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Watch this BEFORE you buy your next car...How to write off a vehicle - YouTube
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Hey, everyone.
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Eric Freeman here again
to talk to you today about auto expenses.
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It may sound too good to be true.
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Deducting the full cost of the auto
in the year you buy it for tax purposes.
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But it's true.
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We just have to make sure
that we know the rules.
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That way you can take advantage of it.
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And of course, this has to be
for the use in your business.
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And so we'll go through the methods on how
you actually come up with the deduction,
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the different possibilities you have
and which one may be better in your case.
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And by the time we get to the end,
we'll see and we'll have a good idea
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on which autos you can deduct fully
what potential limits there are.
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So you can take advantage of this
for your business.
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Before we get into the specifics on
how you can take advantage of these auto
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deductions, it's important
to know a couple of details.
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For example, you want to keep great logs
on your business mileage.
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This is an area that historically has been
highly contested by the IRS
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because taxpayers
have taken advantage of it in the past.
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So there's specific
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questions on the tax forms
that ask you if you keep this information
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to substantiate your deduction
to help you keep track of the mileage.
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There's various apps that you can use,
and these will help you
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track what your business,
Miles, are versus your personal.
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You can even keep notes in them on what
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the business purpose was for that
in the locations that you went.
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Makes it very easy nowadays
to keep track of all of that.
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So you definitely want to do that
in case you get audited.
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You're able to show the IRS
that these are true business, Miles,
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and that you were allowed
these deductions.
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The second thing is
you want to keep receipts for your actual
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business expense is related to the auto.
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So if you purchased a new car,
you want to keep the purchase documents.
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You want to keep any kind of receipts
for the gas or the oil or the repairs.
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Because what you'll see is
these are deductions that are included.
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And so, again, if you're going to get
potentially question
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on those, you want to make sure
that you have support.
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And then lastly,
you want to make sure that you know,
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which Miles actually count for business
first personal
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because if you're using an auto
that is part for your business
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and part for personal use that you're
using on the weekends for something
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you want to make sure that you know
the difference between those miles.
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Because certain miles like commuting
from your home to your principal office
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location, and those aren't
necessarily business miles.
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But if you go from the office to a client
location or a lunch with a client or
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something, of that and back to the office,
all of that is business.
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Miles, of course, going to the grocery
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store from your house
is not going to be a business mileage.
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It's easier to substantiate your mileage
if you have one auto for the business
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and one for personal.
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Of course, it depends on your business.
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The needs the auto that you needed
for both your personal life
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and your business life.
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Because, of course, you don't
want to buy things just for the deduction.
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You want to make sure that you figure out
the needs of the business
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and then figure out
how do you make it deductible.
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So now we're going to go into more of
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how you actually calculate this deduction
and how you can take advantage of it.
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There's two main ways
to calculate your mileage deductions.
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The first one is your standard mileage
which is a much easier calculation.
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You still need to track your business
miles versus your personal miles,
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or there's your actual expenses.
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And this is where you're actually
totaling up the costs that you incurred
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to maintain the vehicle,
to purchase the vehicle for the gas
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and everything like that.
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And then figuring out the percentage
that is for business use
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and then deducting that portion.
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Like I said, the first option
is your standard mileage for 20, 22.
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The IRS has set the rate at 58
and a half cents every year.
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This gets adjusted to a different rate.
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You want to check each year
which rate is applicable.
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This is a very simple calculation.
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You just track your miles,
your business miles.
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For example,
if in 20, 22 you were to drive
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10,000 business
miles, the rest was all personal.
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It simply take 10,000 miles
multiplied by the 58 and a half set rate.
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That the IRS gives us each year,
and you'd have
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a $5,850 deduction.
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A lot of times
people may not be aware of that,
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but if you're using your auto for
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your business, especially driving around
for rental properties,
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checking on them, doing repairs, managing,
meeting tenants, anything like that,
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you want to make sure you're tracking
all of that because that's an easy
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deduction that you want
to take advantage of and not miss out on.
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The second method is the actual expenses
and the actual expenses.
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It's typically more beneficial
when you've bought a car.
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And this will allow you
to potential offset more of your income
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because this is where
we'll be able to deduct the entire cost
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of the vehicle,
as you'll see when we get to the end.
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So I've listed some of the most common
expenses
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that you could deduct
that are related to a business vehicle.
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So you have your interest
or your lease payments.
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So obviously if you finance the vehicle
you own it
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outright
and you're making interest payments on it.
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The interest portion,
not the principal portion, is deductible.
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Or if you've leased a vehicle, then
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the full amount of your lease
payments is deductible.
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And then of course,
you're going to have insurance expense
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so you can deduct
that you have repairs periodically.
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So any time anything goes wrong,
you could potentially deduct
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that your gas, your oil
if you get car washes, hopefully
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keep it clean registration,
all of those expenses that are related
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to owning and maintaining a vehicle Now,
the last one is depreciation.
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And we all know
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from watching the videos that
this is one of my favorite deductions.
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So this is where we will get
the big benefit
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of deducting the full cost of the car.
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As you know, depreciation, typically
you have to take those deductions
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over time.
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And this means in the case of a vehicle,
you're
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typically deducting the cost
of the vehicle over a five year period.
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However, there's
special allowances for autos.
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Now, if you're interested
in the specific code sections,
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you'll probably hear it thrown around
or if you've searched on Google
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for how this works.
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You know, Section 179 is the code section
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that gives us a lot of these deductions
when it comes to vehicles.
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But essentially, what it says is that
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you can deduct the full cost of equipment,
which includes
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vehicles in the year of purchase
if it's used for business.
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There are certain limitations.
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So, for example,
you have to use the vehicle
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for at least 50% or more business to get
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any type of special depreciation
allowance.
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There's also certain limitations
on the type of vehicle that you purchase.
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Historically, this has been an area that
some taxpayers have taken advantage of.
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And, you know, they would buy these
nice cars, Ferraris or
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Range Rovers or whatever else
you can think of.
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And really, they were trying to finance
some of their personal costs,
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but call it business.
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And so they try and take advantage
of these deductions.
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And so there were limitations
put into place
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so that you couldn't deduct all of it
if you're saying it was for business.
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But if you're buying vehicles,
generally vehicles
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that way, over 拢6,000, you can deduct.
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And when it comes to pickups, if it's over
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拢6,000 and has a greater
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bed length greater than six feet,
there's no limitations on that deduction.
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If it's less than a six foot bed,
then you're potentially limited
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to a 25,000 maximum which most
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you know, if it's a new vehicle
is probably going to cost more than that.
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So you want to make sure
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that you talk to your CPA
before you purchase a vehicle
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because that may affect your decision
if you're able to write it off fully.
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And that vehicle makes more sense
for the business.
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Of course, specialty
type vehicles like vans
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and things that may be used for delivery,
there's not any limitations on that.
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So you can take advantage of this.
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And of course, if you're not using
the vehicle 100% for your business,
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then you won't deduct the full amount
of these expenses.
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You'll take a percentage.
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So, for example, if you drove 20,000 miles
for the entire year
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and that was your total mileage let's say
10,000 of that was for business purposes,
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that gives you a business
use percentage of 50%.
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So you take 50% of all of these expenses
and that would be
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your deduction to the business,
which can make a big difference.
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So obviously if you're using the car
for 100% business, that's where
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you'll really take advantage of writing
off the full cost of the vehicle.
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But not only are you writing off
the full purchase cost of the vehicle,
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with these special deductions
under the IRS code that allow
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you to, you're also writing off
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all the other expenses
associated with owning the vehicle.
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And it's important to know
that you can write off
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the full cost of the vehicle
even if you financed it.
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That's really an important thing
because you're using the bank's money.
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You haven't actually come out of pocket
if you've financed it,
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but you're still deducting it
as if you had
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hopefully you were able to watch this
video before you purchased the vehicle
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so you could take advantage of this
and maximize your deduction.
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I hope this helped and gave you a lot of
tips for on your next vehicle purchase
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I look forward to seeing you
in the next video.
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Be sure to like comment, subscribe
and I'll see you all next time.
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