Purchasing a business vehicle can significantly benefit small business owners.Not only can it help you improve business credit, but you can also use the heavy vehicle deduction as a tax write-off. Let’s explore this in detail.
As a small business owner, you should always look for ways to lower your taxes.
Purchasing a vehicle using IRS Section 179 would be one of the top tax strategies I would recommend.
Before we dive deep into the heavy vehicle tax strategy, let’s briefly discuss how to purchase a business vehicle.
To purchase a business vehicle, go to the auto dealership and ask for the commercial department or ask for a business loan application.
In most cases, you will use your credit and yourself on the business application as a personal guarantee.
Once approved, the vehicle will be in your business’s name and report to both your personal and business credit.
Once you have purchased the vehicle, you can use Section 179 to reduce your taxes by $25,000.
Section 179 allows taxpayers to deduct the cost of specific property as an expense when the property is placed in service.
Basically, you can purchase a vehicle this year, and as long as the vehicle weighs between 6000 and 14000 lbs, you can write off up to 25,000 on your taxes. The vehicle must be “placed in service,” meaning the vehicle must be used 100% for business purposes starting the year in which you purchased it.
If you want to write off the entire purchase price of your business vehicle, then the Bonus depreciation rule passed under Tax Credits & Jobs Act will allow you to accomplish this in most cases.
Under the new TCJA, Bonus Depreciation allows you to deduct a specified percentage of the cost of the assets in the year they are placed in service.
For example, if you purchase a Range Rover, which is 6000 pounds or more, you can deduct 100% in the year purchased and placed in service.
You can also purchase a used vehicle and still use the Bonus Depreciation rule to take the full 100% deduction.
In most cases, you can use both the Bouns Depreciation and Section 179. I recommend that you speak with your tax professional to determine which would benefit you and your business.
To learn additional strategies to help you maximize profit and cash flow, watch our free video training, 7 Financial Mistakes Keep Consultants From 7 Figures, by clicking the link below.