How To Write Off Your Car Under Your Business In 2021

welcome back to taxes made simple my name is carlton dennis and in today's video we're gonna go over how to place your vehicle inside of your business vehicles are big tax deductions and many taxpayers are unsure about how to get their vehicle underneath their business so they're taking write-offs in the right way so in this video i plan to solve that question for you and if you stay to the end i can show you the 179 vehicle deduction that allow for you to write off a hundred percent of your vehicle in one year let's dive in [Music] it's only right that we discuss vehicles as business owners because when we go into business we want to make sure that we can write off things that we couldn't write off before we were a business owner but you might be someone who purchased a vehicle previous to getting to business or you might be someone who's been waiting to buy a new vehicle and you want to make sure that you're doing it the right way and whether or not it should go underneath your business we're going to answer those questions today but the first thing that we're going to solve is what does business use mean based on the irs well the irs defines business use as any time you placed an item that you own into business purpose so what does that mean well underneath code section 162a the government states that a business owner can take a business deduction if that deduction is ordinary in nature necessary in nature and reasonable in nature in the pursuit of income now for most business owners having a vehicle is going to be ordinary necessary and reasonable for you to make money but when have you decided to place your vehicle in business use it all comes down to when you decided to become an operational business well i like to think about operations like i think about fast food if i were to start a fast food chain such as a mcdonald's then i might buy my fry machine and my burger machine and my sign and i might get everything ready but until i turn on the on sign on the outside and i'm ready to serve customers and flip hamburgers that is when i actually become operational so same thing for your business you can determine when you are operational which determines when your vehicle goes into business use which means that the moment that you are operational is the moment you get to start deducting your business so for example if your business isn't operational until june then you wouldn't write off your vehicle going back to january because your business didn't start until june so now we want to make sure that we are writing off our vehicle based on when we placed it in business purpose but the second thing that we have to determine is do we still get a write-off if we bought our vehicle in our personal name even though we just started a business this comes up a lot in consultations that i have because many clients are aware that they can take a vehicle deduction but they believe that their vehicle needs to be allocated underneath their business one thing that you have to understand is that the irs has made it very clear whether you've purchased a vehicle in your own name or you have a personal vehicle that you placed into business use you still get to take a vehicle tax deduction i just wanted to make sure i could clear that up so i have a lot of clients that get confused they say carlton i bought my vehicle in my personal name but then i started the business does that mean i can't write it off that's not true you still can write off your vehicle in your business we are just going to allocate the expenses into your business which means that if you're still paying for your vehicle out of your personal bank account this might be something that you want to start paying for out of your business account because if your vehicle is business related then your business should be paying for the expenses now the next thing that we have to understand is that there are percentages associated with being a vehicle that's for business anytime you are going into business and you have purchased a vehicle for business you might have decided that that vehicle will be personal sometimes in business all the other times which means there needs to be a percentage that's personal and a percentage that's business most clients have their vehicle over 50 business and about 40 to 20 personal which is fine but one thing you have to know though is that ever in the event of an irs audit it's very important that we're tracking our personal time too just as we track our business time one of the ways in which we can track our business miles is by having apps in our phones such as mile iq or quickbooks that can track our mileage for us every time we go over a certain mile per hour this app will turn on track the distance and log it and give us a statement on how far we drove so that way we're logging all of the trips that we're taking that are business related not to mention quickbooks has a version that does the exact same thing so if you decided that you wanted to go with the quickbooks route the same place where you have your bookkeeping now you can track your mileage through the feature that quickbooks offers to be able to record the use that is business purpose so now we have to determine does it make sense for us to take mileage which the government gives us 56 cents per mile that we drive that's business related or does it make sense for us to take actual expense which is all of the expenses associated with the vehicle which could be our tires our maintenance our registration the gas we put in the car as well as our car payments now you may say off the top of your head carlton i want to take actual expense i know for a fact i want to write off my car payments the insurance the gas that goes into the car but we have to assess the mileage too maybe you're someone who's driving a lot like a lot of my real estate agents or brokers or maybe you're someone who's doing lyft or uber this is when mileage becomes super important to you 56 cents per mile can add up when you are tracking it but the most important thing that you have to understand is that you want to track both you want to be able to track your actual expenses and you want to be able to track your mileage in the year and the reason why is because the government allows for you to choose if you're someone who thinks at the beginning of the year that you're going to have more car expenses by paying actual but then at the end of the year you end up spending all your time driving you may get to a place where you didn't calculate all your mileage going back to january february march april all of those beginning months of the year so now you're in a position where you could end up taking a less of a deduction because you didn't do your homework on tracking your own expenses what's the problem math problems see this this youtube channel my channel is about being a savvy taxpayer and if you're going to be a savvy taxpayer you're going to do the work and you're going to be willing to do the work to get tax savings which requires you to track the mileage and track your actual expenses tracking actual expenses is pretty easy anything that touches your bank account you're just going to account for it such on quickbooks or excel right i spent this amount of money on gas i spent this amount of money on insurance i spent this amount of money on my car payment that's easy but the mileage side of it becomes a little bit trickier because you need to make sure that you've downloaded an app such as male iq or quickbooks that it's actually turned on and that you remember to turn it on when you drive somewhere see the government is going to help us get tax deductions but it does require us to put in effort to get those tax deductions and that's something very important for us to understand now we've gone over the two ways in which you can take a deduction you can take mileage or you can take actual expense but there is another deduction that gets to help you when you own a vehicle and it's called depreciation anytime that you decide to purchase a vehicle that means that you have financed and purchased the car you're not leasing it you get to claim depreciation depreciation is taken on the entire vehicle's purchase amount whether you financed it or not and the government allows for you to write off the vehicle over the course of five years which means if i have a vehicle that's fifty thousand dollars and i'm taking straight line depreciation which is a depreciation method i'm getting about a ten thousand dollar write-off every year for five years and if i happen to have a vehicle that's a little bit heavier i get to leverage this 179 vehicle deduction so what we're going to go over next is what is this section 179 vehicle deduction that's getting thrown around all over the place on the internet how does it work how do we get it and does it make sense for us to go for it let's talk about it so the 179 vehicle deduction can be broken down into two types it can be broken down into small vehicles and large vehicles and we're going to go over the small vehicles first because a lot of my clients typically have vehicles that weigh less than 6 000 pounds so you need to understand how the 179 vehicle deduction works for you when you have a vehicle that's less than 6 000 pounds so let's dive in small vehicles that weigh under 6 000 pounds leveraging the 17 179 vehicle deduction are able to take a deduction of 10 100 in the first year but if you leverage bonus depreciation another write-off that was given to us by the government this now exceeds our deduction to a maximum of 18 100 in that first year so what that means is rather than taking only ten thousand on my vehicle that i spent fifty thousand dollars for and depreciating it over the course of five years i can leverage the 179 tax code that was implemented by the trump administration and part of the tax cuts jobs act and then i can leverage bonus depreciation and now i'm taking a write-off of eighteen thousand one hundred dollars in one year if the vehicle is not used 100 for business then i will be able to take a percentage based on what is business use so let's just say my vehicle was 50 business well then that means that i get to write off 9050 in that first year as a business deduction leveraging 179 and bonus depreciation now we discuss heavy vehicles in order for a vehicle to qualify as a heavy vehicle the vehicle needs to weigh over 6 000 pounds but also needs to weigh under 14 000 pounds many suvs vans and pickup trucks typically fall over the six thousand pound limit and under the fourteen pound threshold the gross vehicle weight rating is typically featured on the vehicle's manufacturing label the label lists the make the model the features and it's located typically on the inside of the driver's door on either side of the sticker or a thin metal badge and this what lets us know whether or not this is a heavy vehicle that will qualify for the 179 vehicle deduction so qualified heavy vehicles have a 179 vehicle deduction limit of 25 000 coupled with bonus depreciation you are able to take a bigger deduction all in the first year bonus depreciation is very unique what it states is is if you place a vehicle or item in business purpose that has a useful life of less than 20 years that you can write off that vehicle or that item all in one year we already talked about the vehicles have a depreciable life of five years which means that if we're leveraging bonus depreciation and coupled with the 179 vehicle deduction we have the ability to write off a hundred percent of our vehicle all in one year if the vehicle is a hundred percent business use you may ask me carlton do you have any clients that have vehicles that 100 business use i do typically these are clients that have gotten to a place where they have business vehicles and personal vehicles but you may have a vehicle that is strictly 100 use for business and this is where we can take a 100 write-off all in one year which means if you make a down payment on that vehicle and you go to purchase that car i can take up to the 25 000 that's allowed if it's a heavy vehicle plus bonus depreciate the rest of the amount of that vehicle in the same year now the 179 vehicle deduction is a tax strategy used by savvy business owners who are conducting tax planning and part of the reason why savvy business owners who are doing tax planning will leverage this strategy is this isn't a strategy you just show up to your cpa's office and say oh i want the 179 vehicle deduction this is a strategy that you need to plan out because as soon as you take the 179 vehicle deduction that's it you can't go right off that vehicle the next year because you've already leveraged all the depreciation in one year so if you're in a year where you may be expecting more income the following year does it make sense for you to leverage that 179 vehicle deduction this year knowing that you're going to pay more taxes the following year so you have to come up with the correct strategy not to mention the 179 vehicle deduction only can offset to the extent of income what that means is is if i have taxable income of 50 000 but then my 179 vehicle deduction plus bonus depreciation is giving me a 75 000 write-off i'm not going to be able to claim the 25 000 in losses to offset other income or receive a refund back i'm only going to be able to offset the 50 000 taxable income which means that 25 000 in loss will roll over to the next year as an nol carry forward a net operating loss carry forward it'll carry forward to offset new taxable income in the following year this has been fun i've enjoyed talking to you guys about understanding how to place your vehicle underneath your business how to take deductions whether your vehicle is in your personal name or in your business name the difference between mileage and actual expense and how you can take depreciation when you decide to finance your car and buy it yourself and most importantly the 179 vehicle deduction with bonus depreciation if you have any questions around this video if you'd like to get a little bit more advice on what you can do to structure these types of strategies feel free to visit the link in my bio to schedule a free complimentary consultation with my tax strategy team or you're more than welcome to schedule a coaching call with myself i look forward to seeing you on the next video [Music]

Channel: Karlton Dennis

Views: 59,743

Keywords: understanding your deductions, taxes made simple, tax strategy, tax expert, karlton dennis, taxes made simple karlton dennis, tax deductions, easy tax planning, tax deductions explained simply, easy to understand taxes, vehicle write off, How To Write Off Your Vehicle Under Your Business, in 2021, how to write off your car, tax deduction tips, business, how to pay less taxes, Write off car under LLC, Write off vehicle under LLC

Id: tb76QRoiUu0

Length: 14min 19sec (859 seconds)

Published: Sat Jun 19 2021