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  • Please help with car write off

    So I am planning on buying a Tesla in 2018. I will likely be eligible for the federal credit of $7500 and state credit of $2500. Since I will be using this car mainly for business purposes, I would like to write it off as a business expense using 1099 income. I am planning on taking out an auto loan with Tesla. I have read about writing off the car through a sole proprietorship, but I was hoping to hear from people with experience. Please help

  • #2
    It's not too complicated and the entity form does not matter (sole prop v. LLC v. corp).

    • You will be able to deduct a proportionate amount of expenses for business v. personal.

    • You can use the "actual expense" method or the "mileage" method.

    • If you choose mileage you can change to actual expense later but if you begin with actual expense, you cannot change back to mileage.

    • You cannot deduct the costs of commuting.

    • Generally, the more expensive the car, the more likely it is that the actual expense method will benefit.

    • Generally, for older cars that you are driving a lot, the more likely it is that the mileage method will benefit.


    You should talk this over with your CPA in the year you are putting the car into service.
    Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3




      It’s not too complicated and the entity form does not matter (sole prop v. LLC v. corp).

      • You will be able to deduct a proportionate amount of expenses for business v. personal.

      • You can use the “actual expense” method or the “mileage” method.

      • If you choose mileage you can change to actual expense later but if you begin with actual expense, you cannot change back to mileage.

      • You cannot deduct the costs of commuting.

      • Generally, the more expensive the car, the more likely it is that the actual expense method will benefit.

      • Generally, for older cars that you are driving a lot, the more likely it is that the mileage method will benefit.


      You should talk this over with your CPA in the year you are putting the car into service.
      Click to expand...


      Thanks.  I was planning to deduct the costs of commuting since I have a home office.  That is, all commuting would be work to work.  What am I missing?

       

      Also, if I take a Tesla loan instead of paying for it in lump sum, does that change the deduction for the car?  That is, would I write off just the loan interest per tax year or write off the purchase price (say 70k for example) in 2018?

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      • #4
        Sounds questionable to me. Good luck with it.

        Comment


        • #5


          What am I missing?
          Click to expand...


          A tax attorney on retainer for when the audit occurs?   

          Comment


          • #6


            I was planning to deduct the costs of commuting since I have a home office.  That is, all commuting would be work to work.  What am I missing?
            Click to expand...


            This is kind of dicey; I would have a difficult time justifying the cost of a luxury car as an ordinary and necessary business expense. Is this your full-time job or a side gig?


            Also, if I take a Tesla loan instead of paying for it in lump sum, does that change the deduction for the car?  That is, would I write off just the loan interest per tax year or write off the purchase price (say 70k for example) in 2018?
            Click to expand...


            A loan does not change the timing of the deduction for the purchase of a fixed asset. You get the deduction in the year you put it into service. I have not checked the updated cap for 1st-year luxury car depreciation.
            Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

            Comment


            • #7
              Your home has to be the principal place of business to qualify for for a deduction from your home to another place of business, unless I've misread Publication 463:

              https://www.irs.gov/pub/irs-pdf/p463.pdf#page15

              Publication 587 tells you whether or not your home would qualify:

              https://www.irs.gov/pub/irs-pdf/p587.pdf#page3

              If you meet the qualifications, does it really matter if the car is a Tesla? I think that there is a case to be made that the long term costs of the Tesla are less, net of subsidies and assuming a base model of the newest version. Aren't there deduction limits applied that would take care of the high cost vehicle issue?

              Comment


              • #8
                Would it be easier if it is a Model X since it's above the 6500 lb thing?  That would get the extra $25,000 business deduction, right? (So called Hummer tax deduction)

                Comment


                • #9





                  I was planning to deduct the costs of commuting since I have a home office.  That is, all commuting would be work to work.  What am I missing? 
                  Click to expand…


                  This is kind of dicey; I would have a difficult time justifying the cost of a luxury car as an ordinary and necessary business expense. Is this your full-time job or a side gig?

                   
                  Click to expand...


                  Side gig.  I would have my typical W2 doctor income plus 1099.  I would deduct all the business expenses on the 1099.  I do not think anyone would argue that a Hummer is ordinary and necessary, but people were definitely successfully deducting them.

                  Comment


                  • #10
                    I don't think your plan will succeed.

                    Comment


                    • #11
                      It sounds like your home office might be what you use to manage your side income.  The side income would have to be made while at work in your home for your home to qualify as a valid home office location in the eyes of the IRS.  If you only use the home office to keep records and so forth, then it will not be accepted as your principal place of business for that side income.  The details matter.  I considered something similar and my accountant enlightened me regarding my false impressions of what qualifies as a home office.

                      Comment


                      • #12




                        It sounds like your home office might be what you use to manage your side income.  The side income would have to be made while at work in your home for your home to qualify as a valid home office location in the eyes of the IRS.  If you only use the home office to keep records and so forth, then it will not be accepted as your principal place of business for that side income.  The details matter.  I considered something similar and my accountant enlightened me regarding my false impressions of what qualifies as a home office.
                        Click to expand...


                        If I recall correctly, there was a IRS case involving an anesthesiologist who used his home office as an administrative office for his 1099 income as a doctor.  He did not see any patients at home and did not generate any income at home.  The IRS challenged him and he ended up winning, citing a long list of relevant managerial/administrative work he did at home for the business.  It does not seem that you have to actually see patients at home for it to qualify as a home office.  For my purposes, some of the income is made at home (for example via physician surveys and other medical consulting) so even if that were a requirement, it should still count as a home office.

                        Comment


                        • #13
                          Sounds shady. Best of luck.

                          Comment


                          • #14
                            This all sounds very questionable.  A home office which would probably not stand up as a primary place of business.  A luxury car being written off as ordinary and necessary.

                            Comment


                            • #15








                              I was planning to deduct the costs of commuting since I have a home office.  That is, all commuting would be work to work.  What am I missing? 
                              Click to expand…


                              This is kind of dicey; I would have a difficult time justifying the cost of a luxury car as an ordinary and necessary business expense. Is this your full-time job or a side gig?

                               
                              Click to expand…


                              Side gig.  I would have my typical W2 doctor income plus 1099.  I would deduct all the business expenses on the 1099.  I do not think anyone would argue that a Hummer is ordinary and necessary, but people were definitely successfully deducting them.
                              Click to expand...


                              Is your side gig in medicine? And are you still making the bulk of your money by seeing patients?

                              You can deduct anything you like until the auditors come knocking. If approaching a grey area, I would definitely seek the advice of a CPA.

                              FWIW, my husband had a similar scheme that got shot down by our CPA. He does telemedicine from his home office and then drives to different offices/hospitals to see patients. He figured that because it's work place to work place travel, this would not count as a commute and he could deduct his substantial lease payments (car in the same price range as a fully loaded Tesla)

                              Our CPA did not feel comfortable with this because the bulk of his income was generated via surgery in the OR. This means the home office isn't the principal place of business even with telemedicine consults.

                              You may have a different experience with a more aggressive CPA. (I agreed with our CPA. This felt like gaming the system to me. I told my husband that it wasn't worth the hassle of worrying about an audit. Lease the car, drive the car, enjoy the car, do an extra surgical case/month if cost is a concern, worry less.)

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