Lease Purchase? Ask yourself one question....

You forgot to mention...the depreciation will be with the company holding the lease. The truck will not have enough value for depreciation at the time the lease is completed and the purchase price (book value) after the leased age and miles are calculated.

While you might own the truck after the completion of the lease...you have still paid 2.6 times the original value of the truck by the time you get the pink slip with your name on it. You have "paid" almost 300k for a 130k truck.

Most going into the Lease Purchase plans available don't have the financing, or the credit with a down payment to buy their own rig off the start. This is where the Fleece carriers keep the "boys" by the short hairs and keep getting more "clients"!

 

I will pay 300k for my truck? Huh? I will pay exactly $125,851.42 for it which is $174,148.58 less than you said. That is true I don't get to depreciate it but the lease payments are all deductible.

 

From what I understand about my lease, I can deduct the the full amount of my lease payments. At the end I have a $12,000 buyout which is then deductible as depreciation. The way mine is structured is that I am renting the truck with an option to purchase at the end of the contract.

As far as the original question. Owner/operators are indeed the cheapest way for a company to move freight. The relationship changes and the company goes from being an employer to a load broker. You go from being an employee to an employer. What most people miss is that there are two contracts involved and they are separate from each other. First you agree to lease a truck from the company, as part of that lease you agree to an exclusivity clause. The second lease is when you agree to drive for xyz company, this is where a bad company makes life miserable. I don't care where you get the truck from if the compensation isn't there you won't make it. That is why figuring out what truck you should get and how to finance it is last on the to do list. Before you even start down the road of owner/operator you need to find your numbers. If your break even is too high you will fail.

 

One of the main reasons we leased equipment and trucks was for the complete tax deduction as a cost of doing business. Better than setting up depreciation schedules for each piece. I would think someone would hire a lawyer and setup a LLC before leasing a truck. If the company won't lease to a LLC even with your personal guarantee then you probably shouldn't be leasing from them. If you don't file then you are definitely wasting your time. One of the reasons to be in business is the tax advantages. Setting up a LLC will give you many other tax write-offs. You can operate under a sole proprietorship but you won't get the protection a corporation will afford you. Either way you need to look at all of the advantages and write-off and calculate them into your business plan. If you are leasing and being paid via a W2 then you are not in business for yourself.

 

LLC does not offer the protection that you think it does.

 

You can tell yourself the lease payments are just that...just rental payments...but in reality the lease payment is part of your cost to purchase the truck. So each month, or week, that truck payment you make is just that....a truck payment....total up your total contracts lease payments, add in the buyout cost, add in the interest on both the lease and the buyout financing, plus the finance fee for the buyout.....what do you come to....I'll bet it is over 300k. Convince yourself any way you want....those are facts!

 

yes, for your personal/business bottom line the lease payment is a business deduction, and the 12k for your buyout....you can only depreciate a certain percentage of that expense...not the full 12k. If your tax adviser is telling you you can depreciate the full amount...you need to find a new tax adviser....you will not like the audit from the IRS!

 

That is not necessarily true depending on the lease.

 

My lease is a trac-lease. My payments are rental payments and it is a walk away lease. If I complete the lease and buyout I will have a total including any interest on a 2009 Cascadia of $92,000. It seems the general point we are all trying to make is that before you get a truck you need to know what you are doing. You need to know how it affects your bottom line and the tax issues as well. If you are going to lease from your company you need to remember that they are looking to protect themselves, not you, but that is the same for third party vendors as well. If you don't understand what you are looking at, get a lawyer.

 

What I have to say will be based on my experience, research and opinions. You should consult a tax or business professional before you make any decisions. I learned taxes in 1984 when I found myself in a tax mess from Investment Credit Carry Back on a truck purchase. I prepared taxes and quarterly reports for a while as a side business. I have been doing my own taxes since. I say all this to debunk a few myths that you should research to get facts.

Here are my thoughts on the subject of protection offered by a specific legal structure. First and foremost, if you think a Limited Liability Company or Corporation offers you a lot of protection from a lawsuit, you are suffering from a false sense of security. A good attorney will pierce the veil of protection if he is motivated and the assets are worth it. Throw all your personal possessions into a trust and couple that with a legally structured company and you have some protection.

A financial institute will not loan to your LLC or Corp. without a personal guarantee so no advantage there. Now if you are making big bucks (+$150,000 Net) then you should do this and you will eventually be able to get financing based on the earnings, assets and the financial statements of the LLC or Corp.

Now I’ll address the tax ramifications of choosing a company structure. A sole-proprietorship can take advantage of any tax deductions any other structure can. The only disadvantage is if you make big bucks you will pay Social Security (13.3%) on your excess earnings. I personally prefer the LLC from the start. Certain assumptions of tax status are made based on ownership. By submitting a form to the IRS you can elect to treat it as a Sole-Proprietorship, Partnership or Corporation for tax purposes. Within the limitations, you can change these elections. If you select Sole-Proprietorship you report your income and deductions on Schedule C and Form 1040. If you choose Partnership you file a Form 1065 (informational only) and report on Schedule E and Form 1040. If you choose Corporation you file Form 1120 and report everything on this and it’s accompanying schedules.

If you have additional net income after paying your wages and return on investment then the Corporation makes sense. This way you can avoid the Social Security Self Employment tax on the funds that the corporation retains and invests. You can pay yourself as an employee with a W-2 and withhold taxes.

I suppose depreciation or lease cost is a personal preference. I personally prefer Accelerated Depreciation (MACRS) on a Five Year Recovery Period for equipment. I’ve seen many arguments that it has to be three years. This is not correct research it. The reason I prefer this is the first partial year when you make little you have little depreciation. As it accelerates it matches income quite well. Then in the later years when you are financially more able to pay more taxes it falls off.