Leasing a car for business purposes

[Coffee Crisp]

Hi RS, long time lurker and first time poster.

I'm planning on starting a import/export business within the next 2 months and I'd like to lease a new car in about a years time. I've been hearing about how if you run a business, it's always better to lease cause of write-offs. And what dictates what kind of car you're able to lease for your business? I know RE agents need fancy 80k+ cars to impress their clients, so they're able to lease real high-end cars.

I would need a car to go from point A to point B to pick the product/supplies up and would probably need to meet potential clients that would like to buy my product. I was thinking about leasing a basic 3 series, a 328i to be precise(I know it's not a necessity but I was planning on purchasing a BMW outright anyways and just found out if I'm starting my business, I might as well lease it with a 62% residual + write-offs)

How would I be able to get approved by Financials, be it a Honda or BMW? I'm not sure if my company can generate enough profit within the first year to be approved but I would need a car. I think most businesses start generating profit after year 2+.

Would I be able to get my parents to essentially lease the car for me and I can still write it off as a business expense(I would still be paying it out of my own pocket each month) and just to add I'm not powered by Mom and Dad but I wish I was!

Is there anything else I should be aware of if I'm leasing a car through my own company? I'm planning on writing off 50% of my lease as a business expense, It's probably around 45% for business and 55% for other uses, how often and how strict are they about that policy? Or is there anything I might've over-looked or missed?

I'm pretty new with all of this business and leasing stuff, if anyone has done it before I'd love to hear some tips or advice.

Thanks RS!

[tiger_handheld]

You can have your parents co-sign the lease and your company can make the payments. I doubt BMW finance will lease you a car without half decent financials.

You should also note that you will get dinged an auto benefit on your T4 during tax time. There is a formula to calculate, but I will not go into that. Before you lease, it's better to run the numbers and see if it's worth it to buy the car on your own (because you will use it for 55% other crap and 45% business). The business percentage will have to be proven using mileage records.

Most people think, "woot lets lease a 2012 bmw and write it off" once you consider the depreciation, monthly cash outlay (especially for new biz), maintenance, personal tax issues they realize it's cheaper to buy out a honda civic with a auto loan from the biz

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[i-VTEC]

When it comes to high end cars, lease is always a good opinion as you don't have to worry about future unexpected hi-cost of maintenance.

If you are just driving for transporting goods, then any SUV would be good

However, if you are also planning to meet clients, business meeting etc, then considered at least X5

If your goods is not vary large in size and you are meeting with clients, then 3 series is good

According to you, "I know it's not a necessity but I was planning on purchasing a BMW outright", I guess you have a large sum of money to spend on a vehicle. Rather than purchasing a BMW outright, why not go for a Acura (Way better than Honda and Represent yourself as a businessman better), the maintenance won't be as much as BMW while you get a decent luxury car like Acura TL/TSX(Sedan) or RDX(SUV)

[saiko]

He's not asking about what car is suitable for him and his business. He is inquiring about the process, pros and cons, and an approximate approval rate.

[Geoc]

As much as tax write-offs can help, it will only help when you actually do have taxes to pay(i.e. actually make money). Jumping ahead to a BMW without actually having established a business and establish client list is risky and pointless.

More than half of new small businesses fail within the first few years, and that BMW could mean an extra 10k+ of debt, so watch out.

[Jgresch]

Originally Posted by Geoc

As much as tax write-offs can help, it will only help when you actually do have taxes to pay(i.e. actually make money). Jumping ahead to a BMW without actually having established a business and establish client list is risky and pointless.

More than half of new small businesses fail within the first few years, and that BMW could mean an extra 10k+ of debt, so watch out.

Not only this, but your business needs to be established and making money for the leasing company to allow you to elase under the businesses name. If I open a lemonade stand and claim my income at $500/year, I cannot lease a car through this company. Unless the company is gauranteed.

[godwin]

If you are new to leasing and stuff.. talk to your financial advisor FIRST.. before coming to a car enthusiasts forum for advice.

[Death2Theft]

Bmw's are probally easier to lease than hondas, thats why u see so many people that have no business driving them.

[bing]

BMW financial require some proof of a minimum yearly salary or household income (or if you own major assets) to approve you for the lease or finance.

[Hehe]

When I see anyone selling me their service/good driving a fancy car, the first I think is:

How much money is this SOB making on me to get a car like this?

And then I always bargain the shit out of them... so, I think just lease an Acura or something in the higher end of a non-luxury brand. You need to look presentable and professional, not flashy.

[melloman]

Agree with Hehe.. when I see realtors with fancy BMW's and Mercedes... I look at them and think to myself.. Damn 7% commission must do them well, or they are in such debt its not funny.

A structural engineer I work with has a 90's Jeep Cherokee, and a 2011 BMW X5.. he drives the Cherokee for work because he doesn't want to give off that exact impression of.... I'm making a ton of money off you.

[Gridlock]

There is something to be said for impressions. I think a small portion of people would be questioning "how much money you make off me" but a great deal more will buy into the idea that "he's successful at what he does".

At work in certain fields, everyone does it. I used to buy fairly expensive work clothes. Why? When I walked into a meeting, I wanted people to say, "this guy knows what he's talking about"

My favorite though was when I had a client that was a real estate agent. In 2009 when anyone at all related to housing was holding our breath waiting for people to spend money again he was still driving his expensive SUV...but he was selling stuff on craigslist to pay for it.

But to the outside world, he was still on top of his game.

Once you step out of employment into any form of self-employment, your entire mindset changes regarding decisions you make. How are people perceiving me? And how can I alter that perception for a better result.

[UFO]

Originally Posted by Geoc

As much as tax write-offs can help, it will only help when you actually do have taxes to pay(i.e. actually make money). Jumping ahead to a BMW without actually having established a business and establish client list is risky and pointless.

More than half of new small businesses fail within the first few years, and that BMW could mean an extra 10k+ of debt, so watch out.

The OP's case is different though. He's planning on buying the car anyways for his personal needs, and trying to make it fit his business needs. He is just looking to take advantage of any tax benefits that may be available to this situation.

[godwin]

They are very strict about that, not to mention they won't just ask you about the mileage but do an audit on everything, which you have to spend time and effort to satisfy them (while paying your accountant), when you can be doing some real work making money. I did this mix pleasure and work thing once, after that I just have a work lease car.

As I have said before.. talk to your financial person before you even think about doing something like that. My suggestion is hire a tax lawyer after your first year and pay him/her to write you his opinion on how you can reduce taxes and how to lease a car.. that way if anything goes wrong, his insurance will pay for the BS.

Originally Posted by Coffee Crisp

Is there anything else I should be aware of if I'm leasing a car through my own company? I'm planning on writing off 50% of my lease as a business expense, It's probably around 45% for business and 55% for other uses, how often and how strict are they about that policy? Or is there anything I might've over-looked or missed?

[tiger_handheld]

Originally Posted by godwin

They are very strict about that, not to mention they won't just ask you about the mileage but do an audit on everything, which you have to spend time and effort to satisfy them (while paying your accountant), when you can be doing some real work making money. I did this mix pleasure and work thing once, after that I just have a work lease car.

As I have said before.. talk to your financial person before you even think about doing something like that. My suggestion is hire a tax lawyer after your first year and pay him/her to write you his opinion on how you can reduce taxes and how to lease a car.. that way if anything goes wrong, his insurance will pay for the BS.

Forget the tax lawyer. Find yourself a half decent accountant who knows wtf they talking about. Or you can just dig around the cra site - wealth of information there. Remember you are a start up - saving cash should be priority #1.

[godwin]

That's the thing, if your accountant screws up, you are still on the hook. If your tax lawyer screws up, it is the tax lawyer's insurance that is on the hook. While the hassle is still there, but all the accountant / PAs' time are all covered.

Originally Posted by tiger_handheld

Forget the tax lawyer. Find yourself a half decent accountant who knows wtf they talking about. Or you can just dig around the cra site - wealth of information there. Remember you are a start up - saving cash should be priority #1.

[Geoc]

Originally Posted by UFO

The OP's case is different though. He's planning on buying the car anyways for his personal needs, and trying to make it fit his business needs. He is just looking to take advantage of any tax benefits that may be available to this situation.

How so? I don't understand why people think they need a expensive car to start a business (unless you are opening a hotel or limo service or pulling off a scam). It's not needed. It's only when you are established and having should you start to consider stepping up to a better vehicle.

People need to stop thinking personal image is everything, having a BMW and a fancy suit is not going to hide your complete utter lack of ability/experience in a field. Prove yourself, build some trust with clients before you start spending large amount of money on trivial things. In fact, when you screw up, it'd only make you look like a bigger wash up.

In short, sell your own ability, not what you are driving. Don't bite off more than you can chew.

[PJ]

Originally Posted by Geoc

How so? I don't understand why people think they need a expensive car to start a business (unless you are opening a hotel or limo service or pulling off a scam). It's not needed. It's only when you are established and having should you start to consider stepping up to a better vehicle.

People need to stop thinking personal image is everything, having a BMW and a fancy suit is not going to hide your complete utter lack of ability/experience in a field. Prove yourself, build some trust with clients before you start spending large amount of money on trivial things. In fact, when you screw up, it'd only make you look like a bigger wash up.

In short, sell your own ability, not what you are driving. Don't bite off more than you can chew.

Originally Posted by Gridlock

At work in certain fields, everyone does it. I used to buy fairly expensive work clothes. Why? When I walked into a meeting, I wanted people to say, "this guy knows what he's talking about"

In self-employment, it's always a combination of both image and skills/experience. But more often than not, Gridlock is correct.

Essentially, if you were meeting a couple people for business meetings, both candidates have identical track records, merits, and so on. Who would you take more seriously? The guy suited up in the BMW? or the guy in t-shirt, jeans, and an old Civic? For simplicity's sake, yes they're extremes.. but the principle stands.

Yes, it could all just be for show, and the "flashy" person may just be hiding behind debt. There's lots to consider here. You could argue that the he cares enough to be well-presented, or understands that it's sometimes a matter of self-marketing, maybe he really is more successful, and so on. Depending on your business, it's sometimes essential to dress the part as well. And more often than not, the better perceived person takes the cake.

Now to OP's situation. Yes, talk to your accountant. CRA will be up your ass about vehicle deductions. You want to keep your start-up costs low, but you want to be taken seriously as well. If you can truly afford it, then by all means.. But for the time being, I think you're better off getting a used TL or something.

[UFO]

Originally Posted by Geoc

How so? I don't understand why people think they need a expensive car to start a business (unless you are opening a hotel or limo service or pulling off a scam). It's not needed. It's only when you are established and having should you start to consider stepping up to a better vehicle.

I think you are reading more into it than is really there. OP is planning to get the Bimmer anyways, with or without his business. Just wants to see if he can get a better deal on it by using his business to write off lease payments. He doesn't NEED it as part of his business.

Originally Posted by Coffee Crisp

I was thinking about leasing a basic 3 series, a 328i to be precise(I know it's not a necessity but I was planning on purchasing a BMW outright anyways and just found out if I'm starting my business, I might as well lease it with a 62% residual + write-offs)

[no_clue]

You can only write off $800 of a lease.

CRA audit is scary, don't risk it. Lease a car that is appropriate to your business, especially if your revenues are less than $100,000. Huge expenses are a red flag.

Imagine trying to explain leasing a BMW M5 when you own a dollar store (although some dollar stores are extremely profitable).

[Hehe]

IMHO, if you are going to keep a car that you will use partly between personal and business, keep a good record on your business activities along with proof of those activities (appointment mails, restaurant bills... etc)

When I was running a start-up with my friend, we had CRA audit on our lease as well. We showed them our records, the CRA dude was done in less than 2 hours and never had any problem with CRA ever again.

[Geoc]

Originally Posted by UFO

I think you are reading more into it than is really there. OP is planning to get the Bimmer anyways, with or without his business. Just wants to see if he can get a better deal on it by using his business to write off lease payments. He doesn't NEED it as part of his business.

In that case, then it makes sense.

Originally Posted by PJ

Essentially, if you were meeting a couple people for business meetings, both candidates have identical track records, merits, and so on. Who would you take more seriously? The guy suited up in the BMW? or the guy in t-shirt, jeans, and an old Civic? For simplicity's sake, yes they're extremes.. but the principle stands.

You're completely jumping the gun here. The guy is planning to start a business, he's not working for Goldman Sachs and trying to win over clients. If this was the case, he might as well start renting out a whole office building and hire large amount of employees since it would make is company look much nicer compared to competitors.

What you drive is not a be all and end all to your image, and changing a car to improve your image is not like buying a nicer tie, it's a 40k+ expense.

[Coffee Crisp]

Originally Posted by UFO

The OP's case is different though.$ He's planning on buying the car anyways for his personal needs, and trying to make it fit his business needs.$ He is just looking to take advantage of any tax benefits that may be available to this situation.

Bang on!

Originally Posted by godwin

They are very strict about that, not to mention they won't just ask you about the mileage but do an audit on everything, which you have to spend time and effort to satisfy them (while paying your accountant), when you can be doing some real work making money. I did this mix pleasure and work thing once, after that I just have a work lease car.

As I have said before.. talk to your financial person before you even think about doing something like that. My suggestion is hire a tax lawyer after your first year and pay him/her to write you his opinion on how you can reduce taxes and how to lease a car.. that way if anything goes wrong, his insurance will pay for the BS.

Good advice, how much do tax lawyers charge approximately?

Originally Posted by Geoc

How so? I don't understand why people think they need a expensive car to start a business (unless you are opening a hotel or limo service or pulling off a scam). It's not needed. It's only when you are established and having should you start to consider stepping up to a better vehicle.

People need to stop thinking personal image is everything, having a BMW and a fancy suit is not going to hide your complete utter lack of ability/experience in a field. Prove yourself, build some trust with clients before you start spending large amount of money on trivial things. In fact, when you screw up, it'd only make you look like a bigger wash up.

In short, sell your own ability, not what you are driving. Don't bite off more than you can chew.

Thanks for the advice, I'm not purchasing it to show off to my clients or show them how successful I am. Just need a normal luxurious car, an Acura TL or G37 would probably fit my needs too but I've grown up with BMW's in the family and would prefer them over other luxury brands(just my opinion). I'm just looking for the best "deal" as UFO stated to fit my business needs. They're a perfect blend of luxury, safety and sporty(we are on a car forum)

Originally Posted by UFO

I think you are reading more into it than is really there.$ OP is planning to get the Bimmer anyways, with or without his business.$ Just wants to see if he can get a better deal on it by using his business to write off lease payments.$ He doesn't NEED it as part of his business.

UFO has it pretty bang on. Just looking for the best deal or cheapest way to get into a BMW. I'm planning on purchasing a BMW next year anyways, regardless if I was starting a business or not. My friend told me about business write-offs, so I thought I'd look into it, just seeing if I can get a better deal leasing for 3-4 years with business write off + 62% residual value vs. purchasing the car out right and selling it after 4 years or so when the warranty runs out.

Originally Posted by Hehe

IMHO, if you are going to keep a car that you will use partly between personal and business, keep a good record on your business activities along with proof of those activities (appointment mails, restaurant bills... etc)

When I was running a start-up with my friend, we had CRA audit on our lease as well. We showed them our records, the CRA dude was done in less than 2 hours and never had any problem with CRA ever again.

Noted, although can't someone get one of his friends to email him and tell him to meet in Langley/Chilliwack and pretend hes some sort of client(mileage)? Just to be clear, I'm not going to send in false claims to the CRA or lie since my dad's company had some troubles with the CRA in the past, so I know how much of a hassle they can be. But if someone wanted to, it'd be easy, wouldn't it? Unless they camp and follow you around 24/7?
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[Hehe]

Originally Posted by Coffee Crisp

Noted, although can't someone get one of his friends to email him and tell him to meet in Langley/Chilliwack and pretend hes some sort of client(mileage)? Just to be clear, I'm not going to send in false claims to the CRA or lie since my dad's company had some troubles with the CRA in the past, so I know how much of a hassle they can be. But if someone wanted to, it'd be easy, wouldn't it? Unless they camp and follow you around 24/7?
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The thing is, you might get away once or twice. But running the risk of being charged with tax evasion and forgery for what? $20 worth of write off?

IMHO, it's about tax minimization; only pay what you legally have to pay. Not a cent more, not a cent less. Any work beyond what you really have to pay, it's not worth the trouble.

As my dad says, "if I have to pay tax, it means I am making money." Of course, he's fortunate enough to have the level of income that a group of accountants are looking after for him because he's the major shareholder of his company. But the ideology is the same. Don't be afraid of taxes when you don't have the income yet. And when the time comes, you won't think twice about hiring a good pro to look after this issue.

Thus, my recommendation is, if you really want to maximize your tax reduction, lease a car dedicated for your business. You have less trouble with CRA down the road as long as your business justifies the lease of the vehicle. Otherwise, just have a personal vehicle, and check with your accountant how your company can pay you for the use of the vehicle, mileage... etc.

[godwin]

It is usually $300/ hour and up. He/She will want to have as much information as how you operate.. they review it and make suggestions.. then a written opinion is usually extra.. you can haggle!

Always pick the accountant / lawyer that had worked in the office where your return will be dealt with. Things usually get easier on the CRA side, if they know the accountant or had work with them.. not some greenhorn who just got his/her degree from UBC.

Originally Posted by Coffee Crisp

Good advice, how much do tax lawyers charge approximately?
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