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Drive a tax break out of the showroom

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in Small Business Tax,Small Business Tax Deduction Strategies

From a tax perspective, the time may be right to buy a new (not used) vehicle for business driving.

Strategy: Place the vehicle in service before 2009. Reason: It qualifies for the new—but temporary—50% first-year bonus depreciation deduction.

Normally, deductions for business vehicles are strictly limited by the “luxury car” rules. But, thanks to bonus depreciation, you can claim a five-figure write-off for purchases this year. Here is a side-by-side comparison of the 2008 limits (based on 100% business use).

                                            Limit without                Limit with
Type of vehicle        bonus depreciation    bonus depreciation 

Automobile                           $2,960                        $10,960   

Light truck or van                 $3,160                        $11,160

Example: If you buy a new (not used) light truck or van before year-end and use it 90% for business, your 2008 deduction is a healthy $10,044 (90% of $11,160).

Note that the luxury car limits don’t apply to certain heavy-duty vehicles weighing more than 6,000 pounds. Therefore, you can write off the entire business portion of the cost under Section 179.

Tip: Congress has threatened several times to close this tax loophole, but it hasn’t happened yet.

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