what's the best method to write off your auto? I get this question all the time my
business owners want to know mileage actual should I buy an SUV a truck what
about a Tesla oh my gosh there's so many issues and if you're a small business
owner running a business online selling a product or service on Main Street
America or in virtual reality the point is you're gonna have a vehicle and
you're gonna drive to Staples or the Apple store once in a while or maybe
even longer distances or to go meet with clients or whatever right your Auto is
one of your best tax deductions let's break it down and see which method is
best for you now first of all of course this is a big topic so I'm gonna break
down the general issues and I'm gonna pull out the whiteboard here in a minute
and give you maybe a little curved graph of sorts that'll really be insightful on
helping you decide which method is best for you but let's break down the methods
first and some of the general rules to writing off your auto and then go from
there rule number one you can only write off an auto with a legitimate business
if you haven't made any money yet you don't have to have profit but at least a
sale you have to be selling something online or a product or service and have
a store whatever whatever your business is it's got to be generating revenue and
we need to have a business purpose for the vehicle where are you driving you're
going pick up supplies going to meet with customers or clients or driving
employees around I don't know but you've got to have that business purpose I wish
is average Americans we could write off her car right new no no only business
owners and as you know I want all of my clients to have a small business on the
side so we can be writing off your vehicle your significant others vehicle
or even the kids vehicles if you have a family when they help help out in the
business number two you've got to track the activity or the mileage of your
vehicle if you're gonna go actual right enough repairs and maintenance and fuel
you may say I don't have to do mileage well the IRS still wants to know what
are you driving your car for so you're gonna want to do your best to track that
mileage what's personal when did I go to the grocery store the movies what was
commuting to maybe my day job or back and forth to the office and then what
was that business mileage going to the rehab or the real estate project or go
into a confer three states away I don't know so at the
end of the year I asked my clients and our accounting firm for just kind of a
general breakdown or their mileage now if the IRS says we want a written record
and they may it's quite rare but you should be able to produce one and that's
why some of these apps out there are pretty cool there's some GPS type
tracking apps that'll help you do a better job of tracking your mileage
don't turn your life upside down but do the best you can to show me or your
accountant what you're using your car for okay now once we know that we have a
business and we've got a vehicle that we're using for business for tracking it
number three we have got to choose between actual or mileage now these are
two different methods to be used for writing off a vehicle and once you
choose a method you're stuck with that method for that car as long as you own
it so if you sell it buy a new card you can hit reset and do a different method
with that other car or SUV or truck or RV I mean oh so much to talk about so
you need to decide what's just gonna be the best method for me based on the use
of this car and the cost of the car so I've created a really cool graph that's
gonna help you out in trying to figure this out okay now before I go to the
whiteboard another preliminary matter this is a big topic and every year I
write a blog article on this where I give usually around six to seven or
eight options to consider should I leave spur giuse so I buy an SUV or truck and
whose car and the family are we using are we using all the cars which methods
best so check out that blog article link it's down here below in the video and
some of you may have come to this video from within that blog articles so I
tried to link the two but do a little bit a little bit of reading on this I
also have on my website at AXA legal library with 5060 videos for business
owners on all sorts of topics right now if your family members escort versus LLC
your home office travel dining you would love it huge write-offs there and it's a
great opportunity to up your education a little and hold your accountant
accountable right so you can bring up some of these topics and know what
you're talking about so do a little more study on this Auto
thing because I don't want you to think this is the video of all videos that's
gonna answer all your questions but it's definite
gonna get your mind racing okay now into this little diagram that I've created in
my mind and this is one of the first times I've thrown this out on a youtube
video let's do a graph here and hopefully this works out here so let's
think of this axis as the value or the cost of the car so let's put cost of
vehicle how about that not car because we don't know what it's gonna be so
there's our cost of vehicle it's either zero or it could be 50 grand let's say
just hypothetically if some of you are buying a car but it's worth more than 50
grand congratulations we're gonna go through a different method maybe for you
and talk about that now on this axis what I want to talk about is how much
mileage I'm gonna have am I gonna have a little mileage or a lot of mileage
because that's gonna be a big factor and I want to figure out this mileage that
could be in a given year anywhere from zero let's say twenty thousand miles so
what I want to do is let's start out with this cost of a fifty thousand
dollar car and we're gonna go down to zero so we're going down and value and I
mean obviously you're not gonna buy a car for zero but we're headed out this
direction right it's the concept here you're gonna love this then over here
we're going to take my liege and we're going to kind of increase that as we go
across this this border so we're gonna viola just gonna start out zero and it's
gonna kind of go up and so we're gonna increase our mileage on this access and
reduce go down and cost on this axis so here is the amazing thing the higher the
mileage and the lower the cost I want to do a mileage method because think about
it if I'm gonna try to ride it off over time and I'm gonna burn twenty thousand
miles a year and the mileage this year in 2020 is fifty seven and a half cents
per mile I mean that's over a ten thousand dollar ride off in that year
and if the vehicle cost is lower and maybe I even get better gas mileage
that's another axis in here we could really blow this up but think about
if the cost of the car is used it's a little lower value maybe under 30 or
$40,000 and I'm gonna have a ton of miles I'm gonna get better bang for my
buck over time just doing mileage and I get to write off any interest on the
auto loan but that's it I get mileage and interest on the auto loan this
encompasses insurance and gas and all these things but by the time you take a
car payment and the cost of the car and some gas with a good gas mileage you're
gonna beat it with mileage now conversely let's think about it this way
if I have a higher valued vehicle and lower mileage I'm gonna want to go with
the actual method because there I can take an immediate ride off with bonus
depreciation or a 179 and I can write off all this gas and the the vehicle
cost itself but I'm not going to have a ton of miles so I'm not getting kid it
scooter right off is this guy over here this gal right and driving a bunch of
miles so I want to kind of be in this range if I'm gonna go actual now I've
never seen a little graph like this this is because I'm such a nerd I lay in bed
at night thinking about this rather than watching Netflix but that's the
craziness inside this Marc Kohler brain but I think this is a good starting
point for many of you as you talked with your accountant to figure out what
method should I go with my my vehicle now in summary you can see I've opened
up a whole can of worms we haven't even talked about leasing the vehicle and
what if you have two or three vehicles available for your use
right you could have your spouse's car your truck the RV all sorts of things
start to come into play you can have a motorcycle in the mix I have clients
with airplanes right so all this transportation is an important tax
write-off and if you own a small business I want to be taking advantage
of this and this is something you should take control of you are the captain of
your own ship and if you're not bringing up this topic with your tax advisor what
kind of advisor do you have they should be bringing it up to you or reminding
you through great YouTube videos or blog articles or webinars or all the other
support material we have at our law firm run accounting firm
check us out please click down below I've got a free ebook that'll help you
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so take the time to get into that and see what you think and I really
appreciate you watching this video and make that vehicle a huge write off on
your texture