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Saturday 10 December 2016
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Self-Employed & Business Owners: Huge 2016 Tax Write-off

Self-Employed & Business Owners: Huge 2016 Tax Write-off

It’s hard to believe we’re coming to the end of 2016. There is one big date to keep in mind if you’re self-employed or a business owner and that’s December 31st. That’s the deadline for this year’s special tax deduction you can get if you buy certain vehicles, mainly SUVs and pickups.  

It’s part of Tax Code Section 179. The special deduction allows you to write off equipment in the year purchased. It was extended permanently in 2015 legislation.

This special deduction allows businesses to write off up to $500,000 worth of depreciable assets in the year that they are purchased, in this case 2016.  This can include machinery, heavy equipment, furniture and fixtures, and certain vehicles, mainly SUVs and pickup trucks. 

There are certain limitations to the rule in addition to the $500,000 cap.  For example if you purchase more than $2,000,000 in assets for the year, then you will have this deduction phased out.  Also, you have to have positive income and not a net loss for the year. However, if you meet these guidelines, then it can be a great idea to move those vehicle purchases you are planning for next year forward to 2016 to take advantage of last minute tax savings.  You must purchase the vehicle by December 31, 2016 to get the write-off on your 2016 taxes.

Bonus Depreciation

For businesses that do not qualify for Section 179 there is another great tax break, but it expires in 2019.  Bonus Depreciation allows you to deduct 50% 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, but the deduction is only allowed for NEW assets.  For used vehicles this deduction is not allowed, but Section 179 IS allowed.  The bonus depreciation deduction will be available at the 50% amount in 2016 and 2017.  In 2018 it will drop to 40% and in 2019 it will drop to 30%.

Limitations

Keep in mind that vehicles are subject to limitations on any of the depreciation deductions.  The vehicle must be used at least 50% for business to qualify.  Also, there are top end deductions for different classes of vehicles.  For example, small cars under 6,000 lbs. are capped at $11,060 of depreciation in the first year.  SUVs and crossovers with Gross Weight above 6,000-punds are capped at $25,000, and pickups and vans with no rear passenger seating that are above 6,000-pounds do not have a cap. Every major brand of pickup (1/2 ton and up) are over 6,000-pounds for purposes of this deduction.  This includes Ford, Ram, Chevrolet, Toyota, GMC, and Nissan.  When you get down to the mid-sized trucks you might be surprised to find that some of these are right on the line.  A 2017 Chevrolet Colorado crew cab is over the weight limit, but the extended cab is not, so it might save enough in taxes to make it worthwhile to upgrade to the bigger size.

Mileage

Another great automobile 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.  This is the deduction you use 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 (for example if you used your vehicle less than 50% for business).

The mileage rate is decreasing from the 2015 tax year amount of 57.5 cents per mile, down to 54.0 cents per mile for the 2016 tax year.  The calculation is as simple as it sounds: if you drove 10,000 miles for business purposes, then you get a mileage expense of $5,400.

This deduction is much easier than keeping track of your expenses for gasoline, oil changes, tire replacement, etc.  Keep in mind, however, that you cannot double dip and use the mileage deduction in addition to expensing your gasoline, oil changes, tire replacement, etc.

Which Vehicles Qualify

Here is a quick reference to some vehicles that are over the 6,000-pounds GVWR threshold.  There may be others not listed here, and I also highly recommend you look on the inside of the driver’s door to verify the Gross Vehicle Weight Rating, sometimes equipment and options push a vehicle over the limit to qualify, and conversely a lack of options can keep a vehicle from qualifying, so do your homework!  Our dealers are familiar with the rules, so if you are looking at a larger SUV or any pickup, ask the dealer to verify the GVWR just to be safe.

ELIGIBLE 2016-2017 Vehicles:

  • Audi Q7 3.0L TDI
  • BMW X5 XDRIVE35I
  • BMW X6 XDRIVE 35I
  • Buick ENCLAVE
  • Cadillac ESCALADE AWD
  • Chevrolet SILVERADO
  • Chevrolet SUBURBAN
  • Chevrolet TAHOE 4WD
  • Chevrolet Truck TRAVERSE 4WD
  • Dodge DURANGO 4WD
  • Ford EXPEDITION 4WD
  • Ford EXPLORER 4WD
  • Ford Truck F-150
  • Ford FLEX AWD
  • GMC ACADIA 4WD
  • GMC SIERRA
  • GMC YUKON 4WD
  • GMC YUKON XL
  • Honda PILOT 4WD
  • Infiniti QX56 4WD
  • Jeep GRAND CHEROKEE
  • Land Rover RANGE ROVER 4WD
  • Land Rover RANGE ROVER SPT
  • Land Rover LR4
  • Lexus GX460
  • Lexus LX570
  • Lincoln MKT AWD
  • Mercedes Benz G550
  • Mercedes Benz ML350
  • Nissan ARMADA 4WD
  • Nissan NV 1500 S V6
  • Nissan NVP 3500 S V6
  • Nissan TITAN
  • Porsche CAYENNE
  • Toyota 4RUNNER 4WD LTD
  • Toyota LANDCRUISER
  • Toyota SEQUOIA 4WD LTD
  • Toyota TUNDRA
  • Volkswagen TOUAREG HYBRID

As always, check with your tax advisor to see what works best for your situation, but if you are doing some year-end planning, a new car might be the most fun way to save on your taxes.

Special thanks to an awesome CPA, Bill Caton of Caton Consulting Group.  If you or your business needs an outstanding CPA firm, contact bill at www.ccgcpa.com.

Photo Copyright: M. Primakov / Shutterstock