lots of people do that tbh, honestly really depends on the situation. Driving a pickup truck for a construction business is far less likely to raise any red flags (even if you drive it home and write it off) than writing off a bmw for example in that business. I guess it really depends on if you raise any red flags to get audited.
I’ve been doing some form of this since 2007: I was a 1099 for a couple years, then had an LLC with a partner where I got a W2, and back to a single-member LLC a couple years ago.
- Nobody here is your CPA, so as a small business owner you should really seek counsel from your accountant. That said…
- As others mentioned, there is a difference between you doing it and the business doing it. The short answer, in nearly all cases, is that less dollars will be spent if you lease the car and insurance vs your business, in case you care about not spending dollars to save dimes.
- There is a lease vs buy, which is effectively whether the vehicle is over 6000 gross weight, which lets you use a tax loophole to accelerate the depreciation. It’s a short list of vehicles that fit that bill.
- If you lease, you can lease and insurance as yourself, and settle up in the auto worksheet of your 1040 (I still do long form) at the end of the year. And there are some great apps to help you track what usage is business vs personal.
Personally I run the numbers every time a lease is up on lease vs a Section 179 purchase, and every time I end up leasing.
Comforting words when you’re in prison. They should cross-stich that into those comfy blankets they give out.
Work trucks. Realtors. Sales People (1099s). Lots of people do it. But yes it always depends on the situation.
I’m not saying it’s for everyone, but if you drive a car anyway and you use it for work, it’s worth the hassle of having your accountant deduct what can clearly be identified as the business portion. By leasing you are only paying for utility that you use, and by writing it off you are using pre-tax dollars on the utility that isn’t for your personal use.
AND much like leasing: you shouldn’t lease to stretch and get a car you couldn’t otherwise afford, you shouldn’t write your lease off on the business to jump into another class.
All great advice and pointers, but this was the big one for me.
I probably should have pointed out that I’d be looking at leasing a car that I’d be comfortable leasing even without the potential business benefits. I might not throw in as many car washes, but essentially I’m looking to convert some personal trips that I perform services and don’t charge for, into business trips, in a car that I’d be leasing anyway.
Glad it helps. My usual example doesn’t work on LH, but I usually tell people “Don’t lease the BMW if you were going to buy the Accord.”
But as this sight is happy to point out, you can save a lot of money by leasing. And if you can pay for some of that utility as a business expense, why not?
In 2010 I leased a Mazda3, I could have afforded a lot more, but it was under $350/mo on a sign-and-drive, got great gas mileage, and didn’t make me stand out in the parking lot at work (which was a goal). The XC60 is the most expensive (MSRP) car I’ve leased, but I’m paying less for it than I was for my GTI (also leased).
If you are bored playing checkers and you’re ready for chess, and you don’t use any of these things to over-extend, you’ll do great.
Ask your Accountant and then make sure it passes the smell test.
At the end of the only you are responsible for it.
Biggest mistake ppl make is determining “business use”. Ppl love to classify “commuting” as business use. Which is not.
2nd point to remember, whether you use actual expense or standard mileage, it still gets allocated based on “business” miles traveled.
I understand section 179 gives you all the money up front, but don’t you pay it back when you don’t get any deductions in the subsequent years?!?
Yes, and if you sell the vehicle you have to claim the sales price as income.
I appreciate that! I think more than anything, I’d be using the business as a means to supplement my lifestyle, not run it. If after a year or two this doesn’t work out, then oh well.
What I do want to do is find out what else can be written off, but obviously I need to talk to a professional first and see if it’s even a feasible approach.
Agreed. Can’t recommend that enough.
I write off (at least partially) my phone, Internet, most insurance, car lease, and all my direct business expenses, including my lawyer and accountant.
Accounting is fun and profitable !
Those in the know give a sweetheart deal to someone they know. Usually their kid or other family or even themselves. Sell the vehicle for next to nothing so that there is little in the way of income. From the selling price deduct some inflated reconditioning/selling expenses.
I have read about such deals but have no direct knowledge of such myself
Once again, it is only illegal if you get caught.
Hey, wanna sell me a Ferrari for 20K
Fitting saying for the day. Anyone else listen to nine judges in robes (maybe bathrobes) talk about tax returns today.
Also, this is an incredibly law abiding forum, I have limited access to tax returns at work and the number of times the lease write offs I see are legitimate is under 10%.
Funny to run across this thread, as I first discovered LH a few months ago trying to figure out if I could wrap a leased car. At that time, my plan was to have one of my suppliers wrap my car (1099 travel agent), and as I didn’t want to wrap my daily driver BMW convertible, I had the thought to lease something through the business to have wrapped. With travel at a standstill right now, plans are on hold, and my accountant is still mulling over whether driving a wrapped car would constitute enough business use to make it worthwhile, as I really don’t have to drive for the business and it would be 100% marketing.
Would love to learn more about this. What exactly can be written off if I leased a 6000+ GVWR vehicle (section 179) in 2020 to be used for business 100% of the time?
You should talk to your Accountant about how it applies specifically to you.
My understanding is if you lease, you can’t take advantage of this because you don’t own the vehicle, the captive does. If you purchased that vehicle, you can accelerate all the depreciation into Year 1 which reduces your taxable income (eg if your gross was $350k but you purchased an eligible RR Big Boy for $100k, your taxable top-line now becomes $250k).
Again talk to your account, but your lease and eligible expenses (gas, insurance) can be deducted if it’s used for business. Pro tip, even if it’s used 100% for business, your accountant will probably tell you not to deduct 100%.
FYI, you don’t need to lease for the tax deduction. If the vehicle is being used primarily for work, you can straightline depreciate it over 5 years (20% per annum). Whenever you do depose it, whether 5 years or 20 years later, you simply take a capital gain on the sale price.
Edit: disclosure, I am not an accountant, so you’ll need to confirm with one.
It’s also a matter of timing and strategy. If you have good and bad years, better to take all the deduction in a good year (plus gaming tax brackets should that apply). Also money saved today is better than money saved over 5 years. Next consider that if you take 100% deduction in year one but pay the car/truck over 5 years you’re effectively cash flow positive upfront, especially if you purchase at the tail end of year 1. Think of it as an interest free loan from the IRS.
If the sale price is too far off from book value it throws up a red flag that can be a contributing factor in triggering an audit, especially when the sale is to an ‘insider’. And if you’re willing to play it fast and loose on this, you probably have a number of items that you wouldn’t want to surface in an audit.
Gotcha, thank you for clarifying.
I kept reading the term “equipment leases” in Section 179 but no details around how it actually is applied.
It sounds like the only way to take advantage of Section 179’s 100% purchase write-off in Year 1 is by purchasing the car, not leasing it.
Yes, you can’t depreciate an asset that you don’t own.