Commercial Leasing For Companies

Ask the Hackrs
1

Many people have/had questions or may have questions regarding commercial leases. (Leases owned, or co-signed by a Corporation, LLC, PC, etc…)

People that have experience in commercial leasing please chime in here. This will be a great resource for business owners, people looking to reduce their tax liability legally, transportation companies, uber/taxi companies or other commercial lease questions.

  1. Are corp leases readily available from captive finance or banks?
  2. What are the MF compared to consumer retail?
  3. Are their different fees, etc…
  4. Are you responsible for the residual difference?
  5. What are the tax benefits?
  6. What are the insurance implications?
  7. Can you co-sign for a corporate lease?
  8. Are you eligible for rebates, incentives, bonus tags, fleet discounts as a corp lease?
  9. Are mileage limits the same on corp leases (10k/12k/15k)
  10. Is there a limit to the amount of leases you can do vs. consumer leases? (for example GM allows 3 personal per 30 days).

Please post your questions and answers.

Think of the possibilities: an Uber/Lyft related company with 20 one-time pay Chevy Cruzes. A Marijuana Transportation company with one-time pay 50 Volts in California. A medical transportation company with 35 Chevy Equinoxes at $60/month with TTL due at signing. A fleet of Maybachs to drive around McDonalds Executives! Possibilities are endless.

2

ROFLMAO. LOL. 20 chars…

3

I wondered what happened to this :smile:

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1). Depends on the lender. When Ally was the captive for CDJR, they required a guarantor.

2). Residual doesn’t change - the vehicle is still worth X @ blank miles and years.

3). Negative for US BANK and Ally

4). N/A

5). That’s based on the structure of your business

6). You’d carry auto insurance through your business.

7). Often lenders ask for a guarantor.- you guarantee the lease with the company. It’s less common for established companies though.

8).Fleet deals are often dealer cash(ed). It’s just a bulk of cash available to discount the car

9). Yes on mileage - Ford for example has a 3 yr 100k lease commercially/

10).No clue on that

1 Like
5

Thank you. I’m sure that will help many

6

I signed a lease with Mercedes yesterday with both the lease and the car in my company’s name (company is an LLC). The only requirements were filling out an additional business application and providing a personal guarantee. The finance guy acted like this is a pretty common occurrence.

1 Like
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I’m sure it is for Mercedes

8

It is for CDJR as well. I have done them for grand Cherokees. I may have done 2 or 3 without the guarantee for companies that were 5 years old or greater that had decent financials and a corporate credit profile.

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9

Were the rates and incentives the same as consumer leases when you did those stand alone corporate leases ?

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No. Significantly worse, but those that did so were more concerned about the tax benefits I think.

11

How about the insurance? Is it a commercial insurance as well?

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Yes, the insurance is in the company’s name also. I compared prices between business coverage and personal coverage. Because I technically have three drivers in my household (me, wife and 18-year-old son), adding a third car to our personal coverage would have been ridiculously expensive. Putting the insurance through the business was much less expensive.

13

Perfect thanks for the response.

14

For BMW the rates are the same for business and personal accounts.

1 Like
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Don’t get me wrong, the insurance is expensive. In my case, it just worked out that getting a commercial policy was more economical than putting the car on my personal policy.

16

I;m a business owner. Here are my answers based on my experience.

  1. Yes.
  2. No difference, they usually make an owner a co-signer.
  3. No
  4. Yes, as I said, they usually make an owner a co-signer.
  5. The entire lease is an expense on your balance sheet. You also do not pay any property taxes on the car, if your state/county has them (which mine does)
  6. Same. You can use corporate insurance however, but this is not always cheaper.
  7. Yes, in fact they will probably require it.
  8. Yes.
  9. Yes
  10. Not that I am aware of. However, if you were going to lease a fleet (more than 3 cars), then you should be dealing with MB Fleet services. They may have different programs.

The process is largely the same. You must have an incorporated business (S-corp or LLC) And MBFS can request a copy of your P&L (although they rarely do) to prove you’re a legit business. I believe there are some anti-money laundering laws they have to conform to. If you have a C-corp, then things are weirder.

Also, you must have a motion from the board of directors authorizing the lease. If you’re a small biz, where the BOD is basically you, this is easy and MB will actually give you a form to do it. If you have a real BOD, then you must have a motion, signed by the secretary.

One thing you must do for tax purposes, is sign a “deal” with your own company to maintain the car. The IRS could (although rare) see the lease as mostly personal and disallow the expense deduction for the company and treat the car as income for you - which is bad. So, what you do is sign an agreement between the company and yourself (like an agreement with yourself). You agree to insure the car and maintain it, and the company agrees to pay the lease. Also, make employment with the company a condition of using the car. This too ensures the car does not become income to you, and not an expense for the company. If you pay the insurance and maintenance, then the lease typically won’t be viewed as income.

Good luck.

2 Likes
17

@Quackledork- having read your very informative post, I’d like to ask a few things.

  • To be considered a commercial vehicle I’ve heard that it has to have a GVWR >6k pounds. Such is the case why many lease big SUV’s and Trucks. Can you confirm?
  • What if the company is for legal and marketing purposes, with little to no P&L?
  • Do you know of other makes which may be as lenient/helpful as MB? Such as LandRover, Lexus, Audi, etc…
  • Again-from what I’ve heard, one is able to write off up to 80% or something of the lease payment. Although I think that’s an incorrect and unfinished statement. Please briefly advise in practice how this works. i.e. Joe buys a RR in FL in January, and his total monthly payment is $600. He then sees Mr. CPA the following March and deducts (say 80%) of the lease payments that year. So for 12 months he’s at 7,200 - 5,760 = 1,440 or 20%. Does this effect his personal tax deduction in any way? Is this legal if a company doesn’t even make that much in a year? If so, does he then get a return on his deductions? It just seems a little convoluted to me with weird overlaps. So if Joe’s company doesn’t make enough money on paper to cover the lease payments, yet his personal tax return puts him in the 33%, does the IRS take that into consideration? I know I wrote a novel but I just had a few things I’ve constantly thought about. If anyone else wants to chime in, by all means.
18

If Joes company does make enough to cover the lease, then Joes company is operating at a loss. So no taxes are due.

The commercial vehicle rule is for accelerated depreciation so not applicable for lease.

If Joe pays for 20% personal use of a company car, then Joe’s company cannot deduct that 20%.

19
  • To be considered a commercial vehicle I’ve heard that it has to have a GVWR >6k pounds. Such is the case why many lease big SUV’s and Trucks. Can you confirm?

No. Anything can be a commercial vehicle. However, large trucks like that qualify for extra incentives and depreciation acceleration, but that is only if you purchase the truck. Does not apply to leases.

  • What if the company is for legal and marketing purposes, with little to no P&L?

Again, MBFS may not ask for a P&L, but they can.

  • Do you know of other makes which may be as lenient/helpful as MB? Such as LandRover, Lexus, Audi, etc…

All the luxury brands are familiar with this process. Business owners leasing cars is one of the most reliable customers they have. When you get to more volume companies, like Toyota or Hyundai, they may be less familiar.

  • Again-from what I’ve heard, one is able to write off up to 80% or something of the lease payment. Although I think that’s an incorrect and unfinished statement. Please briefly advise in practice how this works.

You can take the entire lease payment as an expense, as long as you treat it as a perk for the executives. THis is where that deal comes into play. If you sign an agreement with your own company that states the company will pay the lease, in exchange, you must pay insurance, maintenance, and upkeep, then the lease can be a full expense. Basically the company is letting you use the car for personal purposes, as long as you agree to take care of it.

However, if your business is just a fake company with no income, you run the risk of being audited, and they IRS may see this as income to you, and tax you on that - which is bad. If you run a profitable business and this is a legit expense, then an audit is unlikely.

What you really should do is pay yourself from your business. Make all your income come through the business, pay taxes on it, then a lease like this is no big deal. However, if you’re creating a company just to get tax benefits, the IRS will see this and may audit you.

My business is sizable, and modestly profitable.I also pay myself a salary. I have also run it for 22 years. So, leasing is just another way I compensate myself through the business.

20

It is very easy to start a business in the US so you should do that. You can then use all the tax laws that apply to businesses. However, you do NEED to attempt to be a real business like @Quackledork mentioned above. Form the company, generate any type of income (i.e. get somebody to pay your company something), advertise. You need to generate business activity like soliciting work, writing a blog, getting a Stripe account, get a business credit card, do ACTUAL work which (surprise!) may actually make you some money “on the side”.

The IRS can audit you and fine or clawback “non-legitimate business expenses” (such as your lease) but it cannot fine you for being a bad businessman and failing to realize a profit (that’s normal) but you need business activity.

Read this blog for ideas: http://www.iwillteachyoutoberich.com/blog/