Self employed? Go get that BIG TRUCK/SUV!

[sm]

This is a request for a clarification on a fact which some of you might be able to shed light on.

The way I understand now, the so called Tax Break would benefit mainly two situations :

1. An S corporation where profit/loss or entire income goes to the owner of the S corp.

2. A C corporation which declares profit and pays corporate tax at the end of the year

My question is HOW or IF this tax break would be beneficial to a C corporation where the owners are salaried emplyees and distribute the earnings as salaries and bonuses and dont really pay corporate tax at the end of the year. This is pretty much the situation with most professional services corporations. Is there any way this could be beneficial to the owners of the C corporation who are salaried employees of the corporation on their individual tax return or in any other way ??

This question has loomed in my mind for a long time. Any clarifications would be appreciated.

 

[sirjay]

Now, shouldn't these SUVs be registered as Commercial vehicles since they are owned by a business and not an individual?

Actually depending on where you live(I know it to be fact in california and nevada) if you own *ANY* truck(suv doesnt really apply) with an uncovered bed, you must register it as a commercial vehicle, or you risk being ticketed if you have anything in the bed. But on the flipside, I once parked in a commercial/delivery zone at an airport and got ticketed, I brought this fact up in court and the judge threw out the ticket. The fact that you have commercial plates doesnt really raise the fee's either, it's still mostly based on value.

 

[ChrisCramer247]

Originally posted by: wandonono
Does anyone know for a FACT that this would trigger an audit?

It all depends.

If you have an accountant they will definately look over it with their AJE's (Adjusted Journal Entries) and definately say "what is this?" and question you about it. If your small business always has rather large writeoff's and this company car would not show up as a red flag (indicator for something being wrong in your 10k statement or fiscal/quarterly year books). If you have constant writeoffs in the thousands every quarter of fiscal year for your company I would say it would not show up that much. Especially on a payment plan.

I think if you really want to do it the best thing would do it through a loan and do installed payments so your books would balance like this:

Truck Loan..................... $45,0000

Cash $45,000



Then:

Cash........................... -$10,000

Down Payment Truck $10,000 (then write off as business expense or place in footer)



AJE's would be by monthly/quarterly/yearly or however you make the payments and way of payment method (Deferal, etc..) So you would be writting off far less then the full $45,000. You also won't put down that you own the truck yet since you are still paying it off.

So your AJE's would be monthly if you are paying it off monthly so since it is a $45,000 truck and you put down 10k, you have $35,000 lets say you have a three year 0% APR since you got a deal from the dealer.

Cash............................ $972

Payment Truck Loan $972

All payments for the truck loan are write offs since it is a business expense because you are getting a truck with it.


Then after all is over you own the truck, add depreciation expense to it through the accelerated or double declining method (more deprication would be better since you get less value on the truck)

So every year for three years you will write off $11,666 for it if you use a current style of payment and not defered. That is a huge difference then writting off $45,000 in one year.




I am not an accountant but thie method might work, im sure some of my math is off and didn't accountant for many many other book options and statement options. Just trying to help hide those tracks . hopefully some can add to this and other ideas as well.

EDIT: Ugh hard to make a decent looking ledger on the forum

 

[dataspaz]

Here is a hot deal -

Always use an accountant. They will save you thousands of dollars more the TurboTax or any of these other software packages.

I paid my accountant $250 last year and I got a $6k refund. To compare, I used Turbotax and it calculated me a $1200 refund :Q

 

[Analog]

Originally posted by: GetReal
Nothing spells audit for the IRS more than an accelerated vehicle depreciation under a section 31 expense. AUDIT GUARANTEED.:|

sad, but true.

 

[bGIveNs33]

Originally posted by: sm
This is a request for a clarification on a fact which some of you might be able to shed light on.

The way I understand now, the so called Tax Break would benefit mainly two situations :

1. An S corporation where profit/loss or entire income goes to the owner of the S corp.

2. A C corporation which declares profit and pays corporate tax at the end of the year

My question is HOW or IF this tax break would be beneficial to a C corporation where the owners are salaried emplyees and distribute the earnings as salaries and bonuses and dont really pay corporate tax at the end of the year. This is pretty much the situation with most professional services corporations. Is there any way this could be beneficial to the owners of the C corporation who are salaried employees of the corporation on their individual tax return or in any other way ??

This question has loomed in my mind for a long time. Any clarifications would be appreciated.

I think I understand your question.... if you used this tax beak under an S-Corp than you would just write it off as personal income. But for a C-Corp... you would just write it off as part of the corporations income. I see what you are saying that if the coporation dispenses all of it's money so it essentially earns nothing... I'm really not sure what would happen. But I would think that the government has thought of that. That seems like a nice way to get around the corporate income tax(which is a stupid tax anyway).

 

[Ziptar]

Live Larger Drive Smaller!

Also a HOT DEAL! it's a Free Bumper Sticker!!!


FWIW, I was able to buy a 2003 VW Jetta TDI Wagon for Less than a SUV would have cost even with the tax breaks. I get 48 miles to the gallon and I have enough space to haul my 2 kids and lots of stuff.

 

[Wolverine27]

Originally posted by: dataspaz
Here is a hot deal -

Always use an accountant. They will save you thousands of dollars more the TurboTax or any of these other software packages.

I paid my accountant $250 last year and I got a $6k refund. To compare, I used Turbotax and it calculated me a $1200 refund :Q

I'm pretty much stupid when it comes to tax code so forgive me if this is a stupid question...but if you are getting $6k tax refunds, aren't you paying way too much during the year?

 

[Overzeetop]

IANAA, but ...

The S/C corporation that distributes all earning to the partners/officers at the end of the year as draws or bonuses pays no taxes. In that case, you are simply saving the perosnal tax & fica/fhit, assuming you would have bought the car out of your own pocket as if it were a personal vehicle. By buying the vehicle through the corp, the money never sees the light of day - no personal taxes since you never received the money, and mostly shielded from corporate taxes through the deduction.

Of course, IMHO, this is why the tax system in the US is full of crap. Taxes - personal and corporate - should be based on gross receipts . Does your raw material supplier reduce his price because your electric bill was high? Of course not. The defense of the US, the education of the workforce (current and future), and the enforcement of laws should be a cost of doing business, not a cut of "profit" which can be reduced to zero by crafty accountants or special interest loopholes.

 

[dataspaz]

Originally posted by: Wolverine27

Originally posted by: dataspaz
Here is a hot deal -

Always use an accountant. They will save you thousands of dollars more the TurboTax or any of these other software packages.

I paid my accountant $250 last year and I got a $6k refund. To compare, I used Turbotax and it calculated me a $1200 refund :Q

I'm pretty much stupid when it comes to tax code so forgive me if this is a stupid question...but if you are getting $6k tax refunds, aren't you paying way too much during the year?

not necessarily - you have no way of planning for all your itemized deductions throughout the year. that is where the accountant helps out the most by telling me what I can itemize and what I cannot.

 

[GetReal]

Originally posted by: dataspaz
Here is a hot deal -

Always use an accountant. They will save you thousands of dollars more the TurboTax or any of these other software packages.

I paid my accountant $250 last year and I got a $6k refund. To compare, I used Turbotax and it calculated me a $1200 refund :Q

Yeh, but the difference does not necessarily mean that your accountant was better. He/she was just more "liberal" with your return. Turbotax and other major tax programs have the advantage of hundreds of CPAs in many different tax situations in all states. These programs see in black & what and not shades of grey like some creative accountants do. Tax programs err on the side of caution so you will always get a lower refund using them because they do "fudge" out of the box. If your accountant found a difference of 500% over a commercially available tax software program I would seriously question the acountant's ability. I would certainly get a second opinion. ANYONE can initially get a tax refund for any amount they want by claiming questionable or bogus deductions. However, getting a refund ,keeping it and avoiding an audit is quite another story. Remember it is your signature on the bottom line and the IRS is not going to go after your accountant. Hmmmm.... if there is one thing we have learned over the past year in corporate America is that accountants would never lie - NOT!

 

[dataspaz]

Originally posted by: GetReal

Originally posted by: dataspaz
Here is a hot deal -

Always use an accountant. They will save you thousands of dollars more the TurboTax or any of these other software packages.

I paid my accountant $250 last year and I got a $6k refund. To compare, I used Turbotax and it calculated me a $1200 refund :Q

Yeh, but the difference does not necessarily mean that your accountant was better. He/she was just more "liberal" with your return. Turbotax and other major tax programs have the advantage of hundreds of CPAs in many different tax situations in all states. These programs see in black & what and not shades of grey like some creative accountants do. Tax programs err on the side of caution so you will always get a lower refund using them because they do "fudge" out of the box. If your accountant found a difference of 500% over a commercially available tax software program I would seriously question the acountant's ability. I would certainly get a second opinion. ANYONE can initially get a tax refund for any amount they want by claiming questionable or bogus deductions. However, getting a refund ,keeping it and avoiding an audit is quite another story. Remember it is your signature on the bottom line and the IRS is not going to go after your accountant. Hmmmm.... if there is one thing we have learned over the past year in corporate America is that accountants would never lie - NOT!

this is true - however, i did not claim anything questionable in my return. I think the point is that accountants know all the right questions to ask and the software packages are not that intuitive. There are a lot of things deductible that I would never know about unless he told me. i.e. Luggage I bought for business travel, Job hunting expenses

Also, the accountant must sign my return as well so I doubt they want to sign their name to anything that questionable.

 

[VegasF6]

This has got to be complete nonsense. I live in Nevada, my stepdad had a flatbed put on his Dodge Ram at Nevada Truck. It is not a commercial vehicle, it is a private vehicle. Hense, private registration, and private insurance. (by the way, you are correct, a commercial registration doesn't cost much more, but commercial insurance sure does!)

My neighbor has a dodge ram with a flat bed too. It was a commercial truck when he owned his own business. Business went busted, he still drives the truck, now his private vehicle. Private insurance, registration.

I have a nice big Chevy truck. If I put a flat bed on it, it becomes commercial??


On a side note, did anyone notice this quote?

And a provision allowing taxpayers to put up to $3,000 of tax-free earnings per year in private retirement accounts costs about $90 million per 100,000 taxpayers, according to Taxpayers for Common Sense

They are attacking the Roth IRA's with that one. Or the standard IRA's. But it's not true, neither of those are tax free. The first is taxed income (with tax free earnings, yum) and the 2nd is tax deffered, like my 457.

Take that article with a grain of salt.
VegasF6

 

[Krazi]

Originally posted by: GetReal

Yeh, but the difference does not necessarily mean that your accountant was better. He/she was just more "liberal" with your return. Turbotax and other major tax programs have the advantage of hundreds of CPAs in many different tax situations in all states. These programs see in black & what and not shades of grey like some creative accountants do. Tax programs err on the side of caution so you will always get a lower refund using them because they do "fudge" out of the box. If your accountant found a difference of 500% over a commercially available tax software program I would seriously question the acountant's ability. I would certainly get a second opinion. ANYONE can initially get a tax refund for any amount they want by claiming questionable or bogus deductions. However, getting a refund ,keeping it and avoiding an audit is quite another story. Remember it is your signature on the bottom line and the IRS is not going to go after your accountant. Hmmmm.... if there is one thing we have learned over the past year in corporate America is that accountants would never lie - NOT!

My wife is a CPA and when she signs a return, her CPA license is on the line. If the IRS thinks she knowingly falsified the return, she will lose her license among other things (possibly prosecution under several federal laws). And if you are a public accountant, that is the worst thing that can happen to your career. There are ways to be "liberal" without breaking any tax code laws and in ways that would not raise a flag for an audit. A good tax accountant knows these methods and when to use them. Your local H&R Block representative and/or favorite tax accounting software does not for the most part.

If you think you are overpaying your taxes (and most people are) then consult a CPA. 9 times out of 10, they will get you back (or save you) more money than they charge. And since their name is on the line as well, they won't want to raise any audit red flags either.

 

[DurocShark]

4) Environmentally, it's great to upgrade older fleets with smaller (intended result) or at least newer vehicles that may have to meet tougher emission standards (probably not on these due to truck classification) or use less fuel.

Can't find the friggin bookmark. I musta lost it when I wiped my drive coupla weeks ago...

I read an article comparing the pollution levels of driving an older, dirtier, vehicle, compared to the pollution (including landfill space) of manufcturing a new vehicle...

Assuming the vehicles are perfectly maintained, as many fleet vehicles are:

An average new vehicle has to get 10mpg BETTER than a 10 year old vehicle to overcome the pollution/waste created during manufacture. There were some numbers comparing actual vehicles, but I only looked at my Volvo. I have an 84 244 GL with 250k on the clock. Perfectly maintained (until I cracked the head... Now it's a lump in the carport till I can afford a new head) and running smooth and clean. Smog check always WELL under allowable limits. It would take 12 years for a new Volvo 4 cyl to reach the balance point my car has already reached and then some. Only like 4mpg difference, and not much change in the smog tech under the hood. Better computer, new head design helped, but not enough. Catalyst is basically the same. In fact, mine is oversized to scavenge more pollutants than an average one (long story... Not intentional. LoL)

Auto companies love the argument that new vehicles run cleaner so are better for the environment. They sell more vehicles! The gov is convinced to place stricter smog check requirements so people get a "gross polluter" rating because of an exhaust leak. I wonder how many people got that, paid the $300 to get it fixed, then traded in the vehicle because they thought it was going south? (This happened to my 96 s-10... Flexible portion on the header pipe cracked. WTF is there a flexible portion for??? I bought a new header pipe from the dealer for $125 and put it in myself. Sheesh. Passed smog with flying colors.)

I don't have a real problem with smog checks. At least not in concept. But things have gotten silly. At least CA gov has realized some of it is rediculous and started putting age limits.. '72 and older vehicles are exempt from smog. WooHoo! No smog for my '72 LTD with the 390!!!

Sorry so long folks, I just crack up over the environmental posturing by the government. And I've been a member of the Surfrider Foundation for years!

 

[nebula]

I started a home/small business this year so I figured it was time to get an accountant. I used to always do my own taxes, not too hard but now I have the business, a home, etc.. So itemizing is coming into play.

Anywho, can't you write off the cost of the accountant? For that matter, the cost of TurboTax software too. I know it's not a 1/1 write off but for $250 less some write off is well worth it in my time savings. I mean heck, I know it will take me many hours if I was going to do my taxes this year. I started reading some of the Pubs. intending to do them and finally I said, "my time is worth more than this", they are so wordy. Oh, and I'm no dummy either!

 

[GetReal]

Originally posted by: Krazi

Originally posted by: GetReal

Yeh, but the difference does not necessarily mean that your accountant was better. He/she was just more "liberal" with your return. Turbotax and other major tax programs have the advantage of hundreds of CPAs in many different tax situations in all states. These programs see in black & what and not shades of grey like some creative accountants do. Tax programs err on the side of caution so you will always get a lower refund using them because they do "fudge" out of the box. If your accountant found a difference of 500% over a commercially available tax software program I would seriously question the acountant's ability. I would certainly get a second opinion. ANYONE can initially get a tax refund for any amount they want by claiming questionable or bogus deductions. However, getting a refund ,keeping it and avoiding an audit is quite another story. Remember it is your signature on the bottom line and the IRS is not going to go after your accountant. Hmmmm.... if there is one thing we have learned over the past year in corporate America is that accountants would never lie - NOT!

My wife is a CPA and when she signs a return, her CPA license is on the line. If the IRS thinks she knowingly falsified the return, she will lose her license among other things (possibly prosecution under several federal laws). And if you are a public accountant, that is the worst thing that can happen to your career. There are ways to be "liberal" without breaking any tax code laws and in ways that would not raise a flag for an audit. A good tax accountant knows these methods and when to use them. Your local H&R Block representative and/or favorite tax accounting software does not for the most part.

If you think you are overpaying your taxes (and most people are) then consult a CPA. 9 times out of 10, they will get you back (or save you) more money than they charge. And since their name is on the line as well, they won't want to raise any audit red flags either.

This is simply not true. With the exception of two states (CA, and NY) there are no repercussions for CPAs who "make mistakes" on tax returns and even in those states it is near impossible to even get any type of rating on a particular CPA. The blame lies solely with the tax payer(s) whose signature(s) are on the bottom line. The IRS does not even require that CPAs who fill out tax returns to attend audits. Some of the more reputable firms will volunteer to go with you if you are audited but they ae not required by any law. While it is trua a CPA can save you more over the commercially available tax software programs IF you have a complicated tax situation, but for most this is simply not the case and recovering the CPA fee is not realistic without some "liberal" interpretation of the tax codes. If your CPA is finding fie times the number of deduction than these software programs then that is a BIG red flag that you need a second opinion.

BTW - If your CPA told you that your luggage that you use on your business trip is deducable, then you have already proved my point. It is NOT I can personally verify this from an earlier audit when I got nailed for claiming a TUMI overnight bag as a busines expense. The only types of business related personal luggage that you can legally deduct is a laptop case and then only if it is used strictly for business and has no additional use (ie a backpack laptop case or laptop suitcase that can hold personal clothing items) There is also a limit on the amount that you can deduct on thes. The price paid has to be realistic and within the "IRS mean" defined for this type of item.

 

[Krazi]

Originally posted by: GetReal


This is simply not true. With the exception of two states (CA, and NY) there are no repercussions for CPAs who "make mistakes" on tax returns and even in those states it is near impossible to even get any type of rating on a particular CPA. The blame lies solely with the tax payer(s) whose signature(s) are on the bottom line. The IRS does not even require that CPAs who fill out tax returns to attend audits. Some of the more reputable firms will volunteer to go with you if you are audited but they ae not required by any law. While it is trua a CPA can save you more over the commercially available tax software programs IF you have a complicated tax situation, but for most this is simply not the case and recovering the CPA fee is not realistic without some "liberal" interpretation of the tax codes. If your CPA is finding fie times the number of deduction than these software programs then that is a BIG red flag that you need a second opinion.

BTW - If your CPA told you that your luggage that you use on your business trip is deducable, then you have already proved my point. It is NOT I can personally verify this from an earlier audit when I got nailed for claiming a TUMI overnight bag as a busines expense. The only types of business related personal luggage that you can legally deduct is a laptop case and then only if it is used strictly for business and has no additional use (ie a backpack laptop case or laptop suitcase that can hold personal clothing items) There is also a limit on the amount that you can deduct on thes. The price paid has to be realistic and within the "IRS mean" defined for this type of item.

If you'll read the fine print (was it fine, I can't tell) you'll notice I said "If the IRS thinks she knowingly falsified the return." This is different than making an "accounting mistake". Sure, it may be difficult to prove. However, "most" CPA's will not take that risk and fudge numbers to the point of raising audit flags. Most CPA's have some accountability when they sign that return regardless of what state it is.

As for someone getting 5 times the return they would have gotten using TurboTax I could see it being possible if the person 1) didn't enter everything correctly into TT and/or 2) Owned their own business. Most people who own their own small business don't have much of an idea of what and how much they can deduct.

 

[sirjay]

This has got to be complete nonsense. I live in Nevada, my stepdad had a flatbed put on his Dodge Ram at Nevada Truck. It is not a commercial vehicle, it is a private vehicle. Hense, private registration, and private insurance. (by the way, you are correct, a commercial registration doesn't cost much more, but commercial insurance sure does!)

I worked as a supervisor at the dmv headquarters in carson city and currently at a local branch here in cali..you'd better call and check your info. Just because people arent aware of this, doesnt mean it isnt true. They dont inform you of it because you really dont have a choice, like I stated if you have a camper on your truck you can get around it if you want to take it to the arbitration board, and sign documents stating you wont remove it you can register your truck as a private vehicle in nevada saving you maybe $8/yr(alot more trouble than it's worth). Having commercial plates doesnt really mean anything most states register/plate any/all pickups as a commercial vehicle.

 

[Angrymarshmello]

You could at least give credit to the person who originally posted the link on AT

 

[dman]

OK, let's do some simple math (just for concept of this tax break):

You earn,say, 100K/yr (for easy number).
You are in a 30% tax bracket (for easy math).

You buy an SUV for 45K so you can deduct it...

100K * .3 = 30,000 in taxes owed (no deductions).

100K - 45K *.3 = 16500 in taxes owed (1 deduction)

So, on 100K income, I'd save $13,500 in taxes by buying a 45K SUV this year.

But I had to spend 45K to save $13,500.

So, I'm down $31,500 in the income department but I have a SUV in the driveway that I saved 30% on.

Then there are the other costs, insurance and gas, which are also potential writeoffs.

It's a good deal if you need an SUV/new vehicle, but, it's not like you get a 'free' suv.

 

[dannybin1742]

Nothing spells audit for the IRS more than an accelerated vehicle depreciation under a section 31 expense. AUDIT GUARANTEED

not true, there have been a few articles in the local paper here about this.



its sad though because this encourages people who own their own business to WASTE GAS (owning an SUV), although i wouldn't mind owning one of the new hummers

 

[Stifko]

Originally posted by: dannybin1742

Nothing spells audit for the IRS more than an accelerated vehicle depreciation under a section 31 expense. AUDIT GUARANTEED

not true, there have been a few articles in the local paper here about this.



its sad though because this encourages people who own their own business to WASTE GAS (owning an SUV), although i wouldn't mind owning one of the new hummers

what if they don't get a gas powered SUV, but a diesel? They get a much better MPG.

 

[degeester]

I bought a new Lexus GX470 with IRS section 179 deduction in mind, due to small business legislation post 9/11 you can deduct another 30% of the remainder on the first year (so long as equipment is put into service post 9/11) and depreciate the remaining over five years. link to SmartMoney article

 

[sm]

Quote

--------------------------------------------------------------------------------
Originally posted by: sm
This is a request for a clarification on a fact which some of you might be able to shed light on.

The way I understand now, the so called Tax Break would benefit mainly two situations :

1. An S corporation where profit/loss or entire income goes to the owner of the S corp.

2. A C corporation which declares profit and pays corporate tax at the end of the year

My question is HOW or IF this tax break would be beneficial to a C corporation where the owners are salaried emplyees and distribute the earnings as salaries and bonuses and dont really pay corporate tax at the end of the year. This is pretty much the situation with most professional services corporations. Is there any way this could be beneficial to the owners of the C corporation who are salaried employees of the corporation on their individual tax return or in any other way ??

This question has loomed in my mind for a long time. Any clarifications would be appreciated.
--------------------------------------------------------------------------------



I think I understand your question.... if you used this tax beak under an S-Corp than you would just write it off as personal income. But for a C-Corp... you would just write it off as part of the corporations income. I see what you are saying that if the coporation dispenses all of it's money so it essentially earns nothing... I'm really not sure what would happen. But I would think that the government has thought of that. That seems like a nice way to get around the corporate income tax(which is a stupid tax anyway).

____________________________________________________________________________________________________________________



Hi bGIveNs33 ,

I think you did get the point I was saying perfectly. So I guess it is true that for a C - corporation which dispenses all its income as salaries and bonuses, this benefit wouldnt exist.

I dont think trying to escape corporate tax is wrong at all. Infact it is now an accepted fact that the corporate tax for smal businesses is a form of double taxation being imposed and hence the govt is also planning to look into it with the newer tax changes being expected this coming year. Why should the owner of a small business be expected to pay first a corporate tax on his/her earning and then a personal income tax again. It is most ridiculous to me.


Overzeetop,

You are right in your statement in the first paragraph you wrote and I was also thinking on same lines.

Then I guess all the benefit that people get out of this write off is only for people who are already either being double taxed in a C-corporation oe in S-corporation setting only.

Thanks for sharing your thought on this.