Please settle a dispute. My friend has a business and he leased a car this last year that has a payment he can bearly afford. He thinks that come tax time he can write his lease off and that the state will cut him a check for 100% of what he paid on his lease. He thinks he is getting a free car. Isn't it true that when you write something off you just don't have to pay the tax on that item? Others have told me the same thing that they know someone who wrote off a car and that the check came in the mail for every penny they spent on it. They keep telling me that I should write off as much as I can because it equates to free stuff. So who is right? Thanks, I appriciate it.
2007-06-27 07:59:28 · 9 answers · asked by Rebecca K 1 in Business & Finance ➔ Taxes ➔ United States
Assuming that you are in the 25% bracket, a $1000 deduction nets you $250 in tax savings.
He is 100% wrong! He is crazy if he thinks that he will get all of that money back. Everyone knows someone who does this and that and gets a huge refund. Most of those stories are urban legends.
Also, tax refunds are just that, refunds of overpayments. You only get the refund if you have overpaid your taxes, through withholding or estimated payments, throughout the year.
One last thing, claiming 100% business use on a personal car is a good way to get audited.
2007-06-27 08:14:47 · answer #1 · answered by Wayne Z 7 · 2⤊ 1⤋
Under Section 280A(a), there is a general disallowance for allowing the deduction of a portion of the costs associated with your dwelling. However, under 280A(c)(1), this rule is excepted if the portion of the residence being deducted is used exclusively: (1) As the taxpayer's principal place of business; (2) As a place of business used by patients, clients, or customers when visiting the taxpayer in the normal course of business; or (3) Is a separate structure not attached to the dwelling that is used in connection with the trade or business When making a determination about whether or not the use qualifies for a deduction, the tax court will consider the following factors under Popov (a leading case in the area): (1) The relative importance of the activities performed at home and elsewhere; and (2) The amount of time spent working at home and elsewhere Also, a home office qualifies as a principal place of business if it is used to conduct administrative or management activities of the taxpayer’s trade or business and there is no other fixed location where such administrative or management activities can be performed ***NOTE*** Although this is the legal standard, be aware that this is a RED FLAG for the IRS. You are essentially begging for an audit if you claim this deduction and don't also have your own business.
2016-05-17 15:45:50 · answer #2 · answered by ? 3 · 0⤊ 0⤋
Your friend needs Tax Law 101 in the worst way. NO deduction is ever worth more than the tax bracket in which you pay your highest level of income tax. If this airhead thinks he's going to get a refund check covering his entire lease expenses, he's also going to be in for a HUGE surprise.
Do you regularly hang around with folks this out of touch with reality ?
2007-06-27 13:36:49 · answer #3 · answered by acermill 7 · 1⤊ 0⤋
You've obviously got your head on pretty straight. Those around you who make those outrageous assertions -- not so much!
As others have pointed out, a tax deduction is only worth whatever your tax rate is. And when it comes to a car lease, none of it will be deductible unless it's used for business -- and that doesn't mean back and forth to work, either.
2007-06-27 15:56:25 · answer #4 · answered by Bostonian In MO 7 · 1⤊ 1⤋
You are correct. Basically the write-offs are just taking away any taxation on the items that are written-off. This will cause a deduction to the total amount of tax owed at the end of each fiscal period.
He/she will still have to make their payments on the lease.
For each item written-off, there must be proof provided as to why the item is indeed a Business Item and deserves the tax deduction.
2007-06-27 09:25:00 · answer #5 · answered by βread⊆ℜumbs™ 5 · 1⤊ 1⤋
Write offs are another word for deductions. Part of the monthly lease is a business expense. He would deduct it along with all other business expenses, then pay taxes on the net earnings.
If he uses the car for personal use, he cannot deduct part of the expense for personal use.
2007-06-27 08:04:24 · answer #6 · answered by regerugged 7 · 0⤊ 1⤋
The people who told you that you get 100% of what you write off are full of bull****. For a tax write-off, you only get the tax break value equal to what your tax bracket is, and since there is no such thing as a 100% tax bracket, they are wrong.
2007-06-27 09:37:54 · answer #7 · answered by Anonymous · 2⤊ 3⤋
He's wrong, obviously. Which he'll be finding out when the expected check doesn't come.
Everybody "knows someone who knows someone" who got some great wonderful break. Uh-huh.
2007-06-27 14:25:29 · answer #8 · answered by Judy 7 · 1⤊ 1⤋
no
2015-05-17 19:17:04 · answer #9 · answered by ? 1 · 0⤊ 0⤋