 3, 2008 4:59 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 5:01 pm

you think a lease is a bad deal huh?

Aug 3, 2008 5:14 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 4, 2008 3:16 am
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 4, 2008 3:20 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.

  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 12:39 pm
Indyone:

[quote=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.[/quote]   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 12:44 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.

  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 12:50 pm

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 1:10 pm

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 1:14 pm

[quote=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.  [/quote]   HMMM, my gut take on this is that the Irish Republican Army could care less about Indy's car lease.    
Aug 4, 2008 1:33 pm

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 3:00 pm
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 6:26 pm

[quote=BondGuy][quote=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.  [/quote]   HMMM, my gut take on this is that the Irish Republican Army could care less about Indy's car lease.    [/quote]    My Bad.
Aug 4, 2008 6:30 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 6:52 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 8:16 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 8:41 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 9:09 pm

Aug 4, 2008 9:12 pm

I live under a bridge near the office.  No need for a nice leased car, just a short walk down the shoulder of the freeway.

Aug 4, 2008 10:09 pm
ezmoney:

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.

  Oh, I don't know.  There are several cars that I wouldn't mind driving for a long time   http://i48.photobucket.com/albums/f213/Lugnut67/49roadmaster.jpg Not mine but I wish.  
This one is mine that I'm restoring http://i48.photobucket.com/albums/f213/Lugnut67/blazer1.jpg   And this one WAS mine but I sold it  http://i48.photobucket.com/albums/f213/Lugnut67/fordside.jpg Kind of wish I still had it.    I'm off for the rest of the week...Going to Reno for Hot August Nights!!! 
Aug 11, 2008 11:11 pm

here’s the deal. I’m looking at a 2008  E350 Benz with 8k miles p1 pkg, sports pkg, blk ext and tan int. $43900. I think I can buy for 42900 with mfg warranty plus another 50k/5 yr certified warranty. I plan on buying it for 42500. good deal?

Aug 12, 2008 5:15 pm
ezmoney:

here’s the deal. I’m looking at a 2008 E350 Benz with 8k miles p1 pkg, sports pkg, blk ext and tan int. $43900. I think I can buy for 42900 with mfg warranty plus another 50k/5 yr certified warranty. I plan on buying it for 42500. good deal?



Check the PM I just sent you.
Aug 12, 2008 6:20 pm

[quote=Indyone]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.[/quote]

How about expensing the car expense via IRS mileage allowance… IF you lease a car for $400.00 you can only deduct up to 400 X 12= $4,800.00 a year.  If you drive substantial miles for business (at $0.485 per mile) you will make out alot better than leasing the car.  Depends on how much you drive…

Aug 12, 2008 6:28 pm

Leasing, you can also deduct actual expenses (repairs, maintenance, gas, etc.)

Aug 14, 2008 4:04 am

Rugby, when all expenses are considered, it's going to be a rare day when IRS standard mileage beats actual expenses (and BTW, your IRS rate is old).

Aug 14, 2008 1:01 pm

Indy-

Perhaps you are right with gas prices, etc.  I do see the new rate went up to just  .505.  Consider these (2) examples:

Car 1 (Lease)-  Leased car…$350.00 per month and drive 15.000 miles a year for business.  Car gets decent MPG (22).  You write off the lease payment , gas costs, maint. & repairs.  A new car should have very little maint. costs in the first 30 - 40k miles.  What is your write off?  Approx $7,000.00?  Allowing for gas, light maint. etc.

Car 2 (Purchase)-  Purchase a car (purchase outright or finance at 1.9% likes most of these automakers are doing).  Write off is approx.  $7,500.00. (15K business mies @ .505). 

Example 2 at least your payments are going towards owning the car.  You can still get a decent write off with standard IRS deduction, but do need to drive some business miles .    What about property tax deduction on lease versus buy?  Interested in your opinion on these scenarios…

Rugby

Aug 14, 2008 10:23 pm

#1, I’ll repeat an earlier assertion…leasing is much more appealing for a business owner over an employee.

  On current mileage rates:

2008 IRS Mileage Rate posts increase over 2007 rate of 48.5 cents

The 2008 IRS mileage rate for business use is:

50.5 cents per mile from January 1 through June 30 58.5 cents per mile from July 1 through December 31, 2008

The depreciation limits for OWNED (vs. leased) cars completely sucks.  See link:

http://www.finance.cch.com/text/c60s15d625.asp   Finally, on your write-off example on car one, you forgot insurance and license plate fees (which you later referenced).  Also, maintenance writeoffs are very broad.  I include detailing costs...pretty much anything to do with maintaining a car.  The last thing is, you're not going to get much of a car for $350/month, IMO.  At that level, buying may make more sense.  My lease payment is about $480 give or take (don't have the number in front of me).  After taxes, it costs me just a bit over $300/month, which in my mind, is a pretty cost-effective way to drive a brand new Chrysler 300, particularly when my fuel and other associated costs are also tax deductible.  There's no question in my mind that when I tally all costs, it's more than even 58.5 cents per mile driven for me.  Every situation is unique, and if I were driving 30,000 miles a year, the math would be considerably different.   For the record, I have never leased a personal (non-business) vehicle and I doubt if I ever do unless the math changes considerably.  A personal vehicle, driven a few business miles each year is not lease material IMO.
Aug 14, 2008 11:08 pm

Good posts Indy, as a CPA, I agree.

Aug 15, 2008 10:25 am

my cpa says there isn’t much difference between leasing and buying a 30k car from a tax standpoint. he takes about 70% depreciation on my car for business use.  he then treats my auto expenses (maintenance, gas, taxes, registration,etc) at 70% as an expense. he said if I buy a more expensive car, say 40k than it might matter a bit.

  He says if I were to lease one he would treat it the same way. is his thinking wrong?   Indy, you don't have a problem renting your car and having nothing to show for it in the end?
Aug 15, 2008 6:39 pm

ez,

Your CPA's thinking isn't wrong.  If you use the car 70% of the time for business, then that's what the write-off should be.  Almost no vehicle is 100% business, claiming that could be getting too greedy and send up a red flag for the IRS.   I think it's personal preferences when it comes to leasing or buyinig.  I would prefer to own rather than rent.
Aug 16, 2008 7:28 pm
"Indy, you don't have a problem renting your car and having nothing to show for it in the end?"   For what I'm paying with nothing down?  Nope.  This got me a fairly nice auto and I pocketed the sales proceeds of my former car and am can add to that while I'm leasing if I choose.  I don't owe a nickel on any of my vehicles other than my business lease and that includes (besides the 300) a convertible, a 4WD quad cab truck and two motorcycles.
Aug 17, 2008 7:03 pm

[quote=iceco1d]

  As far as the car goes...personally, I'd get the SLK350, or the SLK 55 AMG, over the E350; but that's just me.  [/quote]
I think he is a guy not a chick so the SLK is out lol!
Aug 17, 2008 7:10 pm

Hey, I like the SLK - as long as it’s silver or black. 

Aug 17, 2008 7:19 pm

[quote=skippy]Hey, I like the SLK - as long as it’s silver or black.  [/quote]
Small 2 door vert=chick car
Z3/Z4, Miata, SLK…etc etc

Where I am from Mercedes are as common as Chevy’s and SLK’s and Z4’s are mostly driven by Housewives…very odd to see a straight male driving one lol!

Aug 18, 2008 6:09 am

[quote=iceco1d]Yea…SLK 55 AMG is a chick car. 

  5.5L v8.  400+ whp.  19" Rims.  I think I'll get my wife one...[/quote]
AMG's are nice, juct can't get past the 2 door roadster thing. I certainly wouldn't get one for my wife...BTW my wife has a 700+ RWHP car, so she would think a 400 Hp car is for sissy's lol...
To each their own... CLK AMG...if anything, if you want a 2 door..if a Mercedes is your thing. Really I would go minimum of the E 63

Oh BTW the SLK AMG has 360 hp at the motor...so that is probably about 300 at the wheel...not 400 :)
Aug 20, 2008 8:19 am

indy,

  would you ever put down $$ for a lease, if so what is the top end?
Aug 25, 2008 5:42 pm

FYI, I bought the E350. WHat a great car!

Aug 27, 2008 8:34 pm

congrats ezmoney! now do some gross so you can pay for it

   
Sep 5, 2008 1:14 am

hell, my  american fund trails alone pay for that fine auto!