Ever wonder why so many small business owners drive around in large SUVs or trucks?
Well, sit right down, let me tell a tale, a tale of a fateful, flawed, dumb, and, yes, stupid, tax law. (What? Did you think I was gonna do the song for Gilligan’s Isle)?
I need to point out some goofy definitions before we get started. From Congress’ perspective, a “luxury auto” is any vehicle under 6,000 pounds unloaded gross vehicle weight (there are a few exceptions such as ambulances, hearses, taxis, limousines, etc.)
That means a Kia and a Lamborghini are both considered “luxury autos” according to Congress. A “truck” (truck or van) must be more than 6,000 pounds loaded gross vehicle weight, and it must not have a rear window that can be opened to the truck bed.
A “large SUV” must be more than 6,000 pounds loaded gross vehicle weight. (Did you notice some definitions use “loaded” weight measure while others use “unloaded?” Once again, inconsistent stupidity)!
Let’s assume small business owners with enough profits to fully deduct allowable auto purchase related expenses spend $65,000 on a vehicle.
Listed below are write-offs in order of largest to smallest.
If they purchase a new truck used 100 percent for business purposes, they get to write off $65,000 the first year. (Used is also $65,000).
If they purchase a new large SUV used 100 percent for business purposes, they get to write off as much as $49,000 the first year. (Used is $39,000).
If they lease a truck used 100 percent for business purposes, they get to write off about $24,000 (the actual lease payments made), and don’t have to add back anything to taxable income.
If they lease a car used 100 percent for business purposes, they get to write off about $24,000 (the actual lease payments made), but they must add back $71 to taxable income in year 1, $155 in year 2, $230 in year 3, $275 in year 4 and $318 in year 5. (Are you starting to wonder what Congress was smoking when they wrote this rule)?
If they purchase a new car used 100 percent for business purposes, they get to write off $11,160 the first year. (Used is only $3,160).
So, in conclusion, you’re a small business owner who wants to reduce the largest possible amount of tax you pay in the year you purchase a new vehicle, which would you choose?
Why, oh why doesn’t Congress just let businesses treat a vehicle like any other asset? (Hint, perhaps it has something to do with campaign contributions, greed, and envy)? Also, those of you who can’t stand seeing a small business owner drive around in a Cadillac, or a BMW, have helped create this current mess. Congress has also partially reacted to your grumbling.
Did you hear? Proverbs 13:16 says, “Every prudent man acts with knowledge, But a fool displays folly.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. He’s on the web at BullisAndCo.com and also on Facebook.
