November 29, 2020  
 
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Legitimate Ways to Deduct Buying a Car as a Business Expense

Vehicle costs are a legitimate, tax-deductible business expense . . . sometimes. Before you deduct that car or truck as a Section 179 business expense, make sure you understand the rules regarding deductible car and truck expenses.

For some small businesses, a company car isn't a perk -- it's a necessity.
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The IRS makes provisions for vehicle costs to be deducted as a legitimate business expense. Yet many business owners are ignorant about the tax handling of vehicle expenses and end up either paying too much tax or sending a red flag to IRS auditors.

According to the IRS, the purchase price, sales tax and improvement costs of a car or truck are classified as a capital expense. Capital expenses also include equipment purchases and are typically deductible as a depreciation expense on the business' tax return.

However, Section 179 of the IRS code allows for special handling of certain capital expenses (including the acquisition cost of a business car or truck). Under Section 179, it's possible for some capital expenses to be completely deducted in the year of acquisition.

Although Section 179 can be a legitimate way to deduct buying a car as a business expense, limits and restrictions sometimes apply. Here's what you need to know if you plan on using Section 179 to deduct the cost of a vehicle purchase:

  • Section 179 lets you deduct the full amount of a purchased, leased or financed vehicle in the year of acquisition. Instead of depreciating the purchase over several years, you can deduct the full amount from your gross income in a single tax year.
  • The IRS clearly limits Section 179 vehicle deductions to the year the vehicle was placed in service regardless of whether it was placed in service for personal or business use. If you convert a personal vehicle to a business vehicle in a subsequent tax year you can depreciate it, but you can't claim a Section 179 deduction.
  • To qualify as a Section 179 vehicle, your car or truck must be used for more than 50% business purposes. If you use it for more than 50% but less than 100% business use, your Section 179 deduction will be prorated.
  • Businesses that lease or purchase less than $800,000 in business equipment qualify for Section 179 deductions. But the amount of your deduction is subject to limitations that change on a yearly basis. In 2010 the Section 179 deduction is limited to a total of $250,000.
  • To ensure full compliance with Section 179 rules, we recommend consulting with your tax preparer before you set your sights on a Section 179 vehicle expense deduction.

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Lease a Business Car or Buy a Business Car?
Hiring Dependable Drivers For Your Company Trucks


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