The answer is clear: if you want to spend less money on transportation over the long run, buy a car rather than lease one.
So why do some family child care providers lease?
Leasing upfront costs are lower and leases have lower monthly payments than if you buy a car. This makes leasing attractive because it allows you to drive a more expensive car than you might otherwise be able to afford if you are buying.
I understand the lure of driving a fancy car; television ads make it sound like it’s un-American not to have one. These ads focus on how little you can pay each month to lease. However, you should not base your decision to buy or lease on the amount of the monthly payment. Instead, look to the actual cost of your car over time. In the long run, leasing will always cost more.
The fact that you can deduct the business portion of the cost of your car lease does not make leasing less expensive than buying. Spending more to get a larger business deduction will reduce your taxes but will leave you with less money in the end.
For example, if you spent $1,000 more each year to lease rather than own a car, and you were able to reduce your taxes by $300, you would still have $700 less than if you hadn’t spent the money in the first place. In other words, giving $1,000 to the car company so you can get $300 from the IRS doesn’t make financial sense.
So, when you see others driving fancy cars down the road, think to yourself that they probably are spending more than you. Use the money you saved by buying your car for more important things in life.
If you do decide to lease, you have the same choice in how to claim car expenses as if you bought a car; use the standard mileage rate or the actual expenses method.
See my article on How to Establish a Car Replacement Fund. See also this article for more details on buying vs. leasing. For more information on claiming car expenses, see my Family Child Care Record Keeping Guide.
Tom Copeland – www.tomcopelandblog.com