It's not too late. You can still take steps to significantly reduce your 2013 business income tax bill.
Tip #1: Buy a Heavy SUV, Pickup, or Van before Year's End.
While buying a big SUV, pickup, or van for your business may not be seen as politically correct because of the gas the vehicles use, the fact is they are useful if you need to haul people, equipment and materials around. They also have major tax advantages.
- Thanks to the Section 179 deduction privilege, you can immediately write off up to $25,000 of the cost of a new or used heavy SUV that is placed in service by the end of your business tax year beginning in 2013 and used over 50 percent for business.
- For a heavy long-bed pickup (one with a cargo area that is at least six feet in interior length), the $25,000 Section 179 deduction limit does not apply. Instead, the "regular" Section 179 deduction limit of up to $500,000 applies, as explained later in this article. The same is true for a heavy van that has no seating behind the driver's seat and no body section protruding more than 30 inches ahead of the leading edge of the windshield.
- Thanks to the 50 percent first-year bonus depreciation privilege (more on that later), you can write off half of the business-use portion of the cost of a new (not used) "heavy" SUV, pickup, or van that is placed in service by December 31, 2013 and used more than 50 percent for business.
- After taking advantage of the preceding two breaks, you can follow the "regular" depreciation rules to deduct whatever is left of the business portion of the vehicle's cost over six years, starting with 2013.
To cash in on this favorable tax treatment, you must buy a "heavy" vehicle -- one with a manufacturer's gross vehicle weight rating (GVWR) above 6,000 pounds. First-year depreciation deductions for lighter SUVs, light trucks, light vans, and passenger cars, are much less. You can usually find a vehicle's weight rating on a label on the inside edge of the driver side door where the hinges meet the frame.
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Example 1: Your business uses the calendar year for tax purposes. You buy a llnew $65,000 Cadillac Escalade and use it 100 percent for business between now and December 31. On your 2013 business tax return or form, you can write off $25,000 of the cost thanks to a Section 179 deduction. Then, you can use the 50 percent first-year bonus depreciation break to write off another $20,000 (half the remaining cost of $40,000 after subtracting the Section 179 deduction).
Finally, you can follow the regular depreciation rules to depreciate the remaining cost of $20,000 (the amount left after subtracting the Section 179 deduction and the 50 percent bonus depreciation deduction), which will generally result in a $4,000 deduction for 2013 (20 percent times $20,000). Overall, your first-year depreciation write-offs amount to $49,000 ($25,000 plus $20,000 plus $4,000), which represents a whopping 75.4 percent of the vehicle's cost.
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In contrast, if you spend the same $65,000 on a new sedan that you use 100 percent for business between now and year end, your 2013 depreciation write-off will be only $11,160.
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Example 2: You operate a calendar year business for tax purposes. You buy a used $40,000 Cadillac Escalade and use it 100 percent for business between now and December 31. With a Section 179 deduction on your 2013 business tax return or form, you can write off $25,000. Then, you can generally deduct another $3,000 under the normal depreciation rules [20 percent times ($40,000 minus $25,000) equals $3,000]. Your first-year depreciation deductions add up to $28,000 ($25,000 plus $3,000). In contrast, if you spend the same $40,000 on a used light SUV or a used regular passenger car, your maximum 2013 depreciation write-off will be only $3,160.
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Example 3: For tax purposes, your business uses the calendar year. You buy a used Dodge Ram heavy long-bed pickup for $35,000 and use it 100 percent for business between now and year end. On your 2013 business tax return or form, you can write off the entire $35,000 thanks to the Section 179 deduction, assuming you have no problem with the business income limitation rule explained later. (The $25,000 Section 179 deduction limit that applies to heavy SUVs doesn't apply to heavy long-bed pickups.) In contrast, if you spend $35,000 on a used light pickup, your maximum 2013 depreciation write-off will be only $3,360.
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Parts 2 and 3 to come next week ...
If you want to chat about your year end planning, connect with me on and LinkedIn and let's see what you can do for you.
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I could skip the sedan and jump to heavy SUV for that kind of tax treatment.