Are you in the market for a SUV or truck?
If so, then it’s time to go shopping thanks to the 2018 Tax Cuts and Jobs Act.
There is a little-known IRS section of the tax code called Section 179 that can get you into a new vehicle of your choice and into a lot of sweet tax deductions.
What if I told you that it didn’t have to be brand new off the lot, but simply “new” to you. Yes, a pre-owned vehicle counts for this deduction too!
Section 179 basically allows you to deduct certain property, like machinery and vehicles, as a business expense.
Let’s look at an example of how this money-saving strategy actually works.
Step 1: Buy an SUV or Truck
As long as you purchase a new or used truck or SUV through your business that exceeds 6,000 pounds of gross vehicle weight rating (GVWR), this can qualify for the Section 179 tax deduction. The other great thing about this Bollitproof Strategy is there is no upper limit as to how much the vehicle can cost. So, if you purchase a $100,000 Range Rover through your LLC, you can deduct 100% of the total cost of the truck for that tax year. At a $100,000 price tag, a new Range Rover would likely save you $40,000 to $50,000 in taxes. You can do this even if you do not buy the vehicle outright and instead enter into a financing agreement with the dealership.
But, that’s just one way you can get instant tax savings with your new Range Rover.
Step 2: Create a Lease Agreement with Your Operating Company
When the vehicle is purchased, you can arrange a lease agreement between your LLC (the entity through which you purchased the vehicle) and your operating company. This way, you can add a 15% to 20% markup on the cost of the lease and charge this to your operating company each month. So, if your monthly payments are $1,000 (paid to the dealership or financing company), your operating company would have a recurring monthly expense of $1,200 (or more) to lease the vehicle. With this in place, you can also deduct the annual costs of the lease from your business.
But, that’s not all…
Step 3: Use Your Personal Money to Buy Gas
As an employee of your own operating company, if you use your personal money to pay for gas or routine maintenance for the vehicle, you have yet another tax deduction. That means if you use your personal debit or credit cards to pay for gas, you can deduct the miles you drive in the new “company” vehicle. So, if you drive 20,000 miles a year, this can easily translate into another $10,000 of deductions for this vehicle too.
If you’re looking to impress your friends at a party with your abundance of tax knowledge, try this on for size. The way you can get your gas deductible is because you would be considered a shareholder employee of the LLC through which you bought your vehicle. This is called an “S” corporation. So you’ll be able to deduct your cost for miles as long as you purchase the gas with your personal dollars.
That’s why the new question quickly becomes… “What are you waiting for”?
Because as long as the vehicle you’re eyeing has at the very least a 6,000 GVWR, you’re all set to start deducting while enjoying your new ride!