If you own or manage a small business, you are constantly exploring profit opportunities. Do you know about the IRS’ accelerated depreciation option for company vehicles? Whether you have a single-company vehicle or an entire fleet, this little-known tax deduction could add a tidy sum to your bottom line. I am not a tax advisor and strongly encourage you to seek appropriate professional advice if you are interested in pursuing this tax deduction option. I will, however, give you the basics of the program.
For the last few years, the IRS has offered an accelerated depreciation program for company vehicles with a gross vehicle weight rating (GVWR) of 6,000 pounds or more. The GVWR is the manufacturer’s rating of the vehicle’s maximum weight when fully loaded. For business owners, accelerated depreciation gives the owner the advantage of larger tax deductions for the current year on qualifying vehicles. As a result, the owner sacrifices the ability to claim depreciation in later years. To realize the full potential of this program, the vehicle has to be used only for business. Many of your work trucks probably qualify for these deductions based on their GVWR rating.
However, did you know there is a significant difference between annual tax depreciation schedules for some luxury sport utility vehicles over a luxury sedan? If you own (or are thinking about purchasing) a business vehicle, consider the following information:
Total allowable depreciation in years one through four for a $50,000 luxury SUV with a GVWR over 6,000 pounds compared to a $50,000 luxury car:
Year Luxury SUV Luxury Car
1 $30,000 $3,060
2 $8,000 $2,850
3 $4,800 $2,850
4 $2,880 $1,775
$45,680 total $12,585 total
That is a total four-year depreciation of 91 percent for the luxury SUV under section 179 of the tax code, as opposed to 25 percent for the luxury car. Each vehicle can continue to be depreciated until it reaches 100 percent, but you can plainly see which one pays back more quickly. The example above is based on the 2007 numbers; according to the IRS website, the 2008 limits have actually increased. “2008 Changes: Increased Section 179 limits. The maximum section 179 deduction you can elect for qualified section 179 property you placed in service in tax years that begin in 2008, has increased to $250,000.” While this information is a useful start, you will need to discuss your particular situation and transaction with a qualified tax specialist.
Make sure you have the knowledge necessary to make the right business decisions regarding your fleet or executive vehicles. Each year around this time, we hear rumors that this little-known tax benefit might be eliminated. Although I have no confirmation, it might be a good idea to proceed as if this was the program’s last year. At the very least, examine your fleet and executive vehicles to see if they qualify and consult with your tax specialist/CPA. It could add a tidy sum to your bottom line. iBi