Author Topic: How 2 prove been in business 2 years to get the business vehicle deduction  (Read 546 times)

FIKristen

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Hello fellow savers,

The time has come in the life of my small business to get a business vehicle (new job requires driving all over the state).   I've read that small businesses can use the business vehicle deduction to depreciate 40% of the cost of the new vehicle in 2018, provided they've been in business 2 years.

My question is:  what proof is required to prove I've been in business 2 years?   I have the original letter from the IRS when I filed for my Employer Identification Number, will that work?  My business is a sole proprietorship if that matters.

Thank you.


SeattleCPA

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You were misinformed... sorry.

Basically, you can deduct either a standard mileage rate times the number of business miles you drive...

Or you can calculate use the ratio of your business miles to your total miles to calculate your business use percentage and then deduct that percentage of your actual expenses (subject possibly to some rules that limit your ability to depreciate an expensive car quickly).

The thing is you need a really good log to prove your business miles.

My general observation: Most small business owners either aren't willing to create the required documentation or don't get enough tax savings to make the vehicle writeoff worth it given the work involved.

More info here: https://www.irs.gov/taxtopics/tc500/tc510
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bacchi

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What about a section 179 deduction, seattlecpa?

https://www.irs.gov/publications/p463#en_US_2016_publink100033959

SeattleCPA

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You can get bonus depreciation and maybe Sec. 179 depreciation. The rules are more complicated.

E.g., with Sec. 179, you need to use the vehicle more than 50% for business... and then practically you need to stay above that 50% for future years.

Further, remember that the luxury auto limitations may dial back what you can depreciate... (Rules work differently for big trucker and SUVs ironically...)
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FIKristen

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Correct, I am talking about the 179D deduction/depreciation. Not talking about mileage deductions.

 Yes, this would be exclusively a business vehicle, not personal.   I have a separate personal vehicle.    Not looking at a luxury item, just one of the inexpensive fuel efficient hybrids and was hoping to take the 179 deduction/40% depreciation in 2018 for "Passenger automobiles weighing 6,000 pounds or less."  But I read somewhere that you have to have been in business 2 years, so I was wondering what proof is required for that.

SeattleCPA

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Correct, I am talking about the 179D deduction/depreciation. Not talking about mileage deductions.

 Yes, this would be exclusively a business vehicle, not personal.   I have a separate personal vehicle.    Not looking at a luxury item, just one of the inexpensive fuel efficient hybrids and was hoping to take the 179 deduction/40% depreciation in 2018 for "Passenger automobiles weighing 6,000 pounds or less."  But I read somewhere that you have to have been in business 2 years, so I was wondering what proof is required for that.

Sec 179 depreciation requires you to have business income and then business use greater than 50%. There's not a "been in business for two years" requirement.

Note: About the business income thing... you can't use Sec. 179 depreciation to create a loss or increase the size of a loss.
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FIKristen

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Thanks Seattle CPA.   

CareCPA

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Why not just use the standard mileage and use your current vehicle? I've rarely come across a situation where it was more beneficial to hold the vehicle in the business and depreciate it, than to take the mileage reimbursement/deduction - especially if you are buying a less expensive car.
This would also save you having to keep two cars since you can only drive one at a time.
Always happy to help with tax or accounting questions - feel free to private message me.

I am a licensed CPA in Pennsylvania. However, any tax advice I give should be considered general information and not used in the avoidance of tax. There is most likely information about your situation that I do not know, and thus you should do your own additional research.

Yes, in case it confuses you, I did change my forum name.

SeattleCPA

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Why not just use the standard mileage and use your current vehicle? I've rarely come across a situation where it was more beneficial to hold the vehicle in the business and depreciate it, than to take the mileage reimbursement/deduction - especially if you are buying a less expensive car.
This would also save you having to keep two cars since you can only drive one at a time.

+1
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