Vehicle Purahces(Tax Question)

Discussion in 'Business Operations' started by BrandonH, Dec 1, 2003.

  1. BrandonH

    BrandonH LawnSite Member
    Posts: 138

    I'm going to start full time in the lawn care business this next year and have been preparing for the last few months. I have not found a good CPA yet so I thought someone on here may be able to shed some light on my question. I plan on using my personal truck for the job and will be in the market for a new one soon. Are there any benefits of buying the truck under the business name? I would normally just buy the truck and finance through my local bank, but wanted to know if there are other ways to go about it that would be a better financial choice. I'm open to any recommendations and help.

    Thanks,

    Brandon
     
  2. EagleLandscape

    EagleLandscape LawnSite Platinum Member
    Male, from Garland, Texas
    Posts: 4,347

    tax write off. duh.
     
  3. Randy J

    Randy J LawnSite Bronze Member
    Posts: 1,124

    Not very friendly there jwing! There could be tax advantages either way. Are you intending to use it for work only, or also for personal? If work only, I would think it would be better to have the business buy the truck. If for personal use also, it would probably vary. You'll either have to pay the going tax rate for vehicle use ($.375/mile I think), or the business can show that as an expense - $.375/mile driven for business.
    You really need to talk to an accountant though, as I could be way off base.

    Randy
     
  4. Team Gopher

    Team Gopher LawnSite Platinum Member
    from -
    Posts: 4,041

    Hi Brandon,

    Here is a quote from this post.

    "An equipment/truck lease is 100% deductible as an expense, there is no interest expense separate from the lease. If you purchase the vehicle, you depreciate the principal and expense the interest."
     
  5. Fvstringpicker

    Fvstringpicker LawnSite Fanatic
    Posts: 7,603

    If you're a sole proprietorship, it makes no difference if its purchased in your name or the company name; the expenses are apportioned in accordance with your percentage of business usage. i.e., if used 75% for business, than 75% deductable. The main thing to look for is vehicle weight. Vehicles weighing in at 6000 + lbs generally have a much more favorable cost write off potential (depreciation/sec 179)
     
  6. Meier

    Meier LawnSite Senior Member
    from DFW
    Posts: 269

    I bought my truck last January and I was surprised to learn that if a business enitity buys a truck in Texas there is no sales tax.

    Still not sure if the girl at the tax office made a mistake or if it's supposed to be this way. But she punched in the numbers and I was fully prepared to write out a check for $1,160 but she only asked me to pay the cost of the sticker.

    FWIW, I've got my business entity set up as an LLC. The LLC ownes my truck, not me. I own the LLC.

    Later,
    Meier
     
  7. JimLewis

    JimLewis LawnSite Fanatic
    Posts: 6,842

    You really need to get a good CPA. And here's a tip - don't hire one by hourly rate. There is a reason the higher paid CPAs get the rate they do - they're worth it!

    I think your question was should you buy a truck in your name or in the company name. As for being a tax write-off, it doesn't matter either way. You might as well get it in your own name. Your company (whether incorprated or sole prop.) can reimburse you fully for the payment (assuming this truck is only used for business purposes and your family has another vehicle for personal use).

    But there's an additional tax advantage if you buy the truck in your own name. By doing so, you can actually lease the truck to your company. The company can still pay for all of the repairs, etc. But instead of paying you the exact amount of the monthly payment, your company can pay you even more - up to whatever is a normal price to lease that truck at. In this way, you can get money from your company without paying the income tax on it.

    Again, see a CPA for more details. You'll get so many answers here it will just confuse you.
     
  8. Meier

    Meier LawnSite Senior Member
    from DFW
    Posts: 269

    ++++But there's an additional tax advantage if you buy the truck in your own name. By doing so, you can actually lease the truck to your company. The company can still pay for all of the repairs, etc. But instead of paying you the exact amount of the monthly payment, your company can pay you even more - up to whatever is a normal price to lease that truck at. In this way, you can get money from your company without paying the income tax on it.++++

    Actually, if you go that route, you're supposed to pay personal income tax on the income from the lease.

    In other words, say your truck payments are $350 per month and you lease the truck to your company for $375 per month. You're supposed to claim that $25/mo as personal income. But it may very well be the standard practive by the accounting industry to not claim this income at the end of the year.

    Taxes are SO sonfusing. It's nearly impossible to do everthing right. Many accountants will tell you that if you lease the truck, you can deduct 100% of the lease payment as an operating expense. However, if you buy the truck and drive it 50% of the time for personal use, you can only deduct 50% of the costs of the truck (depreciation, fuel, insurance, etc.) When there's a lease involved, the accountants just automatically assume that the truck is 100% business.

    Do you see a flaw with the above scenario? It's the standard treatment by most accountants. The huge problem is, most would agree that it's much cheaper to buy, even on time payment arrangements, than it is to lease.

    I'm starting to believe that the accountants don't know much more about what is legitimate and what isn't. I still pay mine because I just don't know what forms to fill out and how to fill them out.

    But if you ask me, the accountants are making up the rules as they go. They're real expertise is simply knowing which forms to fill out and how to fill them out. They're also good at dodging IRS red flags. Outside of that, I really do believe they're making up the rules as they go along.

    In fact, before I dove into the business, I spoke with three different accountanting professionals. On the specific issue of 1099 labor vs W2 labor I got three very, VERY different interpretations of the law.

    Later,
    Meier
     
  9. bruces

    bruces LawnSite Senior Member
    Posts: 648

    Leasing a vehicle from yourself to a business you own really does not benefit you if you are a sole proprietorship. You are merely transferring money from one pocket to another.

    The lease payment your receive is income, you would then depreciate the vehicle and take an intererest deduction for the interest on the payments.

    If you have a corporation and lease the vehicle to the corporation, you have a deduction on the corporation for the lease payment and income personally for the rent received. It can serve as a way to get money out of the corporation without paying social security taxes on it if taken out as salary.

    As far as Jim Lewis's comment about not hiring a CPA by the hour, most don't work any other way. CPA's are selling their time and knowledge, as a result the standard fee schedule is based on an hourly rate.
     
  10. JimLewis

    JimLewis LawnSite Fanatic
    Posts: 6,842

    Bruce clarified what I was trying to say.

    Bruce, what I meant by hiring a CPA by the hour was not to SHOP CPAs and go for the one with the lower hourly rate. I probably didn't spell it out clearly above. But that's what I meant. Like everything else, you get what you pay for. My CPA has saved me tens of thousands of dollars and is well worth the money I spend on him each year.
     

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