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Writing Off Vehicles as Tax Deductions

You've heard it a hundred times: That shinyand so on, as a business deduction. This
new car your buddy just bought? It doesn'tmeans you can't ever deduct all the costs of
really cost him anything. He writes off theowning and running vehicle-only the business
car  as  a  tax  deduction.use  of  a  vehicle.
Your first thought is usually, "That can't beIf you don't have exact records about your
right." Your second thought is, 'I got tobusiness use, you can sometimes use good
figure  out  how  to  enjoy  that  loophole."sampling. For example, if you keep a good
appointment calendar of your business
But what does the law say? And what are theactivities, one popular tax reference
rules for writing off vehicles? It turns outsuggests that you can look at the total
that you can write off the cost of buying andbusiness, personal and commuting miles driven
using a car if you're self-employed and useduring one week each month. Then, you can
your vehicle in your business. Specifically,average this data to get good weekly
you can probably deduct the business portionestimates of your business, personal, and
of your vehicle expenses on your business taxcommuting miles. Finally, you can multiple
return.these weekly estimates by 52 (the number of
weeks in a year) to get reasonable estimates
But this deduction is trickier than mostof your business, personal and commuting
people realize. Here's the first big thingmiles.
that goofs many people up. You need
substantiation to prove your business use.But before you go out and buy a new luxury
Ideally, in fact, the Internal Revenueauto, you need to know there's another
Service wants you to keep a log of yourcomplication. Congress limits in most cases
business miles, your commuting miles, andthe amount of depreciation or lease rental
your  personal  miles.that you can include in your vehicle expense
calculations. The rules are a bit tricky, but
With this information, you can then eitheressentially, for purposes of vehicle
deduct an amount equal to the business milesdepreciation and lease payments, you only get
times a standard per-mile rate of roughlyto look at the first $17,000 (roughly) of
$.35 or $.40 a mile (depending on thevehicle cost. In other words, if you buy a
year)... or you can deduct the percentage of$60,000 vehicle and your friend buys a
your vehicle expenses equal to the percentage$15,000 vehicle, you may both have the same
that  your  business  miles  represent.business depreciation expense-even though
your vehicle costs four times what your
Note that only your business miles-and notfriend's  does.
your commuting miles or personal miles are
deductible.One other related point: You may have heard
about the sport utility vehicle loophole.
For example, if your business use equalsThis SUV loophole really does exist.
5,000 miles, personal use equals 3000, andSpecifically, the luxury auto limits
commuting equals 2000 miles, your total milesmentioned above don't apply to sport utility
for the year equal 10,000. Business miles asvehicles that weigh more than 6,000 lbs. Note
a percentage of total miles equal 50% becausethat Congress partially closed that loophole
5,000  divided  by  10,000  equals .5 or 50%.in 2004, however, by saying that a special,
super-accelerated form of depreciation called
In this example, you could therefore deductSec. 179 depreciation can't be used to write
50% of your fuel, 50% of your insurance, 50%off all of the cost of an expensive SUV in
of your maintenance and repairs, 50% of thethe year the vehicle is purchased.
car loan interest, 50% of the depreciation,



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