How to Write Off Your Dream Car Tax Free in 2021

so you make some money you got some expenses and you're telling yourself that one day i'm going to earn my dream car but hold on what if i told you you can get your dream car completely for free and what if i told you that the business tax code is actually set up for you to do just that and that companies all around the world take advantage of this and provide cars to their executives and their employees pretty crazy right well in this video let me show you how you can write off your dream car step by step stay tuned [Music] so today we're talking about vehicle deductions and i've used this deduction for myself and many of our clients that want to help reduce their taxable income now of course unless you're an accountant watching this then you probably didn't go to school to learn about taxes and you probably don't spend your weekends binge reading all the tax code so i'm gonna do my best to stay away from all the tax jargon that you see other channels using and instead i'm gonna do my best to make this video as simple as possible that way you can follow some of the steps and hopefully implement this on your own on your next tax return if you want to all right now let's go ahead and dive in so there's a lot of different ways you can purchase a car but there are only really two ways that you can write one off you can choose to use the standard mileage rate or you can choose to use actual expenses these are both two very simple concepts so let me explain starting with number one the standard mileage rate now this one is probably the most common use because you can use standard mileage rates with a car that you already own so with this method you just need to track how many miles that you drive for business and there are so many ways that you can track this with different apps on the app stores and even quickbooks has some metrics in place to help you track mileage a lot easier now the purpose of tracking your mileage is because as a taxpayer you get what is called a vehicle deduction on every mile that you drive for business and that deduction in 2020 is 57.5 cents per mile so let's do some quick math if you drove 30 000 business miles in 2020 and had a standard mileage rate of 57.5 cents per mile your tax deduction on that will be about seventeen thousand two hundred and fifty dollars now keep watching at the end because i'm gonna compare and do some examples of the standard mileage rate against the actual expense rate and by the way for the tax year 2021 the irs is projecting that the standard mileage rate will be 56 cents per mile so a slight reduction but still something that you can take advantage of now let's look at the second way you can write off a car which is with actual expenses so actual expenses is just that it's the actual expenses that you have on your car all right so i told you this is going to be very simple so these are expenses that you have to maintain your vehicle this would include stuff like depreciation lease payments gas tires repairs insurance and even registration fees these are all deductible if you're using your car for your business okay now to be clear if you're using a car for business and personal then you need to be able to separate and split those expenses as best as possible but i'll give you some ideas on how to do that a little bit later now the actual expense method is usually reserved for people who are open to leasing a car because you can't write off your car loan payments because that isn't an expense that is a liability now that can get kind of technical and you really don't need to know the difference between an expense and liability all you really need to know is that with the actual expense method you can write off the lease but you can't write off your car loan payments all right so once you understand the two different ways you can write off a car the next step is deciding which method to choose right so i want you to think about what kind of business you have for example how much are you driving and where are you driving to because that can easily sway you in which method to choose right like if you're a uber driver or tax driver or lyft driver and you drive a lot of miles it makes more sense to own your car and then use the standard mileage deduction to get the biggest deduction possible on the other hand if you're not driving a lot or you don't have long commutes then that may not work for you right like a lot of real estate agents product owners and content creators they want to purchase a vehicle for the business just for for the value that the car brings and just write off all the expenses all right so let's bring all this together and talk about how you can actually do this so we know there's two different ways that you can write off your dream car and you probably already have an idea of how much you drive and whether or not you're going to take the standard mileage or actual expenses method so let's start looking at what we need to do but hey before i do if you're new here hey i'm sean with life accounting the accounting firm that saves people from high taxes and low profits if you're enjoying this or getting any value from this video please share it with your friends so they can also get their dream car and subscribe to our channel so that you learn more about tax and profit hacks because at the end of the day i want you guys to win and build wealth so if you want your dream car get it i just want you to get it for the lowest price possible okay and the tax code absolutely allows it and other fortune 500 companies and executives use it so take advantage start a business make some money lease a car and write it off all right so what do you need to do for the standard mileage rate it's pretty easy tell the irs what kind of car you have track your mileage for business and get your deduction it's really that simple the biggest thing you need to be aware of is that the irs will and may ask for evidence of your mileage so it's important again that you're tracking everything just in case you do get audit because you definitely don't want to go to jail for tax fraud oh no sorry help now let's talk about actual expenses the first question you're gonna get is what percentage of your vehicle is being used for business you want that percentage to be as high as possible the higher the business use the more tax deduction you get and the closer you get to getting your vehicle essentially for free so let's say for example we leased a car for 1 000 a month and 75 of the car was used for business and 25 of the car was used for personal use well then you can write off 750 a month of the lease payments which is thousand dollars times seventy five percent and then you can go right off seventy five percent of the insurance the registration the gas etc so it's so important for us to track all the expenses so that we can write it off and if your income is high you might be getting all this stuff paid for basically tax free so track all your expenses you can use quickbooks or heck you can even use a spreadsheet just don't be one of those people who have 100 receipts and are completely unorganized hey sean i want to write off my car here's all my expenses alright so so let's get serious for a minute if you're making a lot of money and you know you're going to have a huge tax bill at the end of the year like six plus figures and tax liability then instead of leasing your car which will give you a healthy amount of expenses year over year consistently you can instead buy a car and if that car weighs over 6 000 pounds then you get to use code section 179 which allows you to expense a business vehicle 100 percent in the first year with accelerated depreciation all right that's important let me repeat that if you buy a vehicle it weighs over six thousand pounds you can write off that vehicle 100 with section 179 accelerated depreciation okay so if you buy a car and that car costs 150 000 you know let's say it's the tesla model x which is going to be my next dream car all right or maybe it's a g wagon it can be whatever you want the key is that the vehicle weighs more than 6 000 pounds and you can use that car specifically for business under section 179 you're allowed to take 100 of the expense of accelerated appreciation in the first year that's pretty crazy so if you had a hundred and fifty thousand dollar tax liability money you would have had to pay the government anyway this would allow you to get a hundred and fifty thousand dollar tax write-off which can be a tax strategy that saves you 30 or 40 percent if that sounds good to you i'm curious what's your dream car tell us in the comment section below now this is the power of leveraging the tax code and why accountants and cpas get paid so much money because the right accountant even though they may charge you five thousand dollars in tax planning okay may wind up saving you sixty thousand dollars in a single tax year now one important thing to know since we're talking about depreciation on a car that you own if you go out and you sell that car and there's a gain your depreciation amount will need to be repaid which is called depreciation recapture so for example if you use accelerated depreciation and you get a 150 000 tax write-off in year one and then you decide to sell it for 130 000 in year two guys you're gonna need to repay 120 000 in depreciation and report it as income so if you're gonna buy a car you need to think long term like are you gonna have this car for the next five years if not just consider leasing or taking the standard mileage deduction rate all right now since you made it this far i got two bonus tips for using your car as a business expense number one put your business on the car let me explain so if you've ever been on the road and you've seen someone with their face on their car or maybe their business information on their car or their phone number or their website or something like that they're more than likely using that car to promote their business and if they're smart that means they're riding off that car on their taxes because everywhere they drive they are essentially promoting right i've even seen some cars with like an electric billboard on top of them so they're basically driving around while they're promoting their business or even other people's businesses so think about how you can literally put your business on your dream car now i already hear somebody saying sean i don't want to do that that's going to mess up my car completely i want it to look nice and what i say is get over it do it because the benefits tremendously outweigh the cons and you can still do it in a way where your car looks good so just get creative but if you really don't want to do it here's the second tip number two use your car for business content creation so of course digital marketing and advertising is really important for any business in 2021 so think about how you can incorporate your car while promoting your business maybe you take pictures with your car and then put it in ads or social media posts i see people do this all the time when they are trying to show off their lifestyle in a way that helps them connect with their audience and convert more people so maybe you can literally make videos outside of your car or even inside of your car talking about business now if this wasn't clear throughout the video then of course you need to be a business owner or self-employed to use your car as a tax deduction and if you want to play the tax game then you need to get into the business game the u.s economy and the greatest economies in the world are built on who can provide the most value so as a consumer when you're out and you're buying stuff and you're looking good that's nice but you're not really providing a lot of value to the economy so there's no tax write-offs in that but when you have a business and you're giving value and people are spending money on your products or your services then you're providing value to the overall economy and when you're helping the economy grow the government and the tax system rewards you now this is only one deduction and just scratching the surface of all the tax write-offs that you have so if you want to learn more of the top tax write-offs make sure you check out sherman's video on 14 tax write-offs that you need to know about and we'll see you over there you

Channel: LYFE Accounting

Views: 124,486

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Keywords: How to write off car, how to write off dream car, how to write off car in 2021, how to write off dream car in 2021, Car tax write off, Write off car, Car tax deduction, Vehicle tax deduction

Id: RlqTFM5ab5Y

Length: 13min 9sec (789 seconds)

Published: Fri Apr 23 2021