If you’re operating a small business without the help of an experienced small business CPA, you will most likely be unfamiliar with the different ways you can increase profits utilizing small business tax planning. One great example would be having an in-depth understanding of the codes and regulations created by the IRS so that you can be certain that you are maximizing the tax deductions and credits you qualify for. Section 179 is a provision in the tax code that allows your company to deduct the costs of an investment. This regulation has been very beneficial for small business owners all around the United States. It is commonly used to help offset the cost of purchasing a vehicle for business purposes.
Vehicles That Qualify For Section 179 Deduction
Section 179 allows different types of vehicles to qualify for the deduction. However, the rules for this section are always changing, which is why it’s a good idea to work with an experienced team of small business CPAs to get an updated list of deductible vehicle purchases. Here is a list of specific vehicle types that currently qualify for the Section 179 deduction:
- “Over-the-road” tractor-trailers and rigs: Semi-trailer trucks fit this description.
- Vehicles that carry 9+ passengers: This category includes shuttle vans used for hotel and airport transportation.
- Heavy construction equipment: This would include equipment such as loaders, dozers, trains, excavators, and dump trucks.
- Vehicles matching these three criteria:
- The front section of the body can not protrude more than 2 1/2 feet beyond the leading edge of the vehicle’s windshield. A classic cargo van is a great example.
- There is a clear distinction between the cargo area and a fully enclosed driver’s compartment.
- There is no seating area behind the driver seat.
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Limits On Typical Passenger Vehicles
When you’re thinking about purchasing vehicles for your business, our small business accountants can help you determine if they’re eligible. There are limits on certain types of passenger vehicles used for business purposes. These limits can include vans, trucks, and other passenger vehicles.
If you’re using passenger vehicles for business purposes for more than 50 percent of the time and your business qualifies for a Section 179 deduction, your qualified deduction for Section 179 and bonus depreciation is most likely limited to $11,560 for vans and trucks and $11,160 for cars. Depreciation limits are reduced according to the percentage of time you use a vehicle for personal use if it is being used for both personal and business needs.
These expenses will have a significant effect on your small business tax planning strategy from one year to the next. It’s important to note that there are some exemptions, which include the following vehicles:
- Transport vans, taxis, and other vehicles: These vehicles are specifically used by a business to transport property or people.
- Hearses or ambulances: These are used for specific business purposes.
- Modified vehicles for business use: An example of this type of modification would include a work found that has been modified by having its seating removed and a company logo painted on the outside exterior.
- Trucks and “non-SUV” vehicles: The vehicle must have a cargo area that is 6 feet minimum in interior length and not easily accessible from the front passenger compartment.
Section 179 Deduction Considerations
There are a few considerations associated with Section 179 that you’ll need to understand if you want to make sure your business qualifies.
Newly purchased vehicles, regardless if they are second-hand or brand new, may qualify for the Section 179 deduction. You must, however, acquire it through an “arms-length” transaction.
It should have also been financed with specific loans and lease programs and titled under your company name. Due to the complexities that can come from taking advantage of the 179 vehicle deduction, we recommend that you work with a knowledgeable small business CPA when creating the tax planning strategy for your business. Our experienced small business accountants are able to help you stay on top of your small business accounting and tax planning to make sure that you are efficiently maximizing deductions. You can learn more about our services by clicking the button below to schedule a complimentary discovery call today!
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.
