Raised Deduction From $25K To $75K Gives Free SUVs For Small Business Owners
author: Repost
The tax break applies specifically to small business owners — including doctors, lawyers, financial advisers, real estate agents, and independent contractors — who buy a truck or SUV for business purposes. Thus, the deduction is legal whether the vehicle is used to haul seven construction workers, 3,000 pounds of plumbing tools, or one certified public accountant. The main requirement is that the buyer uses their SUV more than 50% of the time in their business.
So, for example, last year a business owner could deduct $25,000 outright off the cost of a new SUV. Under Bush's economic stimulus package (which became law last year) the purchaser got an extra 30% bonus deduction off the balance of the sticker price. Subtract another 20% a year in depreciation over five years, and business owners who purchased SUVs already got a hefty tax write-off. Now, Bush wants to increase the small business deduction from $25,000 to $75,000.
In fact, raising the cap on business equipment to $75,000 will make it possible to write off the entire cost of most SUVs (including the Hummer H2 - MSRP $49,270 and BMW X5 - MSRP $40,195) in the first year. Others, like the Hummer H1 will be practically free to the business owner. Here's how:
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4-Wheel Drive / Offroading
Free SUVs For Small Business Owners
From Jim Walczak,
Your Guide to 4-Wheel Drive / Offroading.
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May 4 2004
Pros and Cons of New SUV/Pickup Tax Loophole
In hopes of encouraging more business spending to help jump-start the economy, President Bush's new Economic Stimulus Plan would triple the equipment deduction currently available to small business owners (from $25,000 to $75,000) -- enough to make some of the largest, most luxurious SUVs fully deductible.
Back in 1996, in an effort to change tax laws "to encourage business investment," Congress made it possible for business owners to claim $17,500 in accelerated depreciation on equipment (such as trucks). That amount increased in '01, '02, and '03 from $20,000 to $24,000 to $25,000, respectively. Now, Bush's plan calls for up to $75,000 "accelerated depreciation" for business owners.
According to Bush in his January 9 unveiling of the initiative: "This is a plan that says that if you are willing to take risk and invest more, that there's a benefit for doing so.
It's an incentive for small business to increase... And it will have a positive effect throughout our entire economy."
The tax break was originally intended for business owners such as farmers and construction workers, so their pickup trucks and cargo vans would not be treated as "luxury vehicles" - for which the code was not as generous. At the time, nobody considered SUVs and pickup trucks as "luxury" vehicles. But the tax code defines industrial vehicles by weight instead of function, and the parameter that the vehicle must be over 6,000 pounds fits the original intent of the legislation to help small family farmers. Due to the fact that SUVs are today classified as "light trucks," SUV owners who are also business owners can now take advanatage of such benefits.
With their recent rise in popularity, accountants have been advising more and more of their clients to take advantage of this loophole in the law. The tax break applies specifically to small business owners — including doctors, lawyers, financial advisers, real estate agents, and independent contractors — who buy a truck or SUV for business purposes. Thus, the deduction is legal whether the vehicle is used to haul seven construction workers, 3,000 pounds of plumbing tools, or one certified public accountant. The main requirement is that the buyer uses their SUV more than 50% of the time in their business.
So, for example, last year a business owner could deduct $25,000 outright off the cost of a new SUV. Under Bush's economic stimulus package (which became law last year) the purchaser got an extra 30% bonus deduction off the balance of the sticker price. Subtract another 20% a year in depreciation over five years, and business owners who purchased SUVs already got a hefty tax write-off. Now, Bush wants to increase the small business deduction from $25,000 to $75,000.
In fact, raising the cap on business equipment to $75,000 will make it possible to write off the entire cost of most SUVs (including the Hummer H2 - MSRP $49,270 and BMW X5 - MSRP $40,195) in the first year. Others, like the Hummer H1 will be practically free to the business owner. Here's how:
According to the Detroit News, a business owner who purchases a Hummer H1 (MSRP $106,185) for business purposes could write off $25,000 of the purchase price as an equipment investment. Another 30% of the remaining purchase price (or $24,356) could also be deducted under a provision passed in Congress last year to stimulate the economy. The Hummer owner could then deduct 20% of the remaining purchase price (or $11,366) under regular depreciation rules. That's a total deduction of $60,722. Under the Bush plan, the total deduction for a Hummer H1 would go up to a potential $88,722.
With all the tax breaks and loopholes, some vehicles would in effect, be free. Who knew the day would come when you could buy a new Chevy Suburban for about the cost of a two-door Saturn?
SUVs & Trucks That Qualify For The Tax Break
Based on 6000 lbs. gross vehicle weight, not actual weight Although there is currently a cap on tax deductions for cars used for business purposes, vehicles weighing 6,000 pounds or more (like trucks and SUVs) are exempt from these caps. And, if Bush's plan goes through, up to $75,000 of the purchase price of these vehicles would be tax deductible (that's 6,000 pounds gross vehicle weight, not actual weight):
BMW X5
Cadillac Escalade
Chevy Astro
Chevy Avalanche
Chevy Express
Chevy Silverado
Chevy Suburban
Chevy Tahoe
Dodge Durango
Dodge Ram Van
Dodge Ram Maxi Van
Dodge Ram Wagon
Dodge Ram 1500
Dodge Ram 2500
Dodge Ram 3500
Ford Excursion
Ford Expedition
Ford Econoline E-150
Ford Econoline E-250
Ford Econoline E-350
Ford F-150
Ford F-250
Ford F-350
GMC Yukon
GMC Safari
GMC Savana
GMC Sierra
GMC Sierra Denali
Hummer H1, H2
Land Rover Discovery
Land Rover Range Rover
Lexus LX470
Lincoln Blackwood
Lincoln Navigator
Mercedes G500
Mercedes ML 320
Mercedes ML 500
Mercedes ML55 AMG
Toyota Land Cruiser
Toyota Sequoia
Toyota Tundra
PROs of the SUV Tax Break
Of those in favor of the new SUV tax break, the following reasons are given for their support of such legislation:
It's a significant advantage for small, self-employed owners who are looking at upgrading their equipment, because the deduction is immediate.
The write-off may help you get a new vehicle quicker than you thought you could.
If you're planning to upgrade your company car, you may want to consider a larger SUV to capitalize on the write-off, because if you purhcase a passenger car, you will only be able to write off a small amount.
If you own a small business, you could immediately deduct the entire price of some SUVs (like the Hummer H2, Lincoln Navigator, Toyota Land Cruiser) even if it's loaded with all of the available features.
The Internal Revenue Service already permits small-business owners, including professionals, to deduct the first $25,000 they spend on an SUV purchased for business purposes. And the deal may even get sweeter if Bush's proposed Economic Stimulus Plan goes through.
It's a tax break from the U.S. government that helps the small business owner.
You can buy a new Chevy Suburban for about the cost of a two-door Saturn.
CONs of the SUV Tax Break
Of those opposed to the new SUV tax break, the following reasons are given for their opposition of such legislation:
One outcome of this incentive is that business owners are likely to seek out bigger SUVs instead of cars. For example, an accountant who would do fine with a 30 mpg compact sedan as a company car could be enticed into a big, 15 mpg SUV instead. Or a real estate agent about to buy a 20 mpg midsize SUV that doesn't qualify for the deduction might opt for a full-size SUV instead, because it does qualify.
Americans are already buying SUVs in record numbers, so why is there a national need to subsidize sales of the largest light trucks?
The tax break would encourage professionals who might have opted for a smaller, more fuel efficient car to purchase a full-size SUV or pick-up truck instead.
Thinking that the deal may just be too good to pass up, more people than ever are test-driving SUVs, making them more likely to purchase vehicles that are bigger than than initially thought they wanted or needed.
The tax break encourages people from all lines of work, including real-estate agents, lawyers, consultants, and many others to purchase a luxury SUV instead of a luxury automobile, which is not eligible for the same deductions.
The tax break applies only to the largest and least fuel-efficient category of SUVs.
The law seems counter to national goals of improving vehicle fuel efficiency to reduce U.S. dependence on foreign oil and cut greenhouse gasses.
Those who purchase fuel-efficient hybrid cars qualify for a tax credit of only a few thousand dollars. For example, those who choose an efficient new gas-electric hybrid car, getting 50 mpg, are rewarded a $4,000 tax deduction.
Why is a proposal to extend bigger tax breaks to environmentally friendly vehicles is currently stalled in Congress?
If the federal government is in the business of steering consumers toward the purchase of a particular sort of vehicle, then don't environmentalists have a right to a seat at the table alongside the auto industry lobbyists?
Business owners are being talked out of buying more fuel-efficient cars over gas-guzzling SUVs. For example, a business owner wanting to buy a Lincoln Town Car would receive a $7,660 deduction, just one-fourth what he might save by buying a Lincoln Navigator. It would take more than 15 years to recoup the entire cost of the car.
This is one of those tax credits that's going to benefit the rich.
According to Taxpayers for Common Sense, the SUV tax loophole costs the federal government $1 billion for every 100,000 vehicles that businesses buy.
There's no need for the government to subsidize these gas-hogs. Some, like the Hummer H2, only get 10 mpg. A 15 mpg vehicle costs twice as much to operate as a 30 mpg vehicle.
New York Governor George Pataki called the loophole unfair and said he would collect state tax on nonagriculture businesses that claimed the federal deduction. (However, this won't work because the SUV deduction is figured in with other business expenses, making it impossible to tell if someone is deducting the cost of a luxury truck.)
Senator Barbara Boxer (D-California) is drafting legislation that would change the truck definition to key on a separate cargo area instead of weight, allowing pickups and vans to qualify, but not SUVs. Any SUV weighing 14,000 pounds or less (every SUV on the market today) would be treated like a car.
The Sierra Club has urged the IRS to aggressively audit the returns of taxpayers who take advantage of a tax loophole subsidizing their purchases of gas-guzzling SUVs.
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free market capitalism? markets merely a pure reflection of pure consumer demand? no no no, that's the old way. corporatism. that's the new thing. that's the new style goin' down in d.c. are you "in the network", dude? cause detroit and bushco know what's goin on. you scratch my back, i'll scratch yours, and together we'll grow stronger and bigger...
if you're studying politics at the kennedy school of government, or taking graduate level poli sci classes at such and such, hoping to get a job in government, you better get hip or get square kids. if you don't embrace corporatism as a youngster, you won't be able to get that job in d.c.