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Business Tax CPA discusses Auto Bonus Depreciation

Business Tax CPA discusses auto depreciation.

Gary Bode, CPA: business auto depreciation is a conflicting intersection of tax code. For a free initial consult, please call (910) 399-2705.

Every business tax CPA knows bonus auto depreciation encompasses conflicting tax code. Optimizing a client’s depreciation deduction takes tax savvy coupled with knowledge of the company’s future tax position.

Pure Examples of Auto Depreciation

Depreciation just expenses cost of the company’s auto over the life of its expected usefulness. Typically this use a period of time as a cost driver. If a company expects a $50,000 car to last five years, the business would deduct $10,000 per year ($50,000/5). But mileage is also a valid cost driver. If a company expects a $50,000 auto to last 100,000 miles, and, and drove it 25,000 miles during the tax year, the business would deduct $12,500 [(25,000/100,000) x $50,000] as depreciation.

“Auto depreciation for the IRS no longer resembles true depreciation.”
-Gary Bode, business tax CPA

Congressional Games with Auto Depreciation

Originally a valid accounting concept, Congress warped auto depreciation for tax purposes.

  • First what is an auto? Any four-wheeled vehicle weighing less than 6,000 pounds.
  • The year of purchase only counts as a half-year for auto depreciation.
  • They accelerated the rate of depreciation for the first five years.
  • They capped the depreciation deduction for all years. The company can still deduct the entire purchase amount, but it will probably take more than five years to do it.
  • “Bonus” depreciation raises the first year deduction by $8,000. But only if the auto is purchased after Sept. 8, 2010 and before Jan. 1, 2012.
  • After five years, the depreciation switches to a straight line method.

Dollar Limits

If no bonus depreciation:

  • $3,060 for the placed in service year.
  • $4,900 for the second tax year.
  • $2,950 for the third tax year.
  • $1,775 for each succeeding year.

With bonus depreciation:

  • $11,060 for the placed in service year.
  • $4,900 for the second tax year.
  • $2,950 for the third tax year.
  • $1,775 for each succeeding year.

Assorted Auto Issues

  • The company can use the standard mileage method instead of actual expenses (including depreciation). Which way is best? It depends.
  • SUVs and trucks can usually be written off in the year of purchase.

We’re a business tax CPA firm in Wilmington NC, but through our virtual office, serve a broad domestic and international base. For a free initial consult with a business tax CPA, please call (910) 399-2705

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