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grandpax5
Level 1

Which is the most financial feasible way auto payments and claim interest only or claiming lease payments on vehicle loan. Is there tax savings on large truck vs car

I heard large pickups were better than cars for tax write offs
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Opus 17
Level 15

Which is the most financial feasible way auto payments and claim interest only or claiming lease payments on vehicle loan. Is there tax savings on large truck vs car

I have to confess I don't understand the purpose of this kind of question.

 

Let's assume you can fully deduct** the cost of your vehicle that is used 100% for business. 

a. you buy a cheap, small, fuel efficient car like a Kia Rio (the cheapest new car I could find on Cars.com).  Price is $18,000 and fuel cost for 10,000 miles is $750.  You can deduct the interest and depreciation.  (Or you can lease and deduct the whole lease payment but not depreciation.). Your total operating cost is, let's say, $5550 per year.

 

b. Or you buy the most tricked-out pickup you can find, which is around $80,000 and will cost you twice as much for gas and 3x as much for insurance.  Your operating cost is, say $24,000 per year. 

 

Now, assuming your business income is $50,000 and your vehicle is your only significant expense, you will either pay income tax on $44,000 of taxable income, or $26,000 of taxable income.  That's a lot less tax if you get the monster truck.  But, it also means you have about $18,000 less cash in pocket to buy food, clothing, take a vacation, fix up your house, or pay your kids tuition.   You aren't just getting a fancier vehicle for "free" as a business deduction, you are making a lifestyle choice to operate a fancy vehicle and take lower taxable profits and therefore lower after-tax income, instead using your profits for other possibly useful things. 

 

I would say you should get the appropriate vehicle for your business needs.

 

In terms of bookkeeping, leasing is simpler than buying, but not necessarily a better tax deduction.  The only way to get "ahead" of the tax code with a business vehicle is to buy it, use the standard mileage method, and drive the vehicle until it falls apart.  The standard mileage method can be used as long as you own the vehicle, and because about half the standard amount is an allowance for depreciation, if you drive the vehicle long enough, you can deduct more depreciation than it's actual cost, and you don't have to pay that back as recapture when you sell.  

 

**The thinking is the same for partial use of a vehicle, if you also use the vehicle for personal use.  For a vehicle used 50% for business, you can deduct 50% of the cost of a fancy vehicle or 50% of the cost of a plain vehicle, and the fancy vehicle will reduce your taxable income (and your tax) by more than the plain vehicle, but you will also have less pocket money for other things.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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5 Replies
Mike9241
Level 15

Which is the most financial feasible way auto payments and claim interest only or claiming lease payments on vehicle loan. Is there tax savings on large truck vs car

"large pickups were better than cars for tax write offs." maybe

some pickups cost more than cars but then a Rolls costs more than a Ford F150.  of course after taxes the Rolls will probably cost more. and if you like spending a few thousand $ for routine maintenance Rolls is your vehicle.

grandpax5
Level 1

Which is the most financial feasible way auto payments and claim interest only or claiming lease payments on vehicle loan. Is there tax savings on large truck vs car

So we have a 3500 chevy pickup we can set use instead of car, car has lease payments so which one would be better for write offs

Hal_Al
Level 15

Which is the most financial feasible way auto payments and claim interest only or claiming lease payments on vehicle loan. Is there tax savings on large truck vs car

Usually the leased vehicle is better (and simpler) as you can deduct the business percentage of the lease  fee. 

 

But, the only way to be sure is to do the math.  For the owned vehicle you can choose between the IRS standard mileage rate ($0.56 for 2021) or actual expenses.  You have the option of using the standard mileage rate for the lease vehicle too.  For a full explanation, see: https://turbotax.intuit.com/tax-tips/self-employment-taxes/standard-mileage-vs-actual-expenses-getti...

 

Most people use the mileage rate for simplicity (and the math usually comes out better). If you don't use the Standard Mileage Rate in the first year, you can never use it for that vehicle.

Opus 17
Level 15

Which is the most financial feasible way auto payments and claim interest only or claiming lease payments on vehicle loan. Is there tax savings on large truck vs car

I have to confess I don't understand the purpose of this kind of question.

 

Let's assume you can fully deduct** the cost of your vehicle that is used 100% for business. 

a. you buy a cheap, small, fuel efficient car like a Kia Rio (the cheapest new car I could find on Cars.com).  Price is $18,000 and fuel cost for 10,000 miles is $750.  You can deduct the interest and depreciation.  (Or you can lease and deduct the whole lease payment but not depreciation.). Your total operating cost is, let's say, $5550 per year.

 

b. Or you buy the most tricked-out pickup you can find, which is around $80,000 and will cost you twice as much for gas and 3x as much for insurance.  Your operating cost is, say $24,000 per year. 

 

Now, assuming your business income is $50,000 and your vehicle is your only significant expense, you will either pay income tax on $44,000 of taxable income, or $26,000 of taxable income.  That's a lot less tax if you get the monster truck.  But, it also means you have about $18,000 less cash in pocket to buy food, clothing, take a vacation, fix up your house, or pay your kids tuition.   You aren't just getting a fancier vehicle for "free" as a business deduction, you are making a lifestyle choice to operate a fancy vehicle and take lower taxable profits and therefore lower after-tax income, instead using your profits for other possibly useful things. 

 

I would say you should get the appropriate vehicle for your business needs.

 

In terms of bookkeeping, leasing is simpler than buying, but not necessarily a better tax deduction.  The only way to get "ahead" of the tax code with a business vehicle is to buy it, use the standard mileage method, and drive the vehicle until it falls apart.  The standard mileage method can be used as long as you own the vehicle, and because about half the standard amount is an allowance for depreciation, if you drive the vehicle long enough, you can deduct more depreciation than it's actual cost, and you don't have to pay that back as recapture when you sell.  

 

**The thinking is the same for partial use of a vehicle, if you also use the vehicle for personal use.  For a vehicle used 50% for business, you can deduct 50% of the cost of a fancy vehicle or 50% of the cost of a plain vehicle, and the fancy vehicle will reduce your taxable income (and your tax) by more than the plain vehicle, but you will also have less pocket money for other things.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
grandpax5
Level 1

Which is the most financial feasible way auto payments and claim interest only or claiming lease payments on vehicle loan. Is there tax savings on large truck vs car

Thanks to all for the information 

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