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Lease payments and tax benefits?
Does anyone know anything about this? http://www.pwli.com/
Making lease payments is a tax benefit?? Lets say I wanted to buy a truck for $40,000 and wanted to go through these guys. I'd pay a lease payment every month and at the end of my term make a %10 baloon payment at the end and the truck is mine? I'm confused. :? |
That really suprises me that nobody can tell me about this.
How many members on here want to talk about "fleece" purchasing (and I agree to some extent) but here I am offering a way for you to lease a truck of your choice outside of the company you work for! (and no I don't work for this company, I'm an OTR driver) Give me some feedback folks? GMAN? |
The obvious disadvantage to this is you would still be responsible for the routine maintenence and breakdown. As well as building no equity in it :shock: but the advantage of it is, if things arent going so well at the company you're at now you can go to another company.
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I would tend to stay away from programs like this. Words like non-cancelable, and lessee pays all taxes and insurance fees, are red flags when you have a monthly payment during slow times.
There are tax advantages to leasing, but only if you are making a huge profit, and not scraping by week to week. Just my opinion, and I was a bit turned off by their web site, seems like a company that has been around since 1987 could afford a better site. Not to mention that they seem to have their hands in all kinds of commercial equipment, makes me think they have too many irons in the fire to be able to be focused. I could be wrong, but first impressions,....you know what they say. |
Here's a copy of the email that was sent to me...
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The taxes are going to be bad no matter what. Self-employment taxes are double what social security is. Quote:
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Lease payment is tax deductible 100% because you use it to run a buisiness, everything you spend on it is tax credit that you can use to write off from your gross profit so you dont pay income tax on your buisiness expenses..there is tax that you have to pay thru that payment regardles and thats another thing...
10% of the payment that you have to give them at the end of that term is VERY HIGH and right there i would scrape them off my list.. I currently lease my truck through my local bank where i pay 100$ at the end and truck belongs to me + interest rate is better than a straight out purchase, all said and done my suggestion would be to go elsewhere for your credit needs.. Good Luck |
I would come up with a number for what you want to lease, and then follow it to its logical conclusion.
You will know exactly how much the %10 buy out amount is. Just take the length of the lease, the cost of whatever insurance THEY require you to carry, divide by your monthly payment, and you will be able to tell if its worth it. I looked at their equipement to lease, and with nothing newer than an 03 T-2000, I would worry more about being able to keep the vehicle on the road, and out of the shop. Remember, if it sits, you make no $$, and I'm sure THEY can cancel the lease anytime they want,....even if the truck is broken down and you are trying to make ends meet. I saw some of the trucks were as low as $19,000, but they were mid 90's and a bit worn looking. I would steer clear of this kind of program. It seems like a revolving "tired iron" mill. They are in it for the $$ not the personal relationship. I could be wrong, I only play a truck driver on T.V. |
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so $4,000 at the end of the term aint that bad, right? Depending on the terms of course... |
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Just because they come up clean on the BBB, is not always an indicator. They will have all their T's crossed and i's dotted, and you can bet that when and if your lease crumbles,....it will be you who missed the fine print, and not them,...therefore even if you perceive that they were not above board,.....their contract says otherwise, and you can't ding their BBB report if you are in the wrong.
I agree with Dejanh, find an alternative method,......or keep a huge chunk of money on the side to carry you through the 60 to 90 day slumps that exist in this industry. In the event you have such cash reserves, why not buy your own $20,000 truck and assume the risk yourself. I know some guys who did this, and they are doing fine,....and nobody forces them to carry mega high insurance, or sends the repo man to get your truck if you miss 2 payments in a row. Be careful,....lease companies are notoriously rigid in their business practice. |
Do you know the terms?
Find out,....I'm sure a few of the trucks on their lot came from a situation like yours. I'm just saying,......be careful. |
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I'm looking at buying a truck for $40,000. I told her that I had $20k to put down in hopes that would get me a loan. |
Your company might have a reasonable rate, but this lease company may want you to have more coverage.
I hope this all helps, I hate seeing new drivers getting screwed, but its the reality of being in business. My best advice for now (I'm getting sleepy) is to get all the info,...I mean ALL the info. Read it, understand it, if you don't understand it,.....take it to somebody who does, (not the lease agent). Did I mention all the info<<<..LOL Good luck driver. |
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If I was to actually go through with this I'd have my accountant review all paperwork before I signed a damn thang! Maybe also a lawyer. Quote:
HEY AZ thanks for your help, dude |
One more thing,...not to pry, but how much cash do you have?
There are a lot of guys on this board who will help with the advice, and let me tell you,....it like gold. Gman, rank, rev, even new guys like Steve booth have valuable input, so be patient, they will all probably chime in soon. |
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Yeah I wonder where GMAN is? I sent him a PM this morning... |
Leasing......OK......(deep breath).
1st.......any lease advantage is a tax advantage and that's where the advantage stops. It's difficult for me to give opinions about leases because I am Canadian and our tax laws differ from the US.... 2nd...in my experience, most leasing companies take advantage of the "buyer" by using a low monthly payment as the hook. then they screw you with the fine print. 3rd.....in Canada at least, leases offered such huge tax savings (loopholes) that the government now claims the right to deem your lease a purchase...even several years after the fact. Don;t know if the US has done that. Didn't read the previous replies, but I'm sure they are accurate. The big advantage to a lease (in canada) is that you can deduct ALL your payments for the year...instead of a % of the declining value of the item. Therefore, if you lease a vehicle on Jan 1, for $5,000/month, you get a $60,000 tax write off. After only 1 year, you may have wrote off the entire cost of the truck. In Canada, we can only write off say 40% of the vehicle per year. You NEVER write off the entire cost. Nothing wrong with leases IMO. Like them actually. The problem is that the lease agreement is often written by shysters. |
As a small trucking company you won't realize any tax benefits from leasing. When you purchase a truck your depreciation and interest expense are fully deductible. The advantage to leasing in your situation is that it frees up your cash. Leases usually have two advantages; no or low downpayment and lower monthly payments. So you can get into a truck with minimal outlay up front. Just be aware that these benefits come at a price. Normally the interest rate is higher on a lease and you have the balloon at the end. Leasing is not necessarily a bad way to go. There are some benefits. Just be aware that you will almost always pay more over the life of a lease than if you had purchased the truck. Though some, like Dejan's deal, apparently defy that rule. Some will say that leasing, or financing for that matter, is a bad idea because if you get in a jam due to repairs or slowdowns they'll repo your truck. This should be of little concern because your business plan should account for these contingencies. If you aren't prepared for these occurrences then it doesn't matter whether you finance or purchase outright, you're relying on luck either way to see you through. As Arizona said, find out the terms of the lease, find out what you can get for financing terms and see which avenue works best for you. It may be that spending more in the long run with the lease will give you some initial flexibility that would allow you to more than make up the difference. However, the odds that this will be true if you're going to run as a lease-operator are pretty remote.
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A lot of it is money management. With leasing you can use the interest from your cash to help make the lease payment. Whatever you do, you don't want to leave yourself without any cash.
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One more thing! :D
Make sure, that truck has a fair market value, lease companies are famous for inflating the price! Negotiate it the same as a purchase! 8) |
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I didn't get your message until late last night, or early this morning. If it sounds a bit strange, I was sleepy. I don't know anything about this company you mentioned. Leasing can help preserve some working capital and is usually not listed as a liability on your balance sheet where as a loan is considered a liability. I don't see any great tax advantages to leasing, at least to someone starting out. You can depreciate a truck and write the interest expense off so it can be just as much of an advantage as leasing, from a tax point of view. Also, the last 2 or 3 years, I believe, the laws have changed to aid smaller business to purchase more equipment. You could write the entire cost off the first year, if you choose to do it. I don't know if that will be available this year or not, but it was a year to year thing the President initiated to help purchase equipment up to a certain dollar amount. I believe it was under $200,000. As I noted in my response to your pm, if I were you I would take $20,000 out of the $30,000 and pay cash for a truck. That will still leave you with $10,000 to operate on or use as an emergency fund. You won't have any monthly payments to make and can save a lot of money on interest. Most lenders require borrowers to pay a down payment of around 20-30% of the purchase price. If you lease some require 10%, first and last or first, second and last payments. It depends on the leasing company. It is a great feeling to have a piece of equipment paid off. It gives you flexibility to sit if you can't get a decent rate. It is the guys who have the big payments who seem to find the need to run for $0.85-$0.90/mile just to keep the wolves at bay. If you pay cash and put the equivalent of a monthly payment each month, you can upgrade to the truck you want in a year or two and not have to worry about payments. Consider it a business decision. It is too easy to let the emotions control our decision making process. The idea is to make money. You will make more money with a paid off truck than if you make payments. |
One thing, paying cash may not be the best route to go for everyone, ex. single, no dependents individual, everything buisiness related is tax deductible including interest, no payment for me means at least 6K in taxes per year more than what i pay now. i rather have dependeble piece of equipment and have a payment than not..
You can write of the cost in your first year but again i dont thing that its the best option to take for everyone since next year you cannot claim anything, i think it would be better to space it out in 3 years than everything all at once... |
I agree, Dejanh. I don't think writing a piece of equipment is best for everyone, but could be an advantage for some. It won't be an issue for most just starting out.
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I read something in the lessors e-mail that kinda bothered me.
" you will be able to save your cash for operating fees and repairs down the road".....something like that. If you lease a vehicle isn't it their responsibility to provide maintenance? We are leased to a company but we pay to lease a trailor from them. We do drop and hook, so we always have a different trailor, but we pay a set rate monthly.ALL OF WHICH IS TAX DEDUCTIBLE. They pay for all maintenance on this unit. Would it not be the same as when a company leases a small fleet from i.e. Penske. Penske is responsible for all maintenance for these units. SO if you lease a truck from them they should maintain it. |
It depends on the company and what is stated in the lease. Some carriers do their own maintenance to save money. Trailers can be a different animal. Some will include maintenance in the agreement. Xtralease is one that provides all maintenance, including tires. If the tire needs to be replace due to the driver, then the carrier pays for the damage. This can include things such as damage due to curbing the tire or bending a wheel. I know of some fleets that lease their trucks but have their own maintenance people.
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first let me start off by saying I don`t lease a truck...
but with a good finance rate i`d go for it every time as i`d rather have my money in the bank making me money instead of paying cash for equipment and it losing value, now I prefer older trucks so the 3 me and my wife have combined are paid off but 2 of our 4 current trailers are being financed along with alot of equipment I bought for a shop. a quick example would be my two latest purchases, an old marmon I found while picking up my 07 EAST, instead of laying out 45k and owning them outright I left that money in a 5.9%cd and finance the 45k at 0% interest, I do this because I have a ton of business credit which if you look into is insanely easy and quick to build, so the 45k I owe bounces around on credit cards that offer anywhere from 30 to 90 days same as cash while I make payments every month on whichever card i`m using and in the event that something does happen to me i`ve still got the actual cash in the bank to pay off all debts owed. next week we`ll discuss corporate credit cards that give you 5% back on business purchases, think fuel :o |
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Also, something that has not been said here and concernes trailer rental is that you cannot just walk in there and ask to rent a trailer, companies like Xtra rent only to reputable customers who they did buisiness with. |
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My credit limit jumped from 5000 on my Bank of America card to 20,000 in a matter of just 3 months which tells me that they are looking at all of that. Its never bad to have alot of creidit available for whatever hits you god forbid. |
Which American Express Card do you use, Dejanh?
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I have several cards that have rewards too. Some personal and some business cards. The good thing about business cards is it doesn't hurt your FICO score if you have a corporation.
Once in a while Discover offers 5% too. That would be 15 cents on $3 gallon so your fuel would be $2.85 plus whatever the truck stop charges for using credit. |
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try it out.. |
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600$ in fuel means 30$ in credit back to you, if i put 250 gallons its 12$ more than everyone else pays with cash( 5cpg x 100gallons ), 30-12=18 in savings regardless of how much fuel is so you end up paying 5cpg less than everyone else.. :wink: |
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Plus, many truck stops are INCREASING the credit price from 5 cents per gallon to 6-7 cents per gallon. The Pilot I fueled at last night is at 6 cents per gallon right now. |
I agree business credit is a great tool if your responsible, but if your using it to finance your company and don`t have the cash on hand to pay cards off every month you could really hurt yourself.
personally I have over 600k in business credit and my wife has a little more (this goes back to how quick and easy it is to get business credit) and the most we`ll ever use is maybe 20% of that. it just looks good on the paydex score and duns account (two major CRA`s for business) when you have a ton of positive tradelines reporting, for instance I can buy a 4$ coffee at starbucks on a 35k citi premier platinum card and it`ll report that I made my payment on time. :lol: |
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BTW Pilots 6cpg has been in affect for the entire 3 years i have been driving. |
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Rev,
Is that discount you get from Comdata through Graebel? |
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