Note: This article does not constitute tax advice. Tax law is subject to change. Talk to your tax advisor for full details.
If you are a small business owner and drive a lot for your business, a specific tax exemption could save you money.
IRS Section 179 includes a vehicle depreciation write-off for 2014. It lets you rapidly depreciate a new or pre-owned vehicle, such as a Jeep Grand Cherokee, up to 60 percent of its value in your first year of ownership. Tax depreciation doesn’t mean that if you sell your vehicle, you won’t get as much money for it. It means that when it’s time to pay your federal income tax, self-employment tax, and possibly even your state income tax, your bill will be reduced.
To take advantage of this write-off, the gross vehicle weight rating—which is the weight of the car when it’s fully loaded with people and cargo—must be at least 6,000 lbs. You can usually find the GVWR on the sticker where the driver’s door closes. Vehicles with GVWR’s this high are typically heavy SUVs like the Jeep Grand Cherokee, trucks or vans.
The second qualification is that at least 50 percent of your vehicle’s miles must have been for business use. The higher the percentage of miles used for business, the more you can depreciate your vehicle for tax purposes.
An example of this would be if you bought a heavy SUV for $60,000 and used it 100 percent of the time for business. In this case, your estimated depreciation would be $36,000 ($30,000 from Section 179 and $6,000 from regular vehicle depreciation). As you can see, Section 179 reduces your tax bill on this vehicle by a factor of six.
You can benefit from this tax break if you purchase your new or pre-owned vehicle before the end of 2014. Because of this rapid depreciation, within a few years your vehicle could be entirely depreciated, which would be a significant tax savings to you and your business.
Again, this tax break applies even to pre-owned vehicles; as long as it fits the weight requirement, you could receive a significant tax write-off. Stop by Autopark Chrysler Jeep to see what Leith service is about.