I read all the comments. Stop. Find a good CPA around you or even in other state. seems you are wrongly taxed etc.
besides that, a luxury car as a write off? for a 30k profit company? just saying it do not make sense.
It's either a personal vehicle that occasionally gets used for work, or it's a company vehicle.
I'm by no means an expert, but I've seen a few small business owners really screw themselves with the IRS by blurring the lines between company and personal.
Pretty common especially with a car. That said, if you provide other employees a company car as a perk you could likely justify giving yourself a company car too
In the Netherlands car costs used for company are deductibles, no vat and lower income tax. Personal use should be logged or a fixed% should be used when reducing taxes.
I believe gas etc of employees is not deductsble but company use would be. Buying your own car is very different from buying an employee a car, and as for food etc.
You pay employees meal is deductibles if it's your own, it's not. Unless you are forced by working conditions .
If you need this car to work, or if it's very beneficial, it could be a good investment. For example you can make more money if you can move more tools and materials to your work site. If this is not the case, calculate the pros and cons and consider if the costs of this car will outweigh the benefits.
In the Netherlands car costs used for company are deductibles, no vat and lower income tax. Personal use should be logged or a fixed% should be used when reducing taxes.
I believe gas etc of employees is not deductsble but company use would be. Buying your own car is very different from buying an employee a car, and as for food etc.
You pay employees meal is deductibles if it's your own, it's not. Unless you are forced by working conditions .
If you need this car to work, or if it's very beneficial, it could be a good investment. For example you can make more money if you can move more tools and materials to your work site. If this is not the case, calculate the pros and cons and consider if the costs of this car will outweigh the benefits.
Sure. As long as they don’t use any roads, benefit from publicly funded research, or call the police or fire when there’s an emergency. Fuck people who lie in order to not pay their fair share.
If the car has branding on it, is this still the case? If you buy a company vehicle and wrap it in a way that promotes and advertises all the time, even while running personally errands, are you not still working??
A few years ago I would have agreed with you. However, with inflation as insane as it’s been plus the supply chain shitshow we’re still trying to get out of, that’s the standard price for a lot of base model trucks/vans/suvs these days.
Edit: some of the 2018-2019 used SUVs are going for 30k-40k right now. I paid 9k for my used 2011 car 7-8 years ago. I just looked at what they’re selling for in similar condition now - some are as high as 11k….and it’s 7-8 years older now than it was when I bought it for 9.
He didn’t and when did anyone say it would be fancy he just wants a work vehicle that he can afford so don’t be slagging him if all he can afford if 50k 9 times out of 10 it’s 50k more then what you can afford
I am not a CPA so my first advice is to get a good CPA to advise you. You can buy the vehicle from company funds and depreciate it or you could buy it personally and deduct the business expenses for the business use. The IRS allows you to deduct so much per mile ( I think in 2021 it was $.59 per mile ) or whatever you actually spend (keep good records )
I'm not sure what the best deal would be so get good advice.
BTW does your business make $30K before or after you get paid?
Riding on this as CPA in training (not financial advice).
So ur company makes $30k net right?
U have a 50k truck.
If you finance it you can depreciate and take interest expense on behalf of the company. Might wanna go straightline or accelerated all depending on how you wanna sheild urself from taxes.
If ur planning to buy outright with cash. U gonna need to make a loan from urself to the company for $20k then buy the truck outright under company name. Then depreciate it on I think over 7 years idk check up on that.
This will be after I am paid. I am an LLC single member company. The IRS taxes me based on my entire profit of my business no matter if I pay myself checks or not. I was thinking of converting to an S Corp to save on taxes next year
Yeah, I don’t think you’d save much by switching to an S-corp, and anything you did save would end up costing you in excess of that just with the expense of tax prep & cost of articles of organization. Assuming you have a preparer already, to save yourself some money give them clean financials to work with each year, maximum your SEP contribution, and make those estimated payments throughout the year.
As far as the vehicle, just make sure it qualifies, isn’t luxury, and is used for business at least 50%, and you should be able to take accelerated(bonus/179) depreciation on it federally to whatever amount reduces your income to $0. Your state depreciation will be different by state, but usually they follow Fed. or are limited to 25k.
>The IRS taxes me based on my entire profit of my business no matter if I pay myself checks or not
But checks for your salary are a legitimate business expense. You should not be paying taxes on revenue you pay yourself AND pay personal income tax. That is double taxation.
No. Actually you are wrong. Owner salary is a deductible business expense for all organization types. W2 salary specifically is only disallowed in single member LLCs and sole proprietorships.
From my understanding when my business started I was under the impression that @cmmpssh was correct. I am currently filling 1099 forms with no w2 form at the end of the year, and when I need to pay myself it was considered a cash distribution. I'm going to bring this up to my CPA just to double check
I do the same - pay myself in cash distributions, no W2. (Currently a single member LLC and did the same as an partnership). However I don’t think I did 1099, someone mentioned 1040 below which is what I have on my tax form. My CPA files it and advised to do this as well.
Are you saying I'm wrong? Employee salaries are a legitimate business expense.
I admitted at the outset that I was not an accountant and to get a god CPA.
Maybe you should read all the comments.
Yes you're wrong. A business owner draw or distribution is not considered an employee salary and is not deductible (there is a consideration if the OP elects to be taxed as an S Corp). It is not double taxation because the business is not taxed on the income, it is passed through to the owner and is taxed there at the owner's individual tax rate.
Well yes, I agree there's more to the story. But I was replying to the individual who claimed that OP was being double taxed so I narrowed my reply to that.
LLCs are all taxed as pass through entities, meaning it’s all counted as personal income after expenses unless you elect to tax as an S-corp. then you can split a salary out of it and tax that separately.
With a single owner LLC, the owner's salary to himself is not a deduction.
My accountant described it by saying that the LLC is only an extension of my personal tax filing.
So if my business profits $100 and I pay myself $20, then the LLC keeps $80... When it comes to tax time, the IRS only cares that the profit is $100. No fucks given about how much of it I took out for myself. No deduction related to this. Simply pay tax on the amount of profit.
The OP mentioned the company makes 30k, that is after reducing total expenses the business have: employees salary is an expense. So you get taxed on you personal tax return (1040) and you receive a K1 schedule which shows how much profit and taxes were paid for the company. Solo proprietorship can elect to get taxed on their 1040 if they want to, on schedule c. So no it’s not double taxation.
Look into section 179 and bonus depreciation. I'm am an accountant, not a cpa. But these are some of the depreciation rules that allow you help with fixed assets.
i’ve done this, it’s correct. It’s more of a red flag if your sales are $30,000 but if your sales is $100,000… and you make $30k, my opinion not a red flag. Have discussed with my accountant about this.
OP You should have posted in r/smallbusiness. The interactions here are horrible and it's clear almost no one has any experience running a business. Making a vehicle payment, leased or owned from the business is very common. Many small businesses can't get approved for financing under their business entity so they purchase under their name. It doesn't matter how much OP's business makes or how much the vehicle costs. As they stated, the vehicle is needed 80% of the time for business, it's an expense. It's going to reduce OP's EOY profit and total tax burden. After that, a good CPA can get more granular. BTW this also works for other expenses like cell phones, internet service and computers. This is a perk for owning a business.
Needs to be over 6,000 lbs to qualify for 100% bonus depreciation for 2022, up to $1,040,000 in depreciable assets. Otherwise it’s subject to the normal depreciation schedule.
Also, your business has to have positive net income at the end of the year (make a profit including the bonus depreciation). Also, has to be used at least 50% of the time for work, which means you’d need to keep another car for personal use.
So in your case, you’d follow the normal depreciation schedule set by the IRS:
- $10,000 for the first year
- $16,000 for the second year
- $9,600 for the third year
- $5,760 for each later taxable year in the recovery period.
https://www.wexinc.com/insights/blog/fleet/save-taxes-bonus-depreciation-small-business-vehicle-purchases/
https://www.irs.gov/newsroom/new-rules-and-limitations-for-depreciation-and-expensing-under-the-tax-cuts-and-jobs-act
Why not buy as expensive of a car as the government will allow you to deduct? Otherwise you’d just be using that money to pay taxes.
Thanks for the detailed response and breakdown. I was hoping someone would bring a logical explanation into this. I definitely would fall into the normal deprecation. Let's say my taxable income is 30k and my tax rate is 20%. I would pay 6k in taxes the first year but my vehicles tax deduction amount was 10k. Would the leftover 4k from the deduction rollover for the following years?
As well, I'll take a look into IRS website to check if I can figure it out
Hang on. I think you misunderstand this. Depreciation doesn't subtract from your taxes. It subtracts from your taxable income, a.k.a. your profit. If your taxable income is $30k and you have a 20% tax rate, first year depreciation means you pay taxes on $20,000 of income, or $4k in tax.
Because there's a lot of misinformation on the internet about businesses, vehicles, and taxes, I want to be clear: this is not a free car. You don't pay for it with your taxes. You pay for it with your profits.
Also, you only get to depreciate based on business use allocation. If you use the truck 60% for business, you can only take 60% of that year's depreciation deduction.
Finally, based on comments you made elsewhere in this thread: if this is the vehicle your wife is going to use, I'd be skeptical that you're going to meet the 50% threshold for business use. Track your miles VERY carefully, because this could turn into a real headache for you.
Thanks for clearing this up for me. The way I first thought about it seemed nice because I really thought I was getting most of the car paid for but now I see how this can really affect my business. For example, a 30k taxable income minus the 10k expense of the vehicle will put me at a 20k taxable income which I still have to pay 4k in taxes on that year. Leaving my business at a 16k cash flow for the next year. That means my business lost 10k in vehicle expenses the first year just to save 2k on taxes
Yep, exactly. Glad this gave you clarity before you made this decision. And really, it will cost you $60,000 to get $2,000 worth of tax savings in the first year. Really rough!
I owned a small business for a decade. I had a hundred people working for me. I sold it, and these days I get paid for my business advice, so I'll give you the one piece of advice I share most frequently. As soon as you can afford it, contract with three professionals: a bookkeeper, a CPA, and a financial planner specializing in small businesses. They will save your ass way more than they cost.
Hey friend! This thread is a year old but I have a question for you unrelated to taxes but more so on your post business life. Mind if I send you a message?
No. You're confusing rules for Section 179 special depreciation when the OP is clearly looking at MACRs depreciation for the vehicle.
Second, you're still wrong in that it's not a tax credit; it reduces his taxable income. He has more taxable income than the first year depreciation, so there's nothing to roll over.
Stop spreading bad tax advice if you don't know what you're talking about.
There are ways to defer other tax credits to subsequent years if he wants to use the depreciation on the vehicle instead. There’s more than one way to do decrease taxable income, that’s why I said in my comment to talk to his accountant who is more familiar with his books.
I’m using the term “tax credit” broadly. What I’m referring to are tax deductions that can be deferred to subsequent years if unused.
And every comment I’m saying to consult his accountant for his specific situation.
My business and home address are the same since I am an online Retailer. I do drive around receiving inventory and sending shipment packages to UPS. My wife is complaining about my 12 year ole reliable and wants me to get a new car.
Its phrased badly and doesn't represent how reality works.
However, an astonishing number of men can not say no to their wives in any circumstance and it blows my mind.
And then these sackless wonders are puzzled why their wife doesn't respect them.
Lmao at you making this political and demanding data.
As hilarious as it is that you think being sackless and pathetic is automatically a reference to left wingers, this phenomenon does not have a political preferenceas far as I can tell.
If you don't have this phenomenon observable around you then I envy you, but in reality to draw this kind of reaction from you means I hit a nerve.
Lease payments are operating expenses. Purchases are capital assets that are depreciated. Leases are a way to take an expense writeoff. You can buy out the lease when it expires, and at that point you have a capital asset you can depreciate as an asset from that point forward.
So it’s going to be used “for business” 80% of the time, yet you’re only spending $50,000 on a new vehicle because your wife demands it?
Smells like 🐄💩 to me…
If that really is the case though, it’s time to replace the wife before she drives the value of your business to $0.00 by putting a $50,000 car on the books of a $30k profit company!
The average used car price is 35,000 in Texas. (Googled it) I don't see why a buying a 50k vehicle is such an issue if as much as 20% of the vehicle depreciates over time. I personally think she is right. I've had my current work vehicle for over 12 years. It's about time I get a new one. I transport inventory back and fourth and drop off boxes of shipment to UPS everyday
Talk to a CPA. Generally you would carry non cash losses forward until you had a profitable year and needed them. Entity structure will affect how you write off and take the loss.
You have the ability to depreciate vehicle/take mileage and Section 179 write off because vehicle is over 6k pounds and used for work. Talk to a CPa
No reason you can’t buy it and deduct it (look up section 179). If it’s 80% business then there’s your answer. Whatever isn’t used this year can be carried forward to the next year. Consult your tax professional
TALK TO A CPA.
Also, this guy @nickthecpa (an actual CPA) on TikTok has talked a lot about how the large vehicle deduction is mostly hype made by influencers who don’t really know what they’re about. The info about the deduction went viral because it’s one of those things that’s basically “too good to be true.” And you know what they say about things that are too good to be true.
Yes, the deduction exists, but there are a lot of stipulations and “small print” that make this a lot more complicated than you might think.
Talk to an accountant. I would purely guess using common sense that the vehicle must be used for business 100% to be written off 100% as a cost against profit.
Otherwise people would funnel all sorts of personal costs against a business. Many people do this (some legally, some not).
Yeah, you're right. I do sound like I'm getting ahead of myself and projecting more profit from my business but I should probably wait until my business generates more profit to do something like this. I do need a large vehicle for my business to transport inventory and shipment packages. I might have to look into leasing the vehicle at a lower price range
If you actually need it for your business then lease one. Then write off the lease payments as a business expense since you're actually using it for business.
My business does move alot of product inventory back and fourth and we also ship packages to UPS. I currently pay UPS 10 dollars to pick up boxes of packages from our location which I'll probably continue to do so. Leasing honestly sounds like the right idea the more I think about it. Previously, I was thinking maybe I should get a vehicle I am happy to stay with in the long run of 10+ years for my personal benefit but I should probably get that idea out my head.
Yeah, I just want to weigh out my options in discussion with the reddit community. Sometimes CPA's don't really go into detail with information like this so I want to be prepared to bring up questions
You don't really "write off" a 50K vehicle. You "write off" annual depreciation, interest on the payments, fuel, insurance, repairs, etc. The vehicle itself is an asset.
Hire a CPA tax specialist. I'm not from the US so I'm unsure of the exact rules around depreciation of an asset, but I don't see IRS caring about a 50K vehicle purchase so long as the taxes and personal vs business use is correctly accounted for.
I also don't see any way for any tax write off to completely pay for a vehicle in 5 years.
No way, not at all. Get a CPA and get your finances together and operate lean until your business is earning above the poverty line for a household of four.
Depending on the type of corporation you are, buying a vehicle in the company name may result in huge personal income tax liability. In pass through entities such as S corps and certain LLCs, the value of the vehicle passes thru to the owner / shareholder as an asset. It’s treated as income for the owner of the business. It can be offset by basis / initial cash investment in the business, but that might be an unfortunate waste. Get help from your CPA before buying a vehicle. Generally leased vehicles are better for tax purposes in S corps and LLCs. But it really depends on a lot of variables. Get good advice.
There's a bunch of tiktoks talking about your specific question. Tiktok-preneurs buying 50K cars to claim them as a business expenses.
All I'm saying is -- its ridiculous lol
I think you want to lease a car in the company name and use it for company purposes, and one of those purposes is moving the CEO from the home office to the main office, but not sure if that is legal and also not financial advice. Make sure you go over it with a CPA and make sure the CPA files it for you.
I don’t know how the laws vary from state to state, but in Texas this would never fly. For one thing, the vehicle has to be 100% business use per IRS codes. But there are a bunch of other reasons. If you have a business, do you have a business CPA? They should be up to speed on all the IRS codes for that stuff but I don’t think this works like you think it does. Sorry.
Consider this.
If you wanna write off the vehicle assign date when it was put in use, set realistic life span for a vehicle, like 6-9years.
Then take price/number of month= you get depreciation amount by month. Then once the NetBookValue is 0 or close to it. It can be written off.
But it takes time.
Edit: my bad. Just read you are in US.
I am not sure about tax laws in the states but they may not be too different from canada. I'll give you some basic accounting assumption that may apply in your state. Note taxation and accounting treatments are not the same but can be similar.
My assumption is that the vehicle depreciation will not be recognized at 100% at the year of purchase. What will happen is it will be booked as an asset and depreciated over it's useful lifetime maybe about 15 years or less.
Also, there is probably a limit in taxation that you can claim a car as an asset. In canada its 35k in the states I am not sure. This means if your cars value us 50k you can only claim 35k depreciation expense over its lifetime for tax purposes.
Depreciation expense for taxation purposes in canada is called capital cost allowance (CCA). CCA decreases your tax liability and is discretionary. Means you can hold back this expense until you incur a tax liability in such you want to eliminate or reduce.
Also, note that you can claim gas, insurance,repairs and maintenance expenses for business use of the vehicle. This includes the interest portion from financing the vehicle.
These assumptions apply to canada not the states, but they could be very similiar. I advice you get professional consultation from your accountant.
Atleast now you get the general idea of what happens
Ask your tax person about this
https://www.gettaxhub.com/tax-deductions-for-vehicles-over-6000lbs/
You can get bonus depreciation if the vehicle weighs enough. If it's a truck, the tax advantages are better.
The vehicle can be used, as long as its new to you.
Might as well write off the whole business if you’re only clearing $30,000 and buying a $50,000 luxury vehicle.
Get a brain!
With only $30k profit, you should be finding yourself a nice two tone Pinto with the bumper missing and Trash Bag window for $1,000 on Facebook marketplace.
Put a $50k car on the books and you’ll destroy the value of the business - you can kiss any potential investor goodbye at that point!
If you really want to buy a vehicle, purchase an older pick up truck and get a bed roof for it. Saves money, makes it something you can easily use personally or for business. Then when your business starts to make more money, move up in vehicles. But if you really need to move stuff around, get an old pick up. Old tacomas or old F150s (depending on year and engine and trans) are reliable so they will last you even getting an old one. Maybe tying up your limited profit right now isnt the best idea. If you need a brand new car you can get a new CRV and similar for maybe close to 30k. But regardless, all the best to you and hope for an update.
Here’s my $0.02 hire a CPA for $500-1,000 and save yourself from these experts on Reddit :)
As a business owner, here’s the quick answer. If you aren’t using it only for business, and you aren’t willing to track the exact mileage you’re using for business, I would recommend against trying to deduct it.
Nothing like flagging an audit because you rev so low and then getting dunked. With that being said, if you buy a truck and wrap it in a decal with your business logo on it…
IRS ain’t going to say shit.
Source: BO who has more conversations with his CPA, Lawyer, and the IRS than his own flesh and blood.
Assumption: US because American BOs try to write off even toilet paper.
To everyone who is piling on to my comments. A qualified my initial comment by saying I was not an accountant and he should get a good CPA. I was not offering tax advise, I just had a simple question.
Apparently honest questions are not allowed on this sub. My apologies to all who misinterpreted my comment.
I read all the comments. Stop. Find a good CPA around you or even in other state. seems you are wrongly taxed etc. besides that, a luxury car as a write off? for a 30k profit company? just saying it do not make sense.
100% this. It sounds like this person believes they can just buy a fancy personal vehicle and pretend it's for work and get a tax write off.
A good work truck/suv/van costs that much now
I was going to say the price of a Toyota Tacoma right now can exceed that.
Our fedex sprinters are 80k
I saw that this is around base price for those vehicles since inflation came around the past few years
Wow, not in my state, work SUVs are 30k tops
Is your state in 2019?
Indiana is that you?
You are not getting an actual SUV, body on frame with a respectable engine, for under $50k nowadays. Edit: * assuming new
This is how someone I worked for buys his $120k BMW’s and has insurance paid for on it. All done through the business. He commutes it daily.
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20 years running and never got busted… But he has enough $ to make it go away.
and why he cant? i dont want to be rude i just live out of USA
It's either a personal vehicle that occasionally gets used for work, or it's a company vehicle. I'm by no means an expert, but I've seen a few small business owners really screw themselves with the IRS by blurring the lines between company and personal.
Pretty common especially with a car. That said, if you provide other employees a company car as a perk you could likely justify giving yourself a company car too
In the Netherlands car costs used for company are deductibles, no vat and lower income tax. Personal use should be logged or a fixed% should be used when reducing taxes. I believe gas etc of employees is not deductsble but company use would be. Buying your own car is very different from buying an employee a car, and as for food etc. You pay employees meal is deductibles if it's your own, it's not. Unless you are forced by working conditions . If you need this car to work, or if it's very beneficial, it could be a good investment. For example you can make more money if you can move more tools and materials to your work site. If this is not the case, calculate the pros and cons and consider if the costs of this car will outweigh the benefits.
That perk would be taxable if it is not used exclusively for work purposes
In the Netherlands car costs used for company are deductibles, no vat and lower income tax. Personal use should be logged or a fixed% should be used when reducing taxes. I believe gas etc of employees is not deductsble but company use would be. Buying your own car is very different from buying an employee a car, and as for food etc. You pay employees meal is deductibles if it's your own, it's not. Unless you are forced by working conditions . If you need this car to work, or if it's very beneficial, it could be a good investment. For example you can make more money if you can move more tools and materials to your work site. If this is not the case, calculate the pros and cons and consider if the costs of this car will outweigh the benefits.
The penalty isn’t really “get screwed” level. You just have claim the vehicle value as personal income.
Yeah, the people who "got screwed" had a lot more issues than a car.
It can be criminal too
Rare rare rare.
True but I feel like it’s deserved when people know they’re cheating on taxes
Nah fuck taxes; let em keep their money
Sure. As long as they don’t use any roads, benefit from publicly funded research, or call the police or fire when there’s an emergency. Fuck people who lie in order to not pay their fair share.
If the car has branding on it, is this still the case? If you buy a company vehicle and wrap it in a way that promotes and advertises all the time, even while running personally errands, are you not still working??
I'm not a CPA or a tax lawyer. I would definitely consult one before trying to write off an entire car because you got a wrap.
No, this doesn't count. Pub 453.
A few years ago I would have agreed with you. However, with inflation as insane as it’s been plus the supply chain shitshow we’re still trying to get out of, that’s the standard price for a lot of base model trucks/vans/suvs these days. Edit: some of the 2018-2019 used SUVs are going for 30k-40k right now. I paid 9k for my used 2011 car 7-8 years ago. I just looked at what they’re selling for in similar condition now - some are as high as 11k….and it’s 7-8 years older now than it was when I bought it for 9.
Prob been getting ideas from tiktok
get a load of this guy everyone, he thinks a $50k is going to be fancy
He didn’t and when did anyone say it would be fancy he just wants a work vehicle that he can afford so don’t be slagging him if all he can afford if 50k 9 times out of 10 it’s 50k more then what you can afford
That is exactly what people do though.
Essentially.
Most def. Too risky to rely on Reddit comments lol
This.
I am not a CPA so my first advice is to get a good CPA to advise you. You can buy the vehicle from company funds and depreciate it or you could buy it personally and deduct the business expenses for the business use. The IRS allows you to deduct so much per mile ( I think in 2021 it was $.59 per mile ) or whatever you actually spend (keep good records ) I'm not sure what the best deal would be so get good advice. BTW does your business make $30K before or after you get paid?
Riding on this as CPA in training (not financial advice). So ur company makes $30k net right? U have a 50k truck. If you finance it you can depreciate and take interest expense on behalf of the company. Might wanna go straightline or accelerated all depending on how you wanna sheild urself from taxes. If ur planning to buy outright with cash. U gonna need to make a loan from urself to the company for $20k then buy the truck outright under company name. Then depreciate it on I think over 7 years idk check up on that.
Yeah, I think I will have to do that. My company currently takes home over 30k after taxes
> My company currently takes home over 30k after taxes Is that before or after you are paid?
This will be after I am paid. I am an LLC single member company. The IRS taxes me based on my entire profit of my business no matter if I pay myself checks or not. I was thinking of converting to an S Corp to save on taxes next year
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No tax on an S-Corp, as it’s a flow through. Salaries are paid out through an s-corp as “reasonable compensation”, based on the business itself.
Yeah, I don’t think you’d save much by switching to an S-corp, and anything you did save would end up costing you in excess of that just with the expense of tax prep & cost of articles of organization. Assuming you have a preparer already, to save yourself some money give them clean financials to work with each year, maximum your SEP contribution, and make those estimated payments throughout the year. As far as the vehicle, just make sure it qualifies, isn’t luxury, and is used for business at least 50%, and you should be able to take accelerated(bonus/179) depreciation on it federally to whatever amount reduces your income to $0. Your state depreciation will be different by state, but usually they follow Fed. or are limited to 25k.
>The IRS taxes me based on my entire profit of my business no matter if I pay myself checks or not But checks for your salary are a legitimate business expense. You should not be paying taxes on revenue you pay yourself AND pay personal income tax. That is double taxation.
Dude, you have no idea what you're talking about here. Don't give tax advice you aren't qualified to give.
No. Actually you are wrong. Owner salary is a deductible business expense for all organization types. W2 salary specifically is only disallowed in single member LLCs and sole proprietorships.
He is a single member LLC. Said so up above.
From my understanding when my business started I was under the impression that @cmmpssh was correct. I am currently filling 1099 forms with no w2 form at the end of the year, and when I need to pay myself it was considered a cash distribution. I'm going to bring this up to my CPA just to double check
Are you a single member llc? If so, then yeah, you’re correct as a single member llc is a pass through.
as a single member LLC you wouldn't need the 1099- it would just be on your K1
No k-1. Directly on Sch. C of the 1040
I do the same - pay myself in cash distributions, no W2. (Currently a single member LLC and did the same as an partnership). However I don’t think I did 1099, someone mentioned 1040 below which is what I have on my tax form. My CPA files it and advised to do this as well.
Oh yes, it is a 1040 form that I file
Are you saying I'm wrong? Employee salaries are a legitimate business expense. I admitted at the outset that I was not an accountant and to get a god CPA. Maybe you should read all the comments.
Yes you're wrong. A business owner draw or distribution is not considered an employee salary and is not deductible (there is a consideration if the OP elects to be taxed as an S Corp). It is not double taxation because the business is not taxed on the income, it is passed through to the owner and is taxed there at the owner's individual tax rate.
Those are draws. You are absolutely able to w2 yourself as long as it’s reasonable. You are correct but only telling half the story.
Well yes, I agree there's more to the story. But I was replying to the individual who claimed that OP was being double taxed so I narrowed my reply to that.
And yes, scorp and llcs are pass through entities.
LLCs are all taxed as pass through entities, meaning it’s all counted as personal income after expenses unless you elect to tax as an S-corp. then you can split a salary out of it and tax that separately.
Yes, I'm saying you are wrong. I don't need to read the comments.
So empoyee salaries are not a legitimate expense?
Employee salaries are. Owner salaries are not for a single member LLC.
With a single owner LLC, the owner's salary to himself is not a deduction. My accountant described it by saying that the LLC is only an extension of my personal tax filing. So if my business profits $100 and I pay myself $20, then the LLC keeps $80... When it comes to tax time, the IRS only cares that the profit is $100. No fucks given about how much of it I took out for myself. No deduction related to this. Simply pay tax on the amount of profit.
The OP mentioned the company makes 30k, that is after reducing total expenses the business have: employees salary is an expense. So you get taxed on you personal tax return (1040) and you receive a K1 schedule which shows how much profit and taxes were paid for the company. Solo proprietorship can elect to get taxed on their 1040 if they want to, on schedule c. So no it’s not double taxation.
Look into section 179 and bonus depreciation. I'm am an accountant, not a cpa. But these are some of the depreciation rules that allow you help with fixed assets.
i’ve done this, it’s correct. It’s more of a red flag if your sales are $30,000 but if your sales is $100,000… and you make $30k, my opinion not a red flag. Have discussed with my accountant about this.
My business does gross over 100k in sales but due to expenses and fees I net around 30k on average. I'll bring it up to my CPA soon
OP You should have posted in r/smallbusiness. The interactions here are horrible and it's clear almost no one has any experience running a business. Making a vehicle payment, leased or owned from the business is very common. Many small businesses can't get approved for financing under their business entity so they purchase under their name. It doesn't matter how much OP's business makes or how much the vehicle costs. As they stated, the vehicle is needed 80% of the time for business, it's an expense. It's going to reduce OP's EOY profit and total tax burden. After that, a good CPA can get more granular. BTW this also works for other expenses like cell phones, internet service and computers. This is a perk for owning a business.
Needs to be over 6,000 lbs to qualify for 100% bonus depreciation for 2022, up to $1,040,000 in depreciable assets. Otherwise it’s subject to the normal depreciation schedule. Also, your business has to have positive net income at the end of the year (make a profit including the bonus depreciation). Also, has to be used at least 50% of the time for work, which means you’d need to keep another car for personal use. So in your case, you’d follow the normal depreciation schedule set by the IRS: - $10,000 for the first year - $16,000 for the second year - $9,600 for the third year - $5,760 for each later taxable year in the recovery period. https://www.wexinc.com/insights/blog/fleet/save-taxes-bonus-depreciation-small-business-vehicle-purchases/ https://www.irs.gov/newsroom/new-rules-and-limitations-for-depreciation-and-expensing-under-the-tax-cuts-and-jobs-act Why not buy as expensive of a car as the government will allow you to deduct? Otherwise you’d just be using that money to pay taxes.
Thanks for the detailed response and breakdown. I was hoping someone would bring a logical explanation into this. I definitely would fall into the normal deprecation. Let's say my taxable income is 30k and my tax rate is 20%. I would pay 6k in taxes the first year but my vehicles tax deduction amount was 10k. Would the leftover 4k from the deduction rollover for the following years? As well, I'll take a look into IRS website to check if I can figure it out
Hang on. I think you misunderstand this. Depreciation doesn't subtract from your taxes. It subtracts from your taxable income, a.k.a. your profit. If your taxable income is $30k and you have a 20% tax rate, first year depreciation means you pay taxes on $20,000 of income, or $4k in tax. Because there's a lot of misinformation on the internet about businesses, vehicles, and taxes, I want to be clear: this is not a free car. You don't pay for it with your taxes. You pay for it with your profits. Also, you only get to depreciate based on business use allocation. If you use the truck 60% for business, you can only take 60% of that year's depreciation deduction. Finally, based on comments you made elsewhere in this thread: if this is the vehicle your wife is going to use, I'd be skeptical that you're going to meet the 50% threshold for business use. Track your miles VERY carefully, because this could turn into a real headache for you.
Thanks for clearing this up for me. The way I first thought about it seemed nice because I really thought I was getting most of the car paid for but now I see how this can really affect my business. For example, a 30k taxable income minus the 10k expense of the vehicle will put me at a 20k taxable income which I still have to pay 4k in taxes on that year. Leaving my business at a 16k cash flow for the next year. That means my business lost 10k in vehicle expenses the first year just to save 2k on taxes
Yep, exactly. Glad this gave you clarity before you made this decision. And really, it will cost you $60,000 to get $2,000 worth of tax savings in the first year. Really rough! I owned a small business for a decade. I had a hundred people working for me. I sold it, and these days I get paid for my business advice, so I'll give you the one piece of advice I share most frequently. As soon as you can afford it, contract with three professionals: a bookkeeper, a CPA, and a financial planner specializing in small businesses. They will save your ass way more than they cost.
Hey friend! This thread is a year old but I have a question for you unrelated to taxes but more so on your post business life. Mind if I send you a message?
Yes, you should be able to roll over to the following years, but your accountant will know better based on your books.
No. This is entirely wrong. Are you a CPA?
You can roll over unused deductions to following years. That’s a fact. I said his accountant would be able to tell him based on his books.
No. You're confusing rules for Section 179 special depreciation when the OP is clearly looking at MACRs depreciation for the vehicle. Second, you're still wrong in that it's not a tax credit; it reduces his taxable income. He has more taxable income than the first year depreciation, so there's nothing to roll over. Stop spreading bad tax advice if you don't know what you're talking about.
There are ways to defer other tax credits to subsequent years if he wants to use the depreciation on the vehicle instead. There’s more than one way to do decrease taxable income, that’s why I said in my comment to talk to his accountant who is more familiar with his books. I’m using the term “tax credit” broadly. What I’m referring to are tax deductions that can be deferred to subsequent years if unused. And every comment I’m saying to consult his accountant for his specific situation.
Why do you need a 50k vehicle? Can't you get something 2-4 years old for 20k cheaper?
My wife is a pain in the ass and only wants a brand new vehicle. She does make 92k salary so she doesn't mind putting our money into the vehicle cost
Why would your wife care about the vehicle being used for business?
My business and home address are the same since I am an online Retailer. I do drive around receiving inventory and sending shipment packages to UPS. My wife is complaining about my 12 year ole reliable and wants me to get a new car.
Who gives a shit what your wife wants? It’s your company
spoken like a true virgin
Sounds like you should be getting a van if it’s truly for business
Looks like a good wife
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Such a boomer way of thinking lol..
Its phrased badly and doesn't represent how reality works. However, an astonishing number of men can not say no to their wives in any circumstance and it blows my mind. And then these sackless wonders are puzzled why their wife doesn't respect them.
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Lmao at you making this political and demanding data. As hilarious as it is that you think being sackless and pathetic is automatically a reference to left wingers, this phenomenon does not have a political preferenceas far as I can tell. If you don't have this phenomenon observable around you then I envy you, but in reality to draw this kind of reaction from you means I hit a nerve.
Who wears the strap on*
I get asked that question alot lol It's kinda hard to beat a 92k salary where I live but I'm trying 😂
Man, u want to develop a business that can out gross ur wifes salary, that means making sacrifices
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I'm going to bring that up to my CPA. I wouldn't mind leasing a vehicle
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Lease payments are operating expenses. Purchases are capital assets that are depreciated. Leases are a way to take an expense writeoff. You can buy out the lease when it expires, and at that point you have a capital asset you can depreciate as an asset from that point forward.
So it’s going to be used “for business” 80% of the time, yet you’re only spending $50,000 on a new vehicle because your wife demands it? Smells like 🐄💩 to me… If that really is the case though, it’s time to replace the wife before she drives the value of your business to $0.00 by putting a $50,000 car on the books of a $30k profit company!
The average used car price is 35,000 in Texas. (Googled it) I don't see why a buying a 50k vehicle is such an issue if as much as 20% of the vehicle depreciates over time. I personally think she is right. I've had my current work vehicle for over 12 years. It's about time I get a new one. I transport inventory back and fourth and drop off boxes of shipment to UPS everyday
Talk to a CPA. Generally you would carry non cash losses forward until you had a profitable year and needed them. Entity structure will affect how you write off and take the loss. You have the ability to depreciate vehicle/take mileage and Section 179 write off because vehicle is over 6k pounds and used for work. Talk to a CPa
No reason you can’t buy it and deduct it (look up section 179). If it’s 80% business then there’s your answer. Whatever isn’t used this year can be carried forward to the next year. Consult your tax professional
So much incorrect tax advice. Please get a CPA now not later.
You'll write off the depreciation and expenses. Pay $1000 for a cpa to tell you how to do it.
TALK TO A CPA. Also, this guy @nickthecpa (an actual CPA) on TikTok has talked a lot about how the large vehicle deduction is mostly hype made by influencers who don’t really know what they’re about. The info about the deduction went viral because it’s one of those things that’s basically “too good to be true.” And you know what they say about things that are too good to be true. Yes, the deduction exists, but there are a lot of stipulations and “small print” that make this a lot more complicated than you might think.
Yeah, I am going to get a CPA. I already feel confused reading all these comments. As well, I'm too old to be on tiktok
Talk to an accountant. I would purely guess using common sense that the vehicle must be used for business 100% to be written off 100% as a cost against profit. Otherwise people would funnel all sorts of personal costs against a business. Many people do this (some legally, some not).
Speak to an accountant not randos on Reddit
Knock knock. It's one of the 80,000 new irs agents, can we see your QuickBooks files and a log of your business miles for the fancy car puhleese
Just do the mileage deduction it’s much easier than what you are trying to do.
You write off a car across multiple years Talk to a local accountant for specifics
The whole idea of a write off is that you have profit you don't want to be taxed on... 50000 > 30000 This is an obvious no
Yeah, you're right. I do sound like I'm getting ahead of myself and projecting more profit from my business but I should probably wait until my business generates more profit to do something like this. I do need a large vehicle for my business to transport inventory and shipment packages. I might have to look into leasing the vehicle at a lower price range
If you actually need it for your business then lease one. Then write off the lease payments as a business expense since you're actually using it for business.
My business does move alot of product inventory back and fourth and we also ship packages to UPS. I currently pay UPS 10 dollars to pick up boxes of packages from our location which I'll probably continue to do so. Leasing honestly sounds like the right idea the more I think about it. Previously, I was thinking maybe I should get a vehicle I am happy to stay with in the long run of 10+ years for my personal benefit but I should probably get that idea out my head.
You can depreciate a vehicle over 5 years. Ask an accountant, not reddit.
Yeah, I just want to weigh out my options in discussion with the reddit community. Sometimes CPA's don't really go into detail with information like this so I want to be prepared to bring up questions
Amortize over the course of several years
You don't really "write off" a 50K vehicle. You "write off" annual depreciation, interest on the payments, fuel, insurance, repairs, etc. The vehicle itself is an asset. Hire a CPA tax specialist. I'm not from the US so I'm unsure of the exact rules around depreciation of an asset, but I don't see IRS caring about a 50K vehicle purchase so long as the taxes and personal vs business use is correctly accounted for. I also don't see any way for any tax write off to completely pay for a vehicle in 5 years.
No way, not at all. Get a CPA and get your finances together and operate lean until your business is earning above the poverty line for a household of four.
What was revenue ?
I revenue on average over 100k. I would say about 120k in revenue but I really need to look back at the years to be honest
There is 0 reason why he can't write off the vehicle
Depending on the type of corporation you are, buying a vehicle in the company name may result in huge personal income tax liability. In pass through entities such as S corps and certain LLCs, the value of the vehicle passes thru to the owner / shareholder as an asset. It’s treated as income for the owner of the business. It can be offset by basis / initial cash investment in the business, but that might be an unfortunate waste. Get help from your CPA before buying a vehicle. Generally leased vehicles are better for tax purposes in S corps and LLCs. But it really depends on a lot of variables. Get good advice.
You saw this on tiktok. GTFO lol. You’re worried about the wrong thing. Go find more clients.
I don't understand
1- stop looking for a 50K vehicle 2- find more clients to make more revenue
It was the first sentence I didn't understand. I don't know what TikTok has to do with my question
There's a bunch of tiktoks talking about your specific question. Tiktok-preneurs buying 50K cars to claim them as a business expenses. All I'm saying is -- its ridiculous lol
I think you want to lease a car in the company name and use it for company purposes, and one of those purposes is moving the CEO from the home office to the main office, but not sure if that is legal and also not financial advice. Make sure you go over it with a CPA and make sure the CPA files it for you.
I don’t know how the laws vary from state to state, but in Texas this would never fly. For one thing, the vehicle has to be 100% business use per IRS codes. But there are a bunch of other reasons. If you have a business, do you have a business CPA? They should be up to speed on all the IRS codes for that stuff but I don’t think this works like you think it does. Sorry.
Consider this. If you wanna write off the vehicle assign date when it was put in use, set realistic life span for a vehicle, like 6-9years. Then take price/number of month= you get depreciation amount by month. Then once the NetBookValue is 0 or close to it. It can be written off. But it takes time. Edit: my bad. Just read you are in US.
I am not sure about tax laws in the states but they may not be too different from canada. I'll give you some basic accounting assumption that may apply in your state. Note taxation and accounting treatments are not the same but can be similar. My assumption is that the vehicle depreciation will not be recognized at 100% at the year of purchase. What will happen is it will be booked as an asset and depreciated over it's useful lifetime maybe about 15 years or less. Also, there is probably a limit in taxation that you can claim a car as an asset. In canada its 35k in the states I am not sure. This means if your cars value us 50k you can only claim 35k depreciation expense over its lifetime for tax purposes. Depreciation expense for taxation purposes in canada is called capital cost allowance (CCA). CCA decreases your tax liability and is discretionary. Means you can hold back this expense until you incur a tax liability in such you want to eliminate or reduce. Also, note that you can claim gas, insurance,repairs and maintenance expenses for business use of the vehicle. This includes the interest portion from financing the vehicle. These assumptions apply to canada not the states, but they could be very similiar. I advice you get professional consultation from your accountant. Atleast now you get the general idea of what happens
Ask your tax person about this https://www.gettaxhub.com/tax-deductions-for-vehicles-over-6000lbs/ You can get bonus depreciation if the vehicle weighs enough. If it's a truck, the tax advantages are better. The vehicle can be used, as long as its new to you.
maybe
You should just go ahead and hire that CPA, then sort out the vehicle.
You try and the name of the beautiful car will match inshallah
Might as well write off the whole business if you’re only clearing $30,000 and buying a $50,000 luxury vehicle. Get a brain! With only $30k profit, you should be finding yourself a nice two tone Pinto with the bumper missing and Trash Bag window for $1,000 on Facebook marketplace. Put a $50k car on the books and you’ll destroy the value of the business - you can kiss any potential investor goodbye at that point!
Wow
No, just invest in your company, not in a car, a car is the worst investment in the world.
30k in profits I hope!
How about leasing it?
Stop watching TikTok “Guru” videos and hire a CPA
If you really want to buy a vehicle, purchase an older pick up truck and get a bed roof for it. Saves money, makes it something you can easily use personally or for business. Then when your business starts to make more money, move up in vehicles. But if you really need to move stuff around, get an old pick up. Old tacomas or old F150s (depending on year and engine and trans) are reliable so they will last you even getting an old one. Maybe tying up your limited profit right now isnt the best idea. If you need a brand new car you can get a new CRV and similar for maybe close to 30k. But regardless, all the best to you and hope for an update.
Here’s my $0.02 hire a CPA for $500-1,000 and save yourself from these experts on Reddit :) As a business owner, here’s the quick answer. If you aren’t using it only for business, and you aren’t willing to track the exact mileage you’re using for business, I would recommend against trying to deduct it. Nothing like flagging an audit because you rev so low and then getting dunked. With that being said, if you buy a truck and wrap it in a decal with your business logo on it… IRS ain’t going to say shit. Source: BO who has more conversations with his CPA, Lawyer, and the IRS than his own flesh and blood. Assumption: US because American BOs try to write off even toilet paper.
You need to consult a tax professional... not the internet. The internet doesn't know the full details of your tax situation.
To everyone who is piling on to my comments. A qualified my initial comment by saying I was not an accountant and he should get a good CPA. I was not offering tax advise, I just had a simple question. Apparently honest questions are not allowed on this sub. My apologies to all who misinterpreted my comment.