Yes and yes. I write off about 85% each year of my lease, gas, and insurance.
Section 179 requires a purchase, and while you don’t pay ordinary income on that (eg) 105k for a full sized RR, you have to pony up the $105k. Spend a dollar to save $0.30.
I do this analysis every three years, and I keep leasing. When something like a Mitsubishi Montero (was that the monster in the 2000s?) was an option, different story. Everything that fits that loophole now is expensive and unreliable (even if it’s sexy). I can deploy the capital I’d spend on a 179 purchase other ways and make money on that money, which makes me happier.
To be fair self employed people usually pay much more then 30%. After state, federal, local se tax etc it’s usually closer to 50%. Still unless you need a 6,000 lb vehicle, the deduction isn’t really worth it. I might be wrong but I believe this 179 deduction started in 2008 to boost consumption as people weren’t buying. I remember it around the cash for clunkers debacle.
Where I have gotten a lot of mileage (so to speak) is not cheaping out. I don’t buy $80 ink jet printers that break, I have a nice color laser that cost me $300 but cut my trips to Staples/Kinkos by 95%. I have a Herman Miller chair and a nice power stand/sit desk. I wouldn’t have probably bought any of those if I couldn’t write them off.
Depends what you do. I shelter a lot of income in retirement vehicles, and for more than a decade my effective tax rate (as calculated by my accountant) was 24-26% Federal (even with AMT). Last year with the tax law changes, it was 39% on similar income and deductions.
And as others Also frequently point out, it’s a graduated income tax, so even if you are in a top bracket, it’s only taxed at that rate on the income exceeding the threshold of the prior bucket, not all at that rate.
There are certainly W2s that make top bracket money, but most of the people I know who are in the stratosphere are some kind of self employed/entrepreneur and use an S Corp, where the first 120k is taxed as ordinary income, lots goes into retirement vehicles, and the rest is taxed as cap gains at 15%.
The Accelerated depreciation part is newer, the 6000 pound gross vehicle weight exemption is a loophole that has been around for a long time: it’s considered ”farm equipment” making it eligible for a write off, 179 allows you to accelerate all the depreciation into year one.
Lots of Ford dealers make their year in December selling trucks to people whose accounts told them they made too much money.
I would (stupidly) joke “this has been my Ted Talk”, but I was actually in LA last night giving a very similar talk.
A lot of people see the accelerated depreciation as free money, but totally forget the part about having to pay taxes on the delta between sales price and depreciated value.
