Tips on Ways to Save Money on Taxes When Purchasing a Business Vehicle
I get a lot of questions about cars and whether one should purchase one for their business as a tax write off. Cars are especially nice to have here in Southern California where you can purchase a nice drop-top and use it to show off to both your clients and friends. So, here are some things I want to share with you before you consider purchasing a new vehicle for your business.
Current Methods Used to Write off Business Vehicle Expenses
There are two options that you have in writing off business vehicle expenses. The first one most of you are familiar with is called”The Mileage Method” where the business miles that you use are written off. So, the current rate for writing up business miles in 2018 is 54.5 cents. Did you know that you can also write off miles for charity events? Write-offs for charity events are 14 cents and then for medical and moving expenses, those are 18 cents a mile. Regarding moving expenses, just be aware, in 2018, only military personnel can write off their moving expenses. And then if you have any personal or commuting expenses, just know that those are not deductible. And then the other method that some people use to get tax breaks is what we call “The Actual Method” where you use your actual expenses, such as your fuel, your repairs, your maintenance, your insurance, your tires, and depreciation. Or if you’re leasing, the portion of your lease payment that relates to your business usage.
How the Tax Jobs and Cuts Act Works for Your Business Vehicle
For instance, let’s take a $40,000 car (since that’s what cars cost these days). Under the old tax rules, a $40,000 car, if you had it for five years, you would be able to write off $15,000 off for that car and then it would take you, unfortunately, another 14 years to write off the rest of that car. Meaning, it would take a total of 19 years to write off that car. So, if you bought a car last year and you plan on keeping it for 19 years, you might feel pretty sad because by then cars are going to be self-driving and flying over your head while you’re driving on the 5 freeway. However, thanks to the Tax Jobs and Cuts Act, what we know as The Trump Tax Law, if you buy a new vehicle at $40,000, within the first 3 years you can write off up to 80% to 99% of the car value because Congress increased the depreciation amounts on the cars. Plus in year 1, you can get a bonus depreciation of up to $8,000. So, which method’s gonna work for you?
Be Aware of Mileage
Here are some things you also might want to think about. The vehicle that you want to use, be aware of the miles per gallon you’re going to use on it. And if you decide to purchase a new vehicle, you want to also factor in the bonus depreciation. And just remember, when I say “New Vehicle,” you’re allowed to purchase a gently used car and it’s considered “New” to your business. So, you don’t have to buy a 2018 to 2019 model. You can purchase 2017, 2016, 2015, or older, as long as it’s considered “New” to you and your business. Also, you want to factor in your repairs and maintenance costs and for some of those luxury cars, those costs tend to be higher. And then, how many miles you expect to put on the vehicle each year?
Tax Advantages of Business Car Leasing
Now, I mentioned leasing earlier in this post. Leases are a great way for you to write off your vehicle expenses if you like to lease. But just remember, leases are limited in that the dealership typically only lets you drive 10,000 to 15,000 miles a year. And if you go over, that cost it can get very expensive when you hand that car back. But for those of you that have a regular car, you can also consider leasing a vehicle for more low mileage situations like special occasions, such as you’re selling a very high-end listing and you’re looking to attract a certain type of clientele. You can also use that second car for special meetings or other events that are business-related that’ll allow you to write that cost off.
So, these are just the basics of what can be written off on your taxes. For more questions or solutions on what is best for you in acquiring a new vehicle to help you impress your clients and make you more money, give me, Eric Pierre, a call at 619-800-6852. My team and I are here to help you keep more money in your pocket and less in Uncle Sam’s.