Should You Buy a Car to Reduce Your Taxes Before 2024 Ends?
As the end of 2024 rapidly approaches in less than a month, many business owners have realized they need to offset their taxable income. With such a limited time frame before the tax year is over, your options for tax deductions are not plentiful. However, an area that business owners could benefit from last-minute is purchasing a business vehicle. This move can offset your taxable income by a few hundred to several thousands of dollars, but it also can be risky. Here’s how you can do it right.
First and foremost, in order to benefit from vehicle purchase deductions, you must time it strategically. You need to own the vehicle and place it in service (drive a few business miles) before December 31st, 2024.
Now, in order to claim deductions relating to your new business vehicle, you should know what benefits your vehicle qualifies for. This involves thinking ahead about which deductions and credits you wish to claim. If you aim for clean energy credits, you will need to purchase an EV or hybrid, which could earn you a $7,500 tax credit. If you are interested in more substantial deductions, then there are more specific qualifiers you’ll need to look for in a vehicle.
By purchasing a new or used SUV, crossover vehicle, or van, “that the manufacturer classifies as a truck and that has a gross vehicle weight rating (GVWR) of 6,001 pounds or more”, certain benefits become possible:
Elect bonus depreciation of 60 percent
Elect Section 179 expensing of up to $30,500
Elect MACRS depreciation using the five-year table
Avoid the luxury limits that cap vehicle depreciation deductions
If you instead purchase a new or used pickup truck, these tax benefits are possible:
Bonus depreciation of up to 60 percent
Section 179 expensing of up to $1,220,000
MACRS depreciation using the five-year table
No luxury limits on vehicle depreciation deductions
If you do go with an EV to benefit from the $7,500 EV tax credit, you can still qualify for the tax benefits listed above. You first claim the EV credit and then reduce the basis of the vehicle to calculate other deductions you may enjoy.
A last-minute business vehicle purchase is a bit more intensive than some might realize. It’s important to know what benefits you can qualify for before you sink tens of thousands of dollars into a new car. To be certain this tax strategy is right for your business, speak with your CPA before you buy. But make sure you do so very soon, as the new year is less than a month away.
Phone: 832-295-3353
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Want to save $10,000 in taxes? Read XQ CPA's official tax planning guidebook! How to Grow Your Wealth Through Tax Planning.
