Self-employed, business ownerscan take advantageof tax deductions
Tax Code Section 179, the special deduction to write off equipment in the year purchased, was extended permanently in 2015. In 2018, this deduction allows businesses to write off up to $1 million worth of depreciable assets the year they are purchased, including machinery, heavy equipment, furniture and fixtures, and certain vehicles, mainly SUVs and pickup trucks. You have to have positive income, not a net loss for the year. You must purchase the vehicle by December 31, 2018 to get the write-off on your 2018 taxes.
Bonus Depreciation allows you to deduct a specified percentage of the cost of assets in the year of purchase. This deduction is allowed even if you do not have income, and has no max amount. You can use this for an unlimited number of purchases. The percentage is doubled to 100 percent for assets purchased after September 27, 2017. For assets purchased after then, the $25,000 cap utilizing Section 179 does not apply to vehicles utilizing Bonus Depreciation.
Vehicles are subject to limitations on any of the depreciation deductions. The vehicle must be used at least 50 percent for business. Also, there are top end deductions for different classes of vehicles. Small cars under 6,000 lbs. are capped at $18,000 in the first year. SUVs and crossovers with GVWR above 6,000 lbs. are capped at $25,000 if Section 179 is taken. SUVs and crossovers with gross weight above 6,000 lbs. do not have a cap if Bonus Depreciation is taken. Pickups and vans with no rear passenger seating that are above 6,000 lbs. also do not have a cap. Every major brand of pickup (½ ton and up) are over 6,000-pounds for purposes of this deduction.
Another deduction that is often overlooked is the mileage deduction. This is a unique deduction because it does not matter how much you actually spend, but matters how much you drive. Use this if you are not depreciating the cost of your vehicle. This would be used when mileage is a better deduction than depreciation, or when depreciation is not allowed. The mileage rate is increasing from 2017 tax year of 53.5 cents per mile, to 54.5 cents per mile for the 2018 tax year. If you drive 10,000 miles for business purposes, then you get a mileage expense of $5,450.
Always check with your CPA to make sure you qualify for these deductions. For a list of eligible vehicles, go to CarProUSA.com.
Jerry Reynolds is an auto industry expert and the host of nationally syndicated Car Pro Show heard Saturday 11 a.m.-2 p.m. on News Radio KTRH 740 AM, and Sports/Radio 610 KILT AM, Saturday 11 a.m.-1 p.m., and online at www.CarProUSA.com.