Advanced Depreciation-Automobiles

01 October 2013 / Uncategorized / Comments Off on Advanced Depreciation-Automobiles

Welcome to another edition of Tuesday Tidbits, where we make tax and accounting simple. I'm your host Charles D. Shapero, CPA with Widget Bookkeeping & Tax, and today we're going to talk about Auto Depreciation. In a previous Tuesday Tidbits, we talked about how mileage was the best method. But we can also choose to deduct autos by deducting actual expenses, gasoline, oil, insurance and of course, the car itself. The rules that govern depreciation on vehicles are very complex. If you have a vehicle that is more than 14,000 pounds, most of us don't. There is no limit to your depreciation. We're talking a huge shipping truck ,no limit. If you have a vehicle, that's say a Mercedes, the IRS has a real problem with that, because they think that we're buying this beautiful great car a luxury car, and we're deducting it, we're writing it off. They don't like that. So what they put under code section 280F, they put what's called the luxury auto rules, and what they say is that you can depreciate your car, just like any other asset under section 167 but we're gonna put caps on it. Those caps are typically around two to five thousand dollars a year. Well, that's pretty small, if you take five years times two thousand, you can write off somewhere around ten grand for a car. What if you bought a $50,000 Mercedes? Well the IRS is going to limit you to five grand a year. But there is a loophole, I'm a CPA, what would I be without showing you the loopholes right? The loophole in cars is that you go and find a car with a gross vehicle weight of more than six thousand pounds, the gross vehicle weight on most SUV's exceeds six thousand pounds and what the IRS says is that there is no limit on those vehicles, except that you can take up to $25,000 a year. So they have this really high cap. So the game is, that if you have profit near the end of the year and you want to make some of that profit go away, you can buy an SUV that's more than six thousand pounds, at a purchase price of right around $25,000 bam, instant lowering of your tax bill. That concludes today's Tuesday Tidbits, see you next Tuesday! Widget Bookkeeping & Tax, Know More, Keep More