Leasing a Car Is No Snap Decision
Q: I am thinking of getting a new car this year and am wondering if it makes sense to lease rather than buy it. Can you help me make up my mind? --B.F.G. A: The lease-or-buy decision may be among the most complex you have faced.
Unlike the rent-or-buy choice you face on housing, there are no clear-cut tax advantages to sway you one way or the other. So, you can’t look to rent-or-buy for guidance.
An important reason for today’s popularity of leases is the price of purchasing a car. With top-of-the-line prices approaching the cost of a starter home in some of Southern California’s outlying communities, buyers have found it increasingly difficult to come up with the down payment and closing costs. Further, in most cases, the monthly payments for leasing are often lower than those for buying.
However, accountants and other financial advisers argue that out-of-pocket expenses are not necessarily the primary consideration in the lease-buy decision. The important issues, they argue, are when the consumer has to shell out the money and whether consumers are prepared to live by the unique rules of leasing. Leasing, they argue, is a financing and lifestyle decision, not an economic one.
More important in the lease-buy decision, our experts say, are a consumer’s answers to the following questions:
* Do you want to put a chunk of money out for a down payment before driving off the car lot, or do you have another use for the money? If you think your money could be more profitably invested in something other than a car, then a lease might make sense.
* Are you comfortable with having to make a car payment every month, or do you live for the day when your car is paid for? Consumers whose budgets are accustomed to car payments are ideal candidates for leasing because most experts believe that the best way to lease is to turn a car in at the end of the contract and to start all over again.
* Do you do a lot of driving? Leases are not the right choice for people who put many miles on their cars. Most contracts impose limits of 15,000 miles per year. Any mileage over that is usually subject to a 10-cent-per-mile charge at the end of the contract.
* How long do you want to keep the car? If you plan to drive your car until it dies in your driveway, then you are better off purchasing it. Even if you know how to negotiate a lease that protects your interests, you will face a second round of talks when the lease expires--either to finance the remaining cost or to reduce it. It’s simpler--and the outcome is probably the same--if you negotiate just at the time of purchase.
* Are you prepared to stick with the lease for its entire term? Penalties for breaking a lease before it expires can be substantial.
* Are you self-employed? In general, leases are more attractive if your business is responsible for making the payments.
* Are you able to be a tough negotiator? Lease agreements are difficult to understand and many consumers find it especially difficult to calculate exactly what their agreements actually require them to pay for a car. Experts recommend that before you set out to lease, you learn to perform present-value calculations, by which you determine how much a payment plan will ultimately cost. Be sure to take your calculator with you to the auto showroom and run the numbers as the talks progress.
Qualifying for Widows’ Benefits
Q: I had been married for 30 years when my husband died a year ago. I am 48 years old and my children are all grown. Is there any way I can qualify for Social Security as a widow? What about as a mother? --S.W.
A: There is no good news for you here. The earliest you could possibly qualify for widows’ benefits is at age 60. The only exception is for disabled widows, who may begin drawing benefits at age 50.
Further, neither you nor your children are qualified for family benefits. If your children were under age 16 when you became a widow, all of you combined could have qualified for as much as 175% of the benefits your late husband would have received upon turning age 65. A mother’s benefits terminate once the children reach age 16, but the children themselves can continue to draw benefits until age 19, if they are still in high school.
Though it offers little comfort or relief, the bureaucrats do have a name for your situation. They call it the “widow’s gap”--the period when you aren’t old enough to qualify for widows’ benefits and you are past the point of caring for school-age children.
It’s Wise to Tell IRS About Court Judgment
Q: I received a $70,000 age discrimination judgment after such awards were ruled by the tax courts to be not taxable. However, my employer reported the payment anyway to the Internal Revenue Service. Should I report the payment somewhere on my tax form to avoid being audited? However, if I do include it as income and then deduct, it could disqualify me from receiving Social Security. I’m tempted not to report it at all. What should I do? --M.J.
A: If your employer has reported the payment, you are wise to follow suit, if only to avoid unwanted scrutiny from the IRS. However, this should not pose any great complications or problems. Simply note the payment on Line 22 of the 1040 Form and make a note to see an attached memo that you will prepare. This addendum should be clearly marked as a special schedule, and you should detail on it the source and reason for the $70,000 payment. By handling the payment in this fashion, our advisers assure, the amount you received will not be included as a part of your gross income, eliminating any possibility that you will be ruled ineligible for your other benefits.
