I understand that you are going to lease or have just leased a new vehicle.
Also, I remember your using the IRS standard mileage rate over the past number of years because you really dislike keeping receipts on your vehicle.
Here’s some news: leasing might make keeping receipts likable. Let me give you three reasons:
- The IRS creates the mileage rate based on your owning the vehicle.
- The IRS adds an unfriendly rule for those who use the mileage rate on a leased vehicle.
- The mileage rate includes a zero tax deduction for interest expense meaning that when you own the vehicle you can separately deduct the business interest. But with a lease, there’s no separate interest deduction.
The three reasons add up to the possibility that the mileage rate is to your monetary disadvantage on a lease. And if that’s true and you choose the mileage rate, you encounter the unfriendly rule that saddles you with the money-losing mileage rate for the life of that lease.
This means on a leased vehicle you really need to know whether the actual expense method or the IRS mileage method is best before you select your method and file your tax return. With the lease, once you file your return, you have established your deduction method for the life of the lease. If that’s to your disadvantage, too bad.