7 Factors to Consider in a Business Car Lease

Are you considering leasing a car for your business? Before you sign that lease, consider these factors affecting car lease price and taxes on the lease:

1. Residual Value. The total cost of the lease depends to a large degree on residual value - the value of the car at the end of the lease. The higher the residual value, the lower the price of the lease. Since the residual value represents depreciation, look at it this way: the smaller the depreciation, the less the lease costs. Residual value is calculated as a percentage of MSRP (manufacturer's suggested retail price), so be sure to ask the dealer about this figure.
   
   
2. Open vs. Closed Lease. An open lease contract may be better from a tax deduction standpoint than a closed lease, because in an open lease, you pay all the expenses, like mileage and ??, which are tax deductible. You don't have any of these expenses to deduct in a closed lease.
   
   
3. Lease Term. Shorter term leases are more costly than long-term leases, because the residual value goes down faster in the first 24 months (this makes sense, since any vehicle depreciates faster at the beginning than later in its life. Lease terms are usually for 24, 36, or 48 months. Look at the "bumper-to-bumper" warranty on the vehicle and don't extend the lease past this date.
   
   
4. Mileage. Before you go into a lease, you will need an estimated annual mileage for your use of the car. A typical lease might have a 12,000 mile annual limit, but if you think you will be running at more than 12,000 miles a year, it's worth it to pay extra for the additional mileage. Otherwise, you will have to pay for the additional mileage used at the end of the lease.
   
   
5. Sales taxes. You can't get out of paying state sales taxes on a lease, but if you can get the dealer to reduce the price of the lease, make sure the sales taxes are also reduced.
   
   
6. Fees and Payments. Dealers like to add on fees, like an acquisition fee (which is comparable to points on a mortgage). Try to negotiate these fees out; they are just extra dealer charges, often hidden. The dealer may also require an advance payment (sounds like a deposit or down payment, doesn't it?), which should be considered in the total payments and not be an extra payment.
   
   
7. Depreciation. The depreciation you can deduct on a car lease depends on the size and type of car.

Calculating Lease Costs
If you want to try calculating the lease cost on a vehicle, you can use this lease calculator from Bankrate.com. You will need to know:

• The MSRP
  
• The final negotiated price of the vehicle
  
• The down payment, if any
  
• The usage (sales)tax rate in your area
  
• The length of the lease
  
• The new car lending rate (also available on Bankrate.com)
  
• The car value at the end of the term (the residual value)

Finally, a reminder that "Everything is Negotiable, All the Time." Don't let a dealer tall you that you can't negotiate the terms of a lease; you certainly can. You can negotiate the type of lease (open vs. closed) and the estimated annual mileage built into the lease, as well as the fees charged on the lease. In these tough times for car dealers, take the buyer's advantage and get yourself a good deal on a car lease.