Lease Purchase? Ask yourself one question....

Who is saying it is. It is an option available to anyone. Personally I never once thought that a LLC or Corporation is a shield that protects you from your creditors. In reality is just a way of separating personal property from corporate property. And again it is something that only your lawyer and CPA can advise you on.

 

You were in post 24.

 

Well I misspoke, as an OTR truck is 3-year property per Page 35 of Publication 946 for 2010. However I do take my depreciation over a five-year period.

If you will refer to Page 35, Electing ADS you will see you can elect to use ADS not GDS. Yes it is irrevocable and it covers all property in the same property class placed in service during the year.

Now refer to Page 103, Table B-1 and Asset Class 00.26 Tractor Units for Use Over-The-Road. You will find its Class Life (in years) is 4. Its GDS Recovery Period (in years) is 3. Its ADS Recovery Period (in years) is 4.

I prefer the Half-Year Convention and the Strait Line Method.

Now refer to Page 74 and Appendix A. It tells you for MACRS ADS System, Half-Year Convention and Any Class to refer to Table A-8.

Now refer to Page 79 and Table A-8. You will find for Year 1 and Year 5 the Depreciation is 12.5%. For Year 2 - 4 the depreciation is 25%.

This is the method I use and the method that Jdrentz's taxman used. It is also the method used by another local tax professional I called after this discussion in Jdrentz's Crete thread. I fail to understand the logic of trying to get accelerated depreciation as fast as possible. It is by definition already accelerated.

If you use MACRS GDS System, a 3-Year Recovery Period and Half-Year Convention, the deductions per Table A-1 Are as follows: Year 1 is 33.33%; Year 2 is 44.45%; Year 3 is 14.81%; and Year 4 is 7.41%. How does this make sense? Since year 1 was almost surely a partial year with many startup costs I need little depreciation to show a loss. Why lose the Depreciation or have to mess with carrying losses forward, if I am even eligible to do that? Now in year 2, my first full year of operation I have the most Depreciation. This surely won't be my most profitable year, how does that make sense? Then in year 3 and 4, when I am finally making a good profit, I have little depreciation to offset my tax liability.

I can't imagine most people can't see that the first option is better. Sure you need to consider how long you will hold the asset. I don't think this is a big problem as we are all holding onto our used vehicles longer now. Not to mention the uncertainty of taking on more debt in a declining economy.

 

I'm going to defer to Roadmedic on this one Otherhalftw. I would be speculating and most likely way off base.

 

The different levels of corporations don’t necessary give you different levels of protection from paying your creditors, but it does give different levels of protection from your personal property. The purpose of a corporation is to make the separation of personal and business property plus many other advantages. Ask a lawyer, he can explain it in more detail.

 

Let me ask a question. A real good freind of mine just started a lease program three weeks ago (and yes i tried to talk him out of it ) but he gets paid 75% of the load and makes about 1.75 to 2.00 a mile they are taking 5% for maintance but my questions is when he uses his maintance fund they are charging him to get his money can they do this? Just like this he gets a pm done for 225.00 and calls and get a T- Check and when he gets the bill from the company for the amount they took out of his maintance they added 35.00 to the bill to cover there time. I just don't see how thats right they make him put money in the maintance fund then charge him to take it out.

 

I don't believe there is anything legally to stop them from taking fees when he uses his maintenance fund. I’ll bet they charge fees on every penny he has advanced for any purpose too. My guess is it was obscurely covered in the lease agreement that he signed. It isn't right and is one of the many things that a person should watch out for. It doesn’t matter whether you lease/purchase, buy and lease or run with your own authority you have to manage and dispose of fees or they will eat up your profit.

His maintenance fund is running about 0.088 - 0.100 CPM and at that rate about 0.014 to 0.016 CPM will be going in the companies pocket. This equates to about 16% of his maintenance/repair budget and almost 1% of gross being taken for this one fee. Although I don't know the facts, my guess is this is to encourage him to have his work done at a company facility where they can make money off his maintenance and repairs. It seems on lease/purchases the companies do many things to get a piece of your maintenance fund such as force you to use their facilities, fail to authorize repairs at other facilities and charge prohibitive fees to authorize repairs at other facilities.

The one thing that anyone considering a lease/purchase should understand is that the agreements you sign will be designed to make the company money off of everything you do! While I don’t condone their underhanded methods, when I start running with my own authority it will be so I can control every aspect of my business and leave no money on the table. Think about these two statements, the ideas and theories are not so different. In business a smart operator has always figured out how to maximize his profits. In today’s economic climate it is more important than ever. The big problem in today’s business world is a complete lack of ethics, which lead to the practice of many underhanded tactics to increase profits for the companies we deal with.

Sure there are lease/purchases available where you can actually own a truck at the end of the contract. The questions to ask yourself are: 1) Do I want to spend years making the company more than I make myself?; 2) Do I want to pay more for the equipment than it is worth?; 3) Do I want to give someone else almost exclusive control of my destiny?; and 4) Do I want to work much harder than necessary to reach my goals? If you can answer yes to these questions or feel you have no other alternative then by all means go for it. If you understand the chances of success, the risks involved and the work necessary to be successful then you are making an informed decision. If you succeed, you will certainly have earned your success!

 

The more I read, the more I realize that I have a fair deal with my company. Yes I am doing a lease/purchase and yes my company nickles and dimes me to death, but it's more like a dollar here and a couple dollars there. Every transaction has an ATM style fee. $2.00 for fuel except at a terminal and then it's $1.00. $2.00 for a transfer from the maintenance account. You get the idea. I pay their price for fuel so that ranges on a fill-up from $20 to over $100. I am also paid interest on all of my security deposits, it's not much, but it is something

It is true that a company is in business to make money and they are going to look out for themselves, but then so are you. With the right lease/purchase deal with the right company you can make money. That said, you have to know what you are doing and what you are getting yourself into. You don't need to know the ins and outs of the various legal structures, but you need to understand you are in business and what it takes to make a profit. I heard about one guy doing a lease purchase that was so broke he couldn't afford to purchase a gallon of oil. If you are at that point, you need to find a way out NOW.

 

I did add it up and it is the amount I quoted. That is the facts. I pay 602.16 per week for 46 months. After every 6 months I get a free week and my buyout at the end is 10,000. You can do the math on that and see what you come up with. $100.00 says it isn't over 130,000 so please take that bet.

 

I come out with around $117,000 over the almost 4 years and 10,000 buyout. This obviously doesn't include all the added expenses of being a O/O. My guess is your paying about 20-30 thousand too much for the truck to start out. If it were me I would inquire to how much the truck purchase price is from the start. Problem I see with it your stuck for 4 years with the same company and them controlling your destiny. What happens if towards the end they slow down on your loads?

I can definitely see problems with the lease programs but at the same time understand why people sign up for them. I think if I were to do that it would have to be after I had driven for the company and knew that I could deal with working for them for the duration of the lease.