Tax Deduction Options When Buying vs Leasing a Cargo Van as a Sole Proprietor for 100% Business Use?

Great question! The tax treatment is actually quite different between leasing and buying a vehicle that's 100% for business use. With leasing, you're right that you can deduct 100% of your lease payments as a business expense if the van is used exclusively for business. You'd also be able to deduct other expenses like gas, maintenance, insurance, etc. When buying, you can't deduct the full purchase price in the year you buy it (unless you use Section 179 deduction or bonus depreciation - more on that in a sec). Instead, you'd normally depreciate the vehicle over several years using MACRS (Modified Accelerated Cost Recovery System). The good news is that since the van qualifies as a "heavy vehicle" (over 6,000 lbs gross vehicle weight), you may be eligible to immediately deduct the full purchase price using Section 179 or take bonus depreciation. This gives buying an advantage over leasing for many businesses. There are limitations and other factors to consider beyond just the tax treatment, but from a pure tax perspective, buying often allows larger upfront deductions while leasing spreads them out.

Just wanted to share my experience using taxr.ai (https://taxr.ai) for figuring out my vehicle deductions as a sole proprietor. I was in a similar situation last year with my work truck and was completely confused about Section 179 vs regular depreciation vs actual expenses vs standard mileage. I uploaded my purchase documents to taxr.ai and their system analyzed everything and gave me a detailed breakdown of my options. It showed me that in my case, taking Section 179 in the first year made more sense than standard mileage because I drive relatively short distances but the vehicle was expensive. Saved me about $4,800 in taxes I would have missed! They also provided documentation I could keep with my tax records in case of an audit. Definitely worth checking out if you're trying to maximize your vehicle deductions.

Wanted to follow up - I tried taxr.ai after seeing this recommendation and it was actually really helpful! I was worried about the tech side but it was surprisingly easy to use. Just uploaded my quote from the dealership and it gave me a side-by-side comparison of leasing vs buying tax benefits over 5 years. In my case, buying and taking Section 179 was WAY better tax-wise than leasing because I could deduct almost the entire cost in year one. But it also showed me that if I plan to upgrade vehicles frequently, leasing might make more sense long-term. Really helped me understand the trade-offs without having to pay my accountant for an hour of questions!

If you're planning to call the IRS to confirm any of this vehicle deduction stuff, good luck getting through! I spent THREE DAYS trying to reach someone about my cargo van depreciation question last month. Finally used Claimyr (https://claimyr.com) after seeing it recommended here, and they got me connected to an IRS agent in about 15 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that for my specific situation, I could deduct the interest on my loan separately from the depreciation. Also learned that keeping a mileage log is super important even if you're going with actual expenses instead of standard mileage rate. Worth the call just for that piece of advice alone!

I owe an apology to the Claimyr folks. I was the skeptic who posted above thinking it was a scam. Well, my accountant went on vacation right when I needed to figure out my vehicle deduction situation, and I was desperate enough to try anything. Used the Claimyr service yesterday and got through to the IRS in about 25 minutes. The agent walked me through the exact documentation I need to keep if I want to claim my cargo van under Section 179, and clarified when I need to use Form 4562. Turns out I've been doing it wrong for years! For anyone on the fence, it's legit. Sorry for being a jerk about it earlier. When you've dealt with tax stuff as long as I have, you get suspicious of everything.

One thing nobody's mentioned yet is insurance costs. When I bought my cargo van for my landscaping business, my insurance premiums went WAY up because it was classified as a commercial vehicle. But since it was 100% business use, I could deduct the entire premium. Also, don't forget to consider resale value in your lease vs buy decision. I bought my van 4 years ago, and even with all the miles I've put on it, it's still worth about 60% of what I paid because of the crazy used vehicle market. With a lease, you'd have nothing to show for all those payments.

Has anyone used QuickBooks Self-Employed for tracking vehicle expenses? I'm wondering if it's worth the subscription for auto-categorizing my van expenses and tracking mileage.

One thing to consider that hasn't been fully addressed is the cash flow impact of your decision. With Section 179 deduction on a purchased van, you get a huge tax benefit upfront but you're also tying up a lot of capital (or taking on debt payments). As a fellow event photographer, I know how unpredictable our income can be - some months are feast, others are famine. Leasing gives you more predictable monthly expenses and preserves your cash flow for other business investments like new equipment or marketing. That said, if you're confident in your revenue growth (35% is impressive!) and have good cash reserves, buying with Section 179 could save you thousands in taxes. Just make sure you can handle the financial commitment without putting your business at risk during slower periods. Also, don't forget to factor in maintenance costs - with a lease, major repairs are usually covered, but with ownership, that's all on you. Cargo vans are generally reliable, but when you're loading/unloading heavy equipment daily, things can wear out faster than expected.