QUESTION:

I own my own business; I am a Mary Kay Consultant. As such, much of my business requires me to go to my customers, which requires extensive use of my automobile. I am wondering, if I lease a new car, can I deduct my lease payment?

ANSWER:

Won't it be hard to find a pink car to lease? But seriously, if you do opt to lease, you can deduct lease payments on the car. You should keep a detailed log showing how much you use your car for business, as compared to personal use, because that's how much of the lease payment you can deduct as a business expense.

Taxwise, life becomes a bit more complicated with leasing, but it's usually worth the effort. For instance, you have to spread any advance payments out over the entire lease period. You can't deduct payments to buy the car, even if they're called lease payments. And, if you lease a car that's worth more than $15,200 (in 2005) when you get it, you may have to reduce your lease payment deduction a small amount each year of the lease -- by an "inclusion amount." You can ask your tax preparer how much the inclusion amount will be or see IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses.