Do you use a vehicle to assist in running your business or are you thinking about doing so? There are many facts to consider when it comes to maximizing your tax credit. Read on to learn how you can make the most of your business vehicle!
Will you be leasing or purchasing your vehicle? The biggest difference between leasing and purchasing your business vehicle is the tax consequences. When you buy a vehicle, you pay the tax up front with the purchase. When you lease it, you pay taxes with your monthly lease payment. The tax is deductible in either case, but when you purchase your business vehicle, you will receive a larger deduction up front, whereas with a lease, you will receive smaller deductions on a monthly basis.
When you purchase a business vehicle, you can take a deduction against depreciation over five years. When you lease your vehicle, you are not allowed a deduction for depreciation. If your car costs more than $15,300, it is considered a luxury vehicle, and your depreciation deduction is limited.
- – Under 6,000 lbs (passenger auto)— If you buy a passenger auto for more than $15,300 and it weighs less than 6,000 lbs, the deductible depreciation for the first year is $3,060, and $4,90C for the second year.
- – Under 6,000 lbs (light truck or van) — If you buy a light truck or van for more than $16,800 and it weighs less than 6,000 lbs, you can deduct
- – $3,260 of depreciation for the first year, and $5,200 for the second year.
- – Over 6,000 lbs — If your business vehicle weighs more than 6,000 lbs, there is no limit on your depreciation deduction.
Although ‘lessees can’t take a depreciation deduction, they can take a deduction on their monthly lease payment limited to the vehicle’s business use percentage. Be sure to keep track of the mileage and the related business reasons. Vehicles used as equipment, such as dump trucks, do not qualify as business deductions.
Give Paragon a call if you have more questions about your business vehicle! We pride ourselves on keeping our clients informed to make the most of their business!