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Business Vechile Depreciation

Discussion in 'Introduce Yourself to the Community' started by thomas, Mar 20, 2006.

  1. thomas

    thomas Junior Member
    from maine
    Messages: 14

    I am thinking of starting my own property management business and will need a new vechile for plowing etc. I am aware of the milage write-off but does anyone know about depreciation and how that affects your income liability? Is it worth it for me to buy a new truck to use only for business?
     
  2. Mysticlandscape

    Mysticlandscape Senior Member
    Messages: 689

    If your just getting started don't buy new if its going to sit around more then it works you can get a nice truck for 1/3 of what a new one cost.
     
  3. Mick

    Mick PlowSite.com Veteran
    from Maine
    Messages: 5,546

    Let's say you buy a 1/2 ton pickup (3 year depreciation class) for $18000. For this purpose, let's say you are in a 15% tax bracket. The first year you can depreciate 25% of the purchase price. Second year - 38% and 3d year - 37%.

    First year depreciation is $4500 deducted from your income. This will save you $675.

    Second year - depreciate $6840. Savings - $1026.

    Third year - depreciate $6660. Savings - $999

    Total money saved by depreciation - $2700.

    Plug in your own numbers for truck price, income and tax bracket. If your other deductions take you to a lower bracket, your savings will be less.

    DISCLAIMER: I am not a tax advisor. I have no training in tax matters. Check with your tax advisor for your situation.
     
  4. thomas

    thomas Junior Member
    from maine
    Messages: 14

    Mick

    Thanks for your reply. You really seem to know about this. Is this depreciation on new vechiles only? Does this depreciation come right off your income? If I made $25,000 and the depeciation was $5,000 I would just claim $20,000? If I use the truck only for business can I claim all gas, insurance, inspection, repairs, etc?? If you buy a more expensive truck can you depreciate more? I am just looking for the best way to reduce my income liability in relation to a business vehicle. Any suggestions?
     
  5. Mick

    Mick PlowSite.com Veteran
    from Maine
    Messages: 5,546

    Not sure what you mean by "claim" $20,000. If you mean claiming only the income after depreciation - No, it doesn't work that way. You claim all income, then deduct expenses - including depreciation.

    You can deduct expenses such as fuel, oil, inspection, registration, repairs etc. You should keep all receipts. In case of an audit, they will disallow anything for which you cannot show documentation. State laws vary. Depreciation is calculated by purchase price, not age. In some situations, you can deduct the full purchase price in the year of purchase. Be careful with that one, though. Get advise from a tax advisor.

    Your best bet is to discuss your situation with a tax advisor registered in your state. Getting tax, legal etc advise from some "nut" over the Internet can lead to trouble. You can't come back and say "Well, Mick told me to do it that way".

    I am just looking for the best way to reduce my income liability in relation to a business vehicle. Any suggestions? Contact a tax advisor. I would never buy a vehicle for the sole purpose of getting a tax break. From the looks of all the new trucks I see around, other guys disagree with me.
     
  6. jbone

    jbone Senior Member
    Messages: 154

    Sorry to jump in your post here but I am curious if you can deduct certain expenses from other thing such as equipment? Is there anything deuctible with plows, salters, etc.? Thanks
     
  7. Surfside

    Surfside Member
    Messages: 44

    Good question, seems so it would be equipment. I have read many post from Mick and he does seem to know alot of usefull info. Thanks Mick! I can only say that I am waiting to here back from my accountant after my first year. I have bought a 94 dump,X-blade,walker and alot of my money I made was spent on more equipment. Overall I dont have any answers on deprecation, sorry. I have to say that answering tax questions can be risky and alot tend to shy away. payup I can honestly say I dont have money, just a small start of equipment. Keep all your receipts!
     
    Last edited: Mar 21, 2006
  8. Mick

    Mick PlowSite.com Veteran
    from Maine
    Messages: 5,546

    Yes, there are different classes of property which means different numbers of years are used in calculating depreciation. Basically you can depreciate anything which you spent money to get and is replaced as a cost of business. Land is not depreciated, but the buildings can be.

    http://www.irs.gov/pub/irs-pdf/p534.pdf

    Good advice, Surfside, on waiting to hear from an accountant. Yes, many shy away from answering tax questions. Usually, the answer will depend on a person's situation which can't possibly be known in a forum like this. That's why I always say you should contact a tax adviser.
     
  9. scjjcj

    scjjcj Junior Member
    from Boston
    Messages: 20

    Trucks are 5 year class asset meaning you have to depreciate the asset over 5 years not three. However, if you want you can also expense the entire value of the truck in the year you purcchase it if you so choose. this can be done under section 179 of the IRS code. Just use form 4562.
     
  10. Mick

    Mick PlowSite.com Veteran
    from Maine
    Messages: 5,546

    There are many limitations and conditions with using Section 179. These include not deducting more than net income to create a loss, location considerations partial use of Sec 179 coupled with Depreciation and limits on SUVs.

    http://www.irs.gov/publications/p946/ch02.html#d0e2395

    Consult a tax advisor for your particular situation.
     
  11. basher

    basher PlowSite Fanatic
    from 19707
    Messages: 8,992


    Mick is (as usual) right on the money. The most important thing is SEE A TAX ADVISER. A local Accountant is should know the ins and outs of your particular situation. I talk to my adviser often. He suggest when a purchase, would be beneficial, and the structure we are going to deprecate it under. Never buy a truck thinking your going to beat the tax man. If you want a 100% write-off, Lease, you'll build no equity, only write-offs. But if you want champagne on a beer budget, and 100% write-off leasing is a option. Talk to your accountant, he knows your position an can advise you much better then we can.
     
  12. scjjcj

    scjjcj Junior Member
    from Boston
    Messages: 20

    Just trying to give options. didn't have time to write a text book on the subject.