1. Be strategic about which auto, truck or SUV you purchase.
All vehicles are not created equal when it comes to IRS rules on auto and truck expense.
Some vehicles allow you a much bigger tax write-off than others in the first year you purchase them.
New or used SUVs, for example, can give you an auto deduction over $25,000 in year one. The tax code specifically requires that the vehicle must have a gross vehicle weight (GVW) between 6,000 and 14,000 pounds, carry passengers, and have a truck chassis.
Your actual tax savings depend on your tax bracket. Let’s say you’re in the 22% marginal bracket.
You’re in the 22% tax bracket if you’re a single filer, and have a taxable income of $39,476 or higher. Or you’re a married filer with taxable income $78,951 or higher.
Either way, when you’re in the 22% marginal tax bracket, a $25,000 SUV deduction will give you a tax savings of $5,500.
Be aware of the fact that tax reform increased the first year deduction on almost all vehicles to $10,000. So perhaps the $25,000 “SUV deduction” doesn’t carry as much of a “wow” factor these days.
It’s still a powerful tax strategy to use if you anticipate a big increase in your commission income this year.
2. Consider the actual expense method, rather than the mileage rate.
The IRS will allow you to deduct 58 cents per business mile on your 2019 income tax return. That’s up from 54.5 cents in 2018.
Probably 90% of Realtors (and their CPAs) use the mileage rate because it’s quick and easy to to calculate.
But the American Automobile Association (AAA) publishes a study of actual operating cost per mile for every type of vehicle. Their report shows that many of the popular vehicles for Realtors cost more than 58 cents per mile to operate.
In these cases, if you use the IRS standard mileage rate, you’re losing money every time you put the key in the ignition
A better option would be to track your actual expenses, and then multiply the total dollar amount by the “Business Use Percentage” (BUP). Example: if you drive 10,000 miles this tax year, and 7,500 of those miles are for business use, then your BUP is 75%.
“Actual expenses” include what you spend on gas & oil, washes, tires and repairs, license & registration, auto insurance, and lease payments.
And also don’t forget to include depreciation expense. That’s what tax professionals use to account for wear and tear on your vehicle.
Then add up your actual costs. Multiply the total by your BUP. You’re likely to uncover a bigger deduction than if you use the standard mileage rate.
3. Make a quality decision that you’re going to ‘up your game’ on record-keeping.
Most real estate agents hate record-keeping. Most don’t like IRS tax rules either.
But most don’t realize that their Auto Deduction is the single most audited expense category on their tax return.
Keeping a mileage log and solid record-keeping is not an option.
The real truth is, it’s not hard to do. (Really!)
Your smart phone already has the built-in technology to diligently track all your business and non-business trips.
- You can classify each trip as either business (swipe right) or non-business (swipe left).
- Keep a receipt each time you put gas in the car, run it through the car wash, or visit the mechanic.
- Scan the receipts into your phone; that way the ink won’t fade before April 15th.
For more information on steps you can take to maximize your vehicle deduction, contact a trusted tax professional, or contact me if you don’t have one. I’m here to help!
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