Hey what's going on everybody? My name is Ryan. I'm a CPA and today I'm going to be talking about
whether or not you can buy an exotic, or deduct an exotic car in your business. The answer is
probably pretty obvious, but the short answer is it depends. And you know, I know you hate that
answer but it really does depend on what kind of business you have, the legitimate use of the car,
and all of that stuff. All right, so first let's start off with when can you for sure write off or
deduct an exotic car in your business? So let's say you own a business that rents out cars,
or rents out specifically exotic cars. That is a type of business where you can for sure
legally purchase the car under your business. You know, depreciate the vehicle and not have
the IRS bat an eye about it. But before I go any further, I wanted to talk about what deducting
the car means because that you know, it seems like such a simple word but there's, it's such a
loaded word because it can mean so many different things in the tax world. So when people say can,
when people ask can you deduct this car? I you know most of them mean that they have a business
okay. That's usually what happens, they have a business, they want to see if the business
can purchase the car under the business's name, and if they can you know, write off the entire
purchase price of the car for the purchase. Now the thing with exotics is they're very expensive
okay. And you know any car in general is considered a capital asset which means
you generally can't deduct the entire purchase price all right away. You have to depreciate the
asset over a certain amount of time, usually five years. It's really not going to happen you know,
it's not going to go in your favor when you try to buy a $500,000 car under your business and
try to write off the entire $500,000 in the year purchased. It just doesn't work that way okay. So
let's say for example this here Ferrari 488 Pista which apparently goes for $540,000. You can't just
go and buy the car, finance it, and then go and deduct $540,000 off of your business income. It
just doesn't work that way. It's going to have to be depreciated over at least a five year period
you know, which is still a large deduction. It's over, it's over a $100,00 per year but still it's
going to be spread out over five years. By the way, if anybody wants to sponsor me and purchase
me a $540,000 car like the 488 Pista I'd be happy to mention you in my videos and I will even tell
you how you can deduct the full amount of the car. However it will, it would involve me as
a business claiming the entire value of the car as income. But that's okay I'd take the tax hit
on $540,000 to own a Pista no problem there. So I'm going to dig deeper into whether or not the
business can buy a car like this all right. So can the business buy a vehicle like this?
So the first question you want to ask yourself is, is the vehicle going to be used 100% for business?
If it's going to be used any less than that any less than 100%, I would really, really reconsider
purchasing the vehicle personally rather than under the business okay. And then the next
question you want to ask is, is a vehicle like this an ordinary and necessary expense? You know,
so again this all depends on what kind of business you have. Also the IRS has to be able to you know,
if the IRS were to audit you, you have to convince the IRS agents that this
vehicle is ordinary and necessary for your business. So let's go through some examples here,
and these are real life examples I've seen of businesses in the Denver area
buying McLaren's, Lamborghinis, and stuff for their business. Which I just cringe at
all right. So the first example is a marketing agency, now they're you know, maybe like a 15-20
employee marketing agency. But the owner did buy an exotic car, got it wrapped up in the
company logo, and you know, some other things. And keep in mind they're a marketing agency.
Is this a legitimate, ordinary, and necessary expense? And the answer is hell no it is not,
okay? A marketing company doesn't need to buy a $300,000 car to advertise itself. It's not,
it's just not necessary. You can do that with a Prius. The next example is let's say you have a
business that does clear bra and window tint for cars okay. Now you're getting more into the actual
industry that the you know, the actual car industry. So is this an ordinary, necessary
expense? And I would still say no. Now you know, this becomes more of a gray area because you
are in the car industry. But you know, it's still your job to convince any IRS agents that you need
this McLaren for your window tint business. So in this one I'm going to say no as well but you know,
let me know what you think in the comments below. What about auto detailing or auto repair? Can that
be considered you know ordinary and necessary? You know to own a McLaren? Same thing with the
window tint and the clear bra, I'm going to say no on this one. All right, so what about a race
shop? You know, a shop that does tuning, internal engine component replacements, you know turbos,
exhaust building, all for exotic cars. Would this be something that could be legitimate?
And I would say yes, you probably can get away with buying an exotic car if you own a race shop
that specifically services exotic cars. You know you might need a car to do testing on, and to
you know build several components, and do testing or rebuilds, and all that kind of stuff before
you start selling products to other you know, Lamborghini, Ferrari owners. I'll say this is
actually a legitimate business to have an exotic car. And obviously the last one I'm going to go
over is the exotic car rental business. Which in my opinion is another legitimate business to
own an exotic car. What about if you don't use the car 100% for business, what do you have to
do there? But before I go on, how about you smash the like button? All right so if the car doesn't
get used 100% for business then I would really encourage you to purchase the car personally.
Because if a company owns a business vehicle and you use it personally for any reason,
you technically have to report that usage as personal income. So then it gets really hairy
and tricky you know, tracking mileage logs, and reporting what's business use and personal use,
and also claiming the personal use as income to yourself. That's, that just sounds like a
nightmare to me that I don't want to be dealing with. So if you buy it personally obviously you
would, you would you know, split out your personal usage and your business usage, and you can
you know, take the ratio of your business usage and multiply it by you know, the depreciation for
the year, the gas, and all that stuff. But this, the burden of proof still comes upon you to prove
to the IRS agents that this vehicle is ordinary and necessary even if you own it personally.
But you know, you own it personally and you're taking business deductions on it. You're still
taking this extravagant business deduction on this car. You've got to, you've got to be
able to prove to the IRS that this vehicle is ordinary and necessary for your business. So
I would challenge you to do that if you have a marketing company. Unless you have a marketing
company that specifically does marketing for cars, then there you go. But if you're just an ad agency
then I don't know what to tell you there man. I wouldn't do that. So that brings us back to
the most basic way to deduct any auto expenses, and that's mileage, the standard mileage rate.
The standard mileage rate changes every year. For 2021 it's currently 56 cents per mile.
So it's pretty simple, every mile you drive for business, you multiply it by 56 cents, and that's
your business auto deduction. It's pretty standard right? But if you, if you went and purchased a
$500,000 car you know, writing off like three or four thousand dollars worth of mileage each year
isn't super beneficial. And it's not going to dramatically offset the cost of the vehicle. So
that's why this is not super popular and why nobody really talks about this. But this is
truly the only legitimate way that you can write off the expenses of the car. But you know, you
can do the same thing, you get the same mileage rate with the Prius as you would with a Ferrari.
So this option is not super popular with people trying to look at scamming the IRS for an exotic
vehicle. To sum it up, what should you do if you want to, if you want to buy a Lambo, you want to
buy a Ferrari? What should you do? If you don't own an exotic car rental company. If you don't own
a race shop or anything that really, really needs the car.
Then you should just buy it personally. Make sure that you can afford it without trying to scam the
IRS into giving you some of the money back. I mean people who are buying these cars probably are not
too worried about the tax deduction because they're rich as shit. So don't worry about
trying to scam the IRS. If you want to buy one of these cars, save up for it, get higher income,
try not to finance it, and then buy yourself a freaking Lambo. But don't try to weasel it into
your business or weasel it into your you know, side hustle or whatever, to try to get some tax
dollars back. Because that's not going to work well for you in the end. All right so that's all
I've got for today. Thanks for joining me. Again my name is Ryan. If you found this video helpful,
please do smash the like button. And if you're new here, please do consider subscribing to my
channel, I'd really appreciate that. And uh yeah, take care for now and I'll see you next time.