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Tax tips for Plowmen

Discussion in 'Commercial Snow Removal' started by Tommy10plows, Oct 30, 2002.

  1. Tommy10plows

    Tommy10plows Senior Member
    Messages: 345

    I haven't seen this topic before but having just completed my taxes for last year I found a few interesting items for deductions.

    For example, the vehicle mileage allowance from Uncle Sam is up to 34.5 cents per mile, hardly a big deal when you consider your operating costs and the number of miles you travel going back and forth over a lot.

    The big surprise for me for the year was the amount allowed for writeoff under section 179 of the Internal Revenue code. Section 179 allows you to recapture in a tax year some of the costs associated with the purchase of business assets. Buy yourself a $50,000 Mercedes sedan and your deduction is a miniscule $3,060 in the first year of ownership, just a yellow spot in a snow bank if you know what I mean.

    But guys, guess what? Buy yourself a chunky SUV, pickup or van that is a little on the heavy side AND has a Gross Vehicle Rating of greater than 6,000 pounds, and the world looks a whole lot brighter.

    Let's say you bought that F250 4x4 with the dumbo ears for mirrors and added your favorite western plow to it. You paid, maybe $35,000 out the door for it. Since the GVW is greater than 6000 lbs, you can now taking a humungous section 179 $24,000 deduction for the cost of that baby, all in your first year of ownership.

    Your next step is a bonus round, where you take the $24K from the price of $35K, leaving you $11K. Take the $11K and use some first year bonus depreciation at 30%, for an additional $3,300.

    Finally, your balance of the depreciation you can take under standard depreciation rules 20% ( for five year property) of the remaining $7,700.. so lets add it up:

    Based on 100 % business use, your first year deduction is

    $24,000 plus $3,300, plus $1540.00, a grand total for the first year of $28,840.00. That is a grand slam out of the ball park treat for you new truck purchasers. 82% write off in the very first year.

    The secret is the GVW must be 6000 lbs or greater. Anybody check the GVW on their full size pickups? My V6 f-150 supercab is ahem ahem, 6000 lbs.! And the Expedition's gvw is 7250 ! Is this a great country or what?

    Naturally, the numbers above are quoted based on 100% business usage of the vehicle. In reality you have to aportion your biz use and personal use, then the maximum is the percentage of biz use X the formula steps above for your first year.

    Remember too that big momma SUV's over 6000 GVW and $40,000 in price do not have a 3% luxury tax on them.

    It's the 6000 GVW that makes the difference. AND, your business use must be greater than 50%.

    Now plowmen, I am not an accountant, SO be sure to check this out with your CPA FIRST!!!

    It brought a smile to my face, and it should do the same for you.

    Perhaps some of you have some tax tips you would like to share. This forum would certainly appreciate your input.
    Last edited: Oct 30, 2002
  2. chtucker

    chtucker Senior Member
    Messages: 618

    Its true! It saved me almost 7k in taxes last year.

  3. golfmanres

    golfmanres Senior Member
    Messages: 150

    where do you live? I just started my business today in fairfax county virginia. i just applied for a business license and was wondering about insurance. Any help would be appreciated.
  4. Snoworks

    Snoworks Senior Member
    Messages: 466

    Does this only apply to the first year, regarding the first $24,000 figure. I have three trucks over #6000, but none were purchased this year. I am going to take a look at my last couple of tax returns to see what my accountant did.

    Thanks for the heads up. If this is true, I might have a new present for my birthday. Maybe, a one ton crew cab, yeah that sounds great.

  5. shamrock1

    shamrock1 Member
    Messages: 30


    From what I fully comprehend about IRS triggers & Flags, You need to be very cautious in terms of deductions and %'s

    The Kinder & Friendlier IRS is a misnomer, and that is an understatement....

    A Few Tips for all of us from Experience:

    1-Itemize and Account for everything...Be able to Support and validate all of your expenses & deductions

    2-Document to the T, EVERYTHING Mileage,T&E,Equipment Receipts, Repair, Supplies etc....

    3-Make Sure your CPA knows and understands your business inside and out, if they do not, educate them or find another CPA firm.

    4- The Standard Deduction & Expense/Gross Income Ratio score is something that the IRS watches very closely on all business entities, should you deviate from their formula by a certain percentage GUESS WHAT?? AUDIT TIME !!!!:eek:

    Having all of your ducks in a row so to speak, and being diligent and prepared with all necessary documentation will help tremendously.....

    The other variable that can prolong a miserable experience to begin with, is the potential IRS "Employee of the Year" having a bad day.... It's not pretty (and she wasn't either)

    Check into things thoroughly before TAX DAY, It may help you down the road....:waving:
  6. BRL

    BRL PlowSite.com - Veteran
    Messages: 1,277

    "Now plowmen, I am not an accountant, SO be sure to check this out with your CPA FIRST!!!"
    Ditto Shamrocks comments.
    I am not a CPA either, but I've read a few articles about the 179 (I wish I'd saved the links to share them here, sorry) & discussed it with my CPA. You should definitely discuss your situation with your CPA. There are specific positives & negatives for taking that deduction versus depreciation of equipment (this is not for just SUV's, Trucks but also other "equipment" expenses). In those cases, Tommy's & chtuckers' accountants found that in those situations, taking the 179 was the better option for that expense. In my case my CPA has had me depreciate certain expenses & 179 others for very specific reasons (I can't tell you those reasons because I'm not the CPA , but she made good arguments that sold me LOL). The US Tax Code is certainly a cumbersome animal, and that means there are sometimes more than one way to skin the cats (or the numbers in this case). Unfortunately that also makes it a big PIA to deal with, and forces us to hire professionals that can figure it out :(
    Kinda like our clients hiring us to figure out how they're gonna gain safe access to their facilities after Mother Nature strikes.
  7. seville009

    seville009 Senior Member
    from CNY
    Messages: 694

    One point regarding the §179 expense - you can only use it if you otherwise have net postive taxable income from that business.

    For example, if, before the depreciation expense, your business showed net income of $2,000, but you bought enough equipment that allowed you to elect to expense $24,000, you could only use $2,000 out of that $24,000. The remaining $22,000 cannot be used to reduce your other items of income (ie: wages, interest, gains, etc) that tax year. You can carry that $22,000 foward though, so you're not losing it.

    Also, relative to the additional 30% depreciation allowed in the first year, that's for assets placed in service between 9/10/2001 and 9/11/2004. You can't use it against all assets though. It's very important to note that you have to affirmatively elect to not use it. Technically, if you don't deduct depreciation that are allowable, you're still deemed to have taken them. In this case, if you do not elect on your tax return during these years to not take the 30% additional depreciation, and don't take it, if you sell the asset, say, a year later, your tax basis is computed as though you did take the deduction. You can always go back and amend your prior return, but there're time limits on that. It's very tricky.

    This 30% additional depreciation deduction was passed into law in March 2002. If you filed your 2001 return before that, you can go back and amend it and take the deduction.
  8. wxmn6

    wxmn6 PlowSite.com Addict
    Messages: 1,037

    Yeah I am wondering about something like that. You know, some of us use our truck for both personal and business, especially the solo guy like me. Now, because we are doing business, we buy a bigger and stronger truck to suit our business needs. That involves more money than we necessary would need to spend on if we only need a vehicle for personal. I bought a Chevy 2500HD because it will suit for my business need. However if I am not doing a business that I have now, I would not need to spend on a bigger truck that I don't need. A S-10 or 1500 would be fine for me for all personal use.

    We deduct the taxes by the percentage of business usage. Suppose a bigger truck cost you $10,000 more than a vehicle that you could use for just personal, and you use that truck 25% of time for business, that mean only $2,500 can be deductible. You end up with extra $7,500 of undeductable tax. Does not sound fair.

    How about us snowplowers? We know that snowplowing are hard on truck and require more overhead. But how do we deduct it from our taxes? Suppose snowplowing cost you 5X more to do business than just personal, but you only deduct by the percentage of use on your vehicle which is based by the mileage. Now remember that snowplowing uses more gas, more maintenance, etc., in a shorter amount of mileage than when using for personal. But we calculate the amount of deductible per miles by adding all the gas, insurance, and maintenace expenses through the year (both personal and business) and divide by the total miles driven in a year. So we end up deducting only partly of expenses that we actually spent for business. Does not sound fair.

    So how do we solve this problems? How can we deduct for the expenses that we spent on for business but the rules does not allow us to get a full deductible?
    Last edited: Oct 31, 2002
  9. seville009

    seville009 Senior Member
    from CNY
    Messages: 694

    One thing to point out...if you do have a truck that is used part business and part personal, you can depreciate the business components separately.

    If, for example, your usage is 60% business and 40% personal, then the depreciation on the truck and the allocation of the basic truck expenses is also split 60/40.

    However, if you put a plow on, a spreader, or any other modification that will only be used on the business side of it, then you can depreciate that based on 100% usage.

    It's important, therefore, if you buy a truck with some or all of this already on it, that the invoice clearly show the cost of the truck, the cost of the plow, etc.

    Regarding expenses, if you can identify costs directly attributable to the business, they would be 100% deductible. Say you're plowing in a day long snowstorm - you may put in $40 of gas and add some oil. You may have only put a small number of miles on the truck (half forward and half reverse, and the odometer does not record the reverse miles). Under normal driving conditions, that $40 in gas may have taken you 600 miles, but you only recorded 100 miles during the snowstorm. As long as you can support that you spent the $40 while operating the business (plowing for profit), you deduct that entire $40 as a business expense. As someone said earlier, good records are a must. In an audit, good records really do have a big influence on the auditor.
  10. NoStockBikes!!

    NoStockBikes!! Senior Member
    Messages: 215

    I kind of agree with you in principle, but then the argument could be made that all I would drive otherwise would be a 1987 Yugo with 200k miles worth $100, so I want to deduct everything above that. So it becomes subjective, and that's the one thing they want to avoid at all costs.
    Prolly the bests way to rationalize it is to look at it from the other side. Using your "work truck" for personal use, and removing the personal use from the deduction.

    SOoo... How do you determine the % of business use? Is it based on time, mileage? A SWAG with enough paperwork backup to make your estimate possible? Actually, I think I'm gonna make this a new topic...
  11. sonjaab

    sonjaab PlowSite.com Addict
    Messages: 1,425

    GUYS....I am a NYS S-CORP..........We own the buildings and
    lease them to the corp. Same with my plow rig. I own it
    and lease it to the corp. Imake sure the payments are
    the same as what I charge the corp. Sure the money I
    get is income BUT The buildings and truck depeciate
    a certain % every year so the income I get is just
    about a wash on my personal income tax !
    And because I am a s-corp the businesses I run LOSE
    money on paper every year ! Weird huh?
    But I have a great accountant and every thing is on
    the up & up as far as Uncle Sam is concerned.....
    SNOW is coming to Northern NY today..........
    Waiting to try out my new turkey wings!..geo
  12. Snoworks

    Snoworks Senior Member
    Messages: 466

    I saw a special on Fox the other nite. They were discussing the section 179 tax benifits. This law was established, in there view, as a reward to the small business owners. Since we are the ones buying a majority of this equipment, they wanted to create a larger tax benifit.

    It was very informative. I will be talking to my CPA with regards to the pro's and con's.

    Chuck B.