Here’s an easy question: Do you need more 2023 tax deductions? If the answer is yes, continue reading.
2023 Last-Minute Vehicle Purchases to Save on Taxes
Next easy question: do you need a replacement business vehicle?
If so, you can simultaneously solve or mitigate the first problem (needing more deductions) and the second problem (needing a replacement vehicle) if you can get your replacement vehicle in service on or before December 31, 2023. Don’t procrastinate.
To ensure compliance with the “placed in service” rule, drive the vehicle at least one business mile on or before December 31, 2023. In other words, you want to both own and drive the vehicle to ensure that it qualifies for the big deductions.
1. Buy a New or Used SUV, Crossover Vehicle, or Van
Let’s say that on or before December 31, 2023, you or your corporation buys and places in service a new or used SUV or crossover vehicle that the manufacturer classifies as a truck and that has a gross vehicle weight rating (GVWR) of 6,001 pounds or more. This newly purchased vehicle gives you four benefits:
- Bonus depreciation of 80 percent
- Section 179 expensing of up to $28,900
- MACRS depreciation using the five-year table
- No luxury limits on vehicle depreciation deductions
Example: You buy a $100,000 SUV with a GVWR of 6,080 pounds, which you will use 90 percent for business use. Your write-off can look like this:
- $28,900 in Section 179 expensing
- $48,880 in bonus depreciation
- $2,440 in 20 percent MACRS depreciation, or $611 if the mid-quarter convention applies
So the 2023 write-off on this $90,000 (90 percent business use) SUV can be as high as $80,220 ($28,900 + $48,880 + $2,440).
2. Buy a New or Used Pickup
If you or your corporation buys and places in service a qualifying pickup truck (new or used) on or before December 31, 2023, then this newly purchased vehicle gives you four big benefits:
- Bonus depreciation of up to 80 percent
- Section 179 expensing of up to $1,160,000
- MACRS depreciation using the five-year table
- No luxury limits on vehicle depreciation deductions
To qualify for full Section 179 expensing, the pickup truck must have
- a GVWR of more than 6,000 pounds, and
- a cargo area (commonly called a “bed”) of at least six feet in interior length that is not easily accessible from the passenger compartment.]
Example. You pay $55,000 for a qualifying pickup truck that you use 91 percent for business. You use Section 179 to write off your entire business cost of $50,050 ($55,000 x 91 percent).
Short bed. If the pickup truck passes the more-than-6,000-pound-GVWR test but fails the bed-length test, tax law classifies it as an SUV. That’s not bad. The vehicle is still eligible for expensing of up to the $28,900 SUV expensing limit and 80 percent bonus depreciation.
3. Buy an Electric Vehicle
If you purchase an all-electric vehicle or a plug-in hybrid electric vehicle, you might qualify for a tax credit of up to $7,500. You take the credit first, and then follow the rules that apply to the vehicle you purchased.
2023 Last-Minute Year-End Tax Deductions for Existing Vehicles
December 31st is just around the corner.
That’s your last day to find tax deductions available from your existing business and personal (yes, personal) vehicles that you can use to cut your 2023 taxes. But don’t wait. Get on this now!
1. Put Your Personal Vehicle in Business Service
Lawmakers enacted 80 percent bonus depreciation for 2023, creating an effective strategy that costs you nothing but can produce substantial deductions.
Are you (or your spouse) driving a personal SUV, crossover vehicle, or pickup truck with a gross vehicle weight rating greater than 6,000 pounds? Would you like to increase your tax deductions for this year?
If so, place that personal vehicle in business service before December 31.
2. Check Your Current Vehicle for a Big Deduction
Your current business vehicle, regardless of when it was purchased, could have a big deduction waiting for you.
Example. Jim purchased a $60,000 vehicle in 2020 and used it 85 percent for business. During the four years (2020, 2021, 2022, and 2023), Jim depreciated the vehicle $10,000. If Jim sells the vehicle today for $25,000, Jim has a $19,750 tax loss.
By strategically utilizing these tax deductions and taking action before the end of the year, you can reduce your 2023 taxes and maximize your savings.