If you have any company or personal automobiles, SUVs, trucks, or vans that you no longer use, now is the time to take advantage of the year-end corporate tax benefits. First, we’ll take a look at any automobiles you or your pass-through company currently own. In the next step, we’ll take a closer look at your cars as an opportunity to save money on taxes.
Let’s begin with the cars that have already been used in the past. The first thing you should do is figure out if you made any money or lost any money from the deal. Make a list of these guidelines once you’ve figured out how much you made or lost.
Depreciation-related gains are taxable income. Gains that are more than the initial basis are referred to as capital gains. Classic and vintage business cars, which can appreciate, are an exception to the rule for most company vehicles.
Ordinary deductions can be taken for business vehicle losses. To avoid paying self-employment taxes, you must record your profits and losses on IRS Form 4797, which excludes them from the company income or cost categories.
Now that you’ve learned the fundamentals, you’re ready to begin. We assume that you’re seeking tax deductions related to your car loss deductions at this time of year, so that’s where we’ll start. In this section, you will find four possible tax-deduction techniques for current vehicles.
Don’t wait until the last minute! If you want to take advantage of the deductions this year, you must take the necessary steps by December 31, 2021.
How To Take Advantage of The Deductions This Year?
Sell Your Child or Spouse’s Vehicle
We understand that this is a terrible thing to have to go through. Stay with us, though.
Did you ever get rid of your old business vehicle? Is it still there? Is your child behind the wheel? In other words, are you or your spouse driving it as a personal vehicle?
As a result, we’d like to know if that old business vehicle has a significant tax loss associated with it. If this is the case, selling the car before the end of the year will allow you to claim a tax-deductible loss for this year.
Based on your percentage of business use, you can deduct your losses. When your spouse or teen uses this vehicle, your business percentage decreases and you lose tax benefits. That’s one reason to sell it now.
Planning advice. Consider purchasing a substitute car for your child or spouse before taking away their vehicle. It is not a financial tip but a piece of family advice.
Self Employed? Use the Buy and Sell Method
The selling of any commercial vehicle results in either profit or loss.
The Tax Cuts and Jobs Act abolished the tax-deferred exchange for autos. Trade-ins have become little more than sales to dealerships.
Many self-employed taxpayers will benefit from this new TCJA regulation since their trade-ins immediately take advantage of the buy-and-sell method.
Here’s a breakdown of how it works:
- Taxes are not affected by selling your company car to an outside party or trading it in as a “sale” for another vehicle.
- If you choose to acquire a new car, you will incur a depreciation. You are expensing deductions under Section 179. Self-employment tax deductions like these might help you save money.
Car Trade-Ins From The Past
Section 1031 tax-deferred exchange laws are used to allow you to move your old business basis to the replacement vehicle when you trade in a car.
The IRS mileage rates or the actual-expense technique of deducting company cars might nevertheless yield a significant deduction.
Put Your Car to Use for Business
Legislators reintroduced 100% bonus depreciation, which presents an excellent approach that costs you nothing but can yield solid deductions.
As a whole, this technique allows you to turn a personal car into a company vehicle and obtain a substantial business deduction this year.
In Summary
With one of the four techniques outlined in this article and summarized below, your current car can still earn last-minute 2021 tax deductions.
- Was your former business car given to a family member, such as your kid or spouse? Find out if that car is eligible for a loss deduction. You can deduct the loss if you take the vehicle back from your child or spouse and sell it.
- Are you a sole proprietor, or do you work for someone else? The purchase and sell technique can save you money on both your income and self-employment taxes if you apply it before December 31.
- If so, how long have you been exchanging your old automobiles for new ones? Decide whether or whether you’re eligible for a tax break right now. You may discover significant savings.
- You or your spouse possess a vehicle that you purchased but never deducted from your taxes. If so, you may take advantage of the new 100% bonus depreciation by converting your car to business usage.
Everybody wants to spend less and pay less in taxes. Unfortunately, most businesses and individuals (even self-employed individuals) have their taxes prepared by someone who does not fully understand the tax system and its myriad benefits. That is why a business needs to work with an experienced tax counsel.
Contact BASC Expertise immediately to see if you may help you to lower your tax liability!