The Tax Goddess Blog

The new depreciation limits - $250k - they want us to spend!

Morning everyone,

So, if you didn't know - the depreciation limits for the §179 deduction have been raised to $250k for this year (2008) and going forward.  This limit applies to any equipment, major manufacturing dollars spent, etc. 

Be warned!  Do NOT listen to many of the car manufacturers as only CERTAIN vehicles can use this limit, most autos are capped at the $25k limit for depreciation in a single year.

If you want to know if your new potential car or truck falls under the new raised $250k limit, you need to know that in order to qualify the vehicle must be:

Vehicle must weigh more than 6000 lbs GVWR and
Vehicle must be built on a TRUCK chassis or
Vehicle bed must be more than 6 feet in length or
Vehicle can seat more than 9 passengers behind the driver

(there are more regulations that are for more specific types of vehicles, so make sure you ask your Tax Goddess if you have more questions!)

So, for those of you who need more deductions at year end, want a new truck?

Tax Tricks! - Those Pesky Mileage Records

Dear Agatha the Auditor, I am a Realtor who drives EVERYWHERE! I've been told that I have to record every trip of every mile I drive, whether it's for business, personal, or just commuting.  Do I REALLY have to do that, or is my CPA just being picky? Help, Annoyed Recorder in Scottsdale, ------------------------------------------------------- Dear Annoyed Recorder in Scottsdale, There are many ways to record your travel milage. 1.  You could not record the mileage at all Of course, if you ever got audited, the 26,000 miles that you reported and got a nearly $12,000 deduction would be taken away completely and you would be required to pay back any taxes you saved on that deduction. 2.  Track 3 months of your travel and use that as an average for the 12 months during the year Unfortuantely, this does not prove that you are not seasonal.  For example, we all know that during the Summer, especially in Arizona, the real estate market slows down.  So if you used the first 3 months of the year, the auditor could argue saying that for the summer months the 3 months you recorded are not acceptable and the auditor could determine what rate THEY feel is acceptable! 3.  Track every BUSINESS mile For purposes of the deduction you take on your return, this is the only real mile tracking that the IRS cares about.  Since this is what your deduction may be based on, this is extremely important to protect not only your deduction but also your "good citizen" test in front of the IRS.  If you have immaculate mileage records they may let you slide on other things (like those pesky meal receipts) that tend to get easily lost. Of course, talk to your CPA regarding the details of your situation and what else can be done to help you deduct your mileage costs! Yours, Agatha the Auditor

To Buy or Not to Buy, Leasing may be the Question!

Should I buy that new car?  Should I lease it?  What are the implications of each?  How do I know what's best???

Good Questions!

The Buy vs. Lease Discussion is really more about how you use the car than the tax write-offs!  Take for Example Use and Mileage of the Vehicle:
- If you are a Realtor, you may drive 35,000 miles each year (completely over-running your allowed mileage on a lease) and have heavy penalties when you turn in the car. 
- On the other hand, you may be in construction, someone who doesn't drive that often with the car, but needs a new car every 3 years due to the heavy strain of equipment on the vehicle.

However, there are always tax issues to note as well:
- If you buy the car, depending on the model, you may be able to write off up to $25,000 of the purchase price in the first year (that can be of great help if you had a very prosperous year!)
- If you lease the car the Entire payment is deductible, versus if you buy, only any interest you may pay is deductible each year (beyond depreciation)

It can be a tough decision, so make sure you talk to your CPA if you are looking at a new vehicle!