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Your Cruiser can save you money on taxes

Discussion in '80-Series Tech' started by MoJ, Oct 29, 2003.

  1. MoJ

    MoJ Moderator

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    I doubt this applies to everyone but helpful nonetheless----
    I just returned from a class on small business taxation. For a new business, in it's first year, you can deduct 100% of the purchase price of any vehicle with a gross vehicle weight (not the curb weight) of more than 6000 lbs. Apparently the law was written before SUV's were so popular. When written, the IRS assumed that anything weighing this much would only be used for business purposes (i.e construction etc). They handed out a list of acceptable vehicles and the Cruiser was one of them. ;)
     
  2. Jomama

    Jomama

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    This is one of the reasons the H2 pos is a fequent "company car" ::) ::)
     
  3. alia176

    alia176

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    If only I had a small business.
     
  4. mts

    mts

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    Of course that only applies if the vehicle is titled in the business name and if the vehicle is used 100% for business purposes which is highly unlikely.

    This is a loophole, but really only gets someone around the luxury auto depreciation limits of IRC Section 280F. All the other standards that apply to any business vehicle still apply.

    Mike
     
  5. tltaylor22

    tltaylor22

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    So why can you only claim the writeoff in the first year of the business. I thought I heard of farmers, business owners buying hummers because of the tax reasons but thier not being in their first year of business. I have a small business but am in the second year. Do I lose out?
     
  6. mts

    mts

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    [quote author=tltaylor22 link=board=2;threadid=6912;start=msg56946#msg56946 date=1067529012]
    So why can you only claim the writeoff in the first year of the business. I thought I heard of farmers, business owners buying hummers because of the tax reasons but thier not being in their first year of business. I have a small business but am in the second year. Do I lose out?
    [/quote]

    First year of business has nothing to do with it. First year, 2nd year, 50th year in business its all the same with regard to what Moj posted.

    Mike
     
  7. MoJ

    MoJ Moderator

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    [quote author=tltaylor22 link=board=2;threadid=6912;start=msg56946#msg56946 date=1067529012]
    So why can you only claim the writeoff in the first year of the business. I thought I heard of farmers, business owners buying hummers because of the tax reasons but thier not being in their first year of business. I have a small business but am in the second year. Do I lose out?
    [/quote]

    You should ask a good CPA - tell him/her it's in reference to section 179. The idea is that you deduct 100% of it in the first year as opposed to depreciating it out over 5 years - i.e money now is better than money in the future.
     
  8. ginericLC

    ginericLC Wagon Wheeler! SILVER Star

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    I don't think an 80 qualifies does it? I didn't think it weighed enough.
     
  9. mts

    mts

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    [quote author=ginericfj80 link=board=2;threadid=6912;start=msg56954#msg56954 date=1067530359]
    I don't think an 80 qualifies does it? I didn't think it weighed enough.
    [/quote]

    IIRC gross vehicle weight of an 80 is something like 6400 lbs (stock loaded weight). Remember we're not talking about curb weight (unloaded with 1/2 tank of gas) which is something 4900 lbs.

    Mike
     
  10. Photoman

    Photoman SILVER Star

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    Normally, if there is such a thing when it comes to taxes, is if you take something (write if off) in one year that is an expense. Not normally done with big ticket items for small business. They are normally depreciated with any of several methods over a period of time, and the item has what's called a salvage value at the end which means you can't write 100 percent off. A lease also has advantages in that "normally" 100 percent of the lease can be written off as has been mentioned if it is used 100 percent by the business. Excellant advice by all to seek professional advice for each individual situation.
    Bill
     
  11. Shortbus

    Shortbus

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    THANKS!!!

    Looks like "Shortbus Motorsports Inc." might just get a tax break in it's first year of existance. :cheers:

    I'll check with my accountant and tread lightly around the loopholes, as they can also be nooses. ;)
     
  12. wob

    wob

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    An 80 doesn't qualify. I believe it has to be "new."
     
  13. Photoman

    Photoman SILVER Star

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    I am completely unfamiliar with this law as it would pertain to buying new; but will say in general that any year vehicle or large item can be depreciated. If I bought a dump truck or dozer that was 5 years old for $100k then any amount over the salvage value could be depreciated.
    Bill
     
  14. MoJ

    MoJ Moderator

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    I should probably stop as I'm approaching the limits of my tax knowledge but I believe 179 applies to the purchase of new and used vehicles. Again a genuine CPA is the one to ask.
     
  15. mts

    mts

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    [quote author=wob link=board=2;threadid=6912;start=msg56963#msg56963 date=1067531526]
    An 80 doesn't qualify. I believe it has to be "new."
    [/quote]

    Section 179 applies to both new and used business equipment. Not just vehicles. In fact, it's rarely used for vehicles due to the Section 280F rules that limit the amount of the deduction one can take in any one year. The > 6,000 lb "loophole" allows a heavy vehicle like the 80 to avoid the 280F limitations.

    The equipment has to be "newly placed in service". For example, if I have owned an 80 in my business for several years and want to take a section 179 expensing election in 2003, I can't because it was placed in service before 2003. However, if go purchase an 80 in November 2003 and want to take the expensing election in 2003, then it would qualify even though its a "used" vehicle.

    There are other considerations to the Section 179 deduction such as you can't take it at all on any equipment in a year if your business has a net loss. You also can't take it if total equipment purchases for a year exceed certain amounts.

    Salvage values on equipment also do not come into consideration in making these calculations for income tax purposes. They are generally only used for financial statement reporting purposes. So for income tax purposes if you could theoretically write off 100% of the cost of an 80 in the initial year of purchase provided all the related criteria are met.

    Clear as mud? :D

    Mike

    PS - I'm a tax partner in a CPA firm. :cheers:
     
  16. Jim_Chow

    Jim_Chow

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    [quote author=MoJ link=board=2;threadid=6912;start=msg56827#msg56827 date=1067486286]
    I doubt this applies to everyone but helpful nonetheless----
    I just returned from a class on small business taxation. For a new business, in it's first year, you can deduct 100% of the purchase price of any vehicle with a gross vehicle weight (not the curb weight) of more than 6000 lbs. Apparently the law was written before SUV's were so popular. When written, the IRS assumed that anything weighing this much would only be used for business purposes (i.e construction etc). They handed out a list of acceptable vehicles and the Cruiser was one of them. ;)
    [/quote]

    I think this goes for new vehicles purchased this year, so you need to get a LX470 or 100 series to deduct.
     
  17. Jim_Chow

    Jim_Chow

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    Okay, I just read Mike's response...makes sense you can't deduct if your business is running a net loss already. :) Since the vehicle only has to be new in service, I presume this means one can buy a used cruiser from the dealer and that would qualify? Or would the ruling that the cruiser has a gross vehicle weight of > 6K lbs pertain to the current model cruiser?
     
  18. Photoman

    Photoman SILVER Star

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    Thanks Mike - clear as mud! I was suprised that you can write it off in one year as I always thought the IRS frowned on such things and preferred taking in over time. Maybe that was just better for the company books.
    Bill
     
  19. MoJ

    MoJ Moderator

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    [quote author=Jim_Chow link=board=2;threadid=6912;start=msg57036#msg57036 date=1067540567]
    I think this goes for new vehicles purchased this year, so you need to get a LX470 or 100 series to deduct.

    [/quote]

    again, ask a CPA for sure, but I was advised that as long as it was "new to you" it didn't matter if it was used or not.
     
  20. mts

    mts

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    [quote author=Photoman link=board=2;threadid=6912;start=msg57041#msg57041 date=1067541242]
    Thanks Mike - clear as mud! I was suprised that you can write it off in one year as I always thought the IRS frowned on such things and preferred taking in over time. Maybe that was just better for the company books.
    Bill
    [/quote]

    Of course the IRS frowns on such things......but the politicians always get first shot at the laws! :D As for the "better for company books" comment that is also true. This type of thing goes against all financial accounting reporting rules. But thinking the tax laws make any sense and/or are even closely related to the accounting rules set up for financial reporting by accountants would be a HUGE mistake! :slap:

    As for Jim's question, yes, you could go to a car lot and buy a 1995 80 series and have it qualify. The 6000 lb "loophole" has been in the law for a long time. It was originally designed to allow true work trucks/vehicles and the like to not be subject to the limits of the 280F rules. It's just in recent years with the trend toward BIG SUV's as daily drivers that area of the law has started to be abused/perverted in a manner in which it was never intended. Now even the car dealerships in my area push this rule in order to help sell bigger SUV's.

    Also, prior to 2003, the total Section 179 deduction was limited to $24k. Due to the 2003 tax act, that limit has been raised to $100,000 which has really caused a renewed interest in this law. So theoretically if Joe Yuppie's business is going to earn $150,000 this year, and he drives a car 100% for business (unlikely), he can run right out to his local Hummer dealership, buy an H-1 for $100k and knock his taxable income down from $150k to $50k.

    All this rambling by me will teach you guys not to post any more tax stuff on this forum! :flipoff2:

    :beer:
     
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