Sole proprietorship, Vehicle Write Off Question.?

Question

I have a sole proprietorship in the state of California, Small business, no employees. I have purchased 2 vehicles strictly for company use. I have been told by a CPA that I can write off the full purchase price of each vehicle. One of them I bought last year and did not claim it then because another CPA was worried about it causing an audit. This year I want to claim both vehicles at the full purchase price. Does anyone have any suggestions? Possible Audit? Any experience with this?

My business is 2 years old and is not my primary income, I did it mainly for tax purposes in the begining and will make a small profit this year. Claimimg these vehicle will show a huge loss. Any input is welcomed.

I only have 1 vehicle currently, the second vehicle was purchased last year and I did not claim it last year. This is the reason I was wanting to know about claiming both. Thanks for your answers.

Answer 1

I'm an accountant. This looks like it would flag an audit. How can you have 2 vehicles used exclusively for business, when you have no employees. I think, if you were audited, it would be very difficult to argue that the second vehicle was "ordinary and necessary" Plus, you can't write off the full purchase price in 1 year. You have to depreciate them over their useful life, usually three to five years. Just my opinion.

Answer 2

As far as I know you won't be claiming the full purchase price on one year's taxes.

Vehicles are depreciated over time (used to be 5 years, I think? maybe 3), not written off in one. Ask the expert about this.

Sounds to me like your old CPA was just a number cruncher with no b*lls. I have always erred on the side of aggressiveness when it comes to taxes. I also keep in mind that if ruled unacceptable, I may have to ante up some money to the IRS, but this money would have been paid anyway. Other than fines/penalties, what have you got to lose? And if anything happens a good CPA can get those reduced for you anyway.

Congrats on being profitable in your second year, that doesn't happen very often!

Answer 3

Basically Jim is correct in pointing out the inconsistencies in claiming two vehicles for a one man operation, let alone the fact that the business was set up for "tax purposes". The first question that the IRS would ask, (and their favorite I might add) is if this business is truly a business or a hobby? Did you enter into it with the intent to make a profit? By telling what you did in your last statement: it is soley for avoidance of taxes. If you want to use a vehicle write off I suggest that you stay with actual mileage used on both vehicles for strictly business purposes and use the mileage deduction. Once you get into depreciation you have add backs and gains on the vehicles later if you sell them or discontinue business. Your CPA, as much as I hate to agree with one, was probably doing you a service by dissuading you from using both last year.

Answer 4

You have options here. You can write off actual expenses or you can take milage deductions. With actual expenses you would depreciate the vehicles over 5 years using 200%db and then you have a convention to consider. What your talking about is a section 179 deduction when you write off the total cost. There are net income limitations however so you should forget that. Usually depending on what type of business you have the milage is the better(if you drive a lot).My question is "why two vehicle"? You more than like will spark an audit, one which you'll lose. Be careful!!! Get Pub. 335 from the IRS, you can down load it,

Answer 5

If you purchased a vehicle solely for business purposes propose you look at taking the standard mileage allowance of 48 1/2 cents a mile for said vehicle. If you write off the vehicle (which you can't do if you have a loss) then you have to use actual expenses of gas, repairs, license, etc. Mileage allowance goes on forever and increases each year. 48 1/2 cents a mile was final 05 figure; 06 will most likely be higher.

Answer 6

You mentioned that your small business is not your primary income. that leads me to wonder if your business use of either vehicle exceeds 50%. If it does not you cannot take a deduction for the whole cost in one year (known as a section 179 deduction). In any case, a regular car does not qualify for this treatment. An SUV or light truck (over 6,000 pounds) will qualify, provided business use is over (and remains over) 50%.

If you have no employees, I think deducting both vehicles is asking for trouble. Question your new CPA very closely and, if he cannot give you straight answers go back to your old CPA and ask him nicely if he will take you back.

Answer 7

As an employee, your audit would ask you to produce documents from work that they don't require you to turn in the business vs. commuting miles (meaning that the entire amount is reported on the W-2 as income). Then the IRS would ask to see your mileage logs. Business use must be identified by date, destination and business purpose. The first trip of the day and the last trip of the day are commuting. Then, if you have a lot of it, you'll discover a bummer. You can't deduct it unless you itemize and if you do, it's a trigger for AMT.

Answer 8

Being that this business is not your primary income, it will be impossible, in my opinion, to state that these vehicles are 100% business use. Due to severe abuse of items like this, the IRS has strickly limited how much can be written off each year for vehicles though I don't have the limits in front of me.

Answer 9

JIM SAID IT ALL !!