SUV Deduction Limits

Expense Limit for SUVs — Businesses should be aware of a change regarding the deduction for certain sport utility vehicles (SUVs) placed in service after Oct. 22. Under the American Jobs Creation Act of 2004, businesses cannot take a first-year deduction of more than $25,000 for an SUV. The business would depreciate the remaining cost. (The limit for vehicles placed in service before Oct. 23 was $100,000.) The new limit does not affect other types of property where the taxpayer decides to expense the cost instead of depreciating the property.

Proof The IRS Requires

The Tax Law requires you to document the amount of business use of the vehicles.  Incomplete or missing documentation will reduce or eliminate the tax benefits.  If the documentation does not prove more than 50% business use, then the additional depreciation claimed must be recaptured. 

There are additional costly issues if you do business as a C Corporation and suffer the IRS's scrutiny of the documentation and your documentation or files are not what the IRS expects to see.  The deductions are lost costing you tax money, interest and penalties.  If you are a professional, then the tax rate is the maximum bracket for the C Corporation.  Moreover - the IRS will consider the lack of documentation in your files, to mean you used the vehicle personally.  The IRS will then charge you taxes on the lost deductions - personally.  In other words - if you claim expenses of $25,000 and fail to document the business use entirely.  The C corporation will pay tax on the $25,000 at 35% plus interest and penalties - AND - you will pay tax on the same amount at your maximum tax rate, which can be as high as 35%.  This could place you in a combined bracket of 70% to 100% depending upon the number of years involved and the interest rates for those years.

Now - that the initial "scare language" has been read, let it be added the documentation may not be as cumbersome as you fear.  I will be pleased to assist you with methods to make it somewhat less burdensome - call me.

Prepare for Your Adviser

Organizer 2004 Vehicle Expenses

Property Basis New Equipment Purchase

Car Expense Log; Automobile Mileage Logbook;

Automobile Mileage Logbook; WP Spreadsheets/CarSalesPerson Expenses.xls

When we prepare your tax organizer be certain to place those costs in the appropriate section

Qualified Expenses

Only the business portion of the expenses are deductible.  The division between business and personal is a mathematical computation (not separate recordkeeping of the two).  The mathematical computation is made using the number of miles for business and the total miles for the year.

Normally all expenses of operating and maintaining the vehicle qualify for a current year deduction.  The purchase price is deduction by using the rules for depreciation, including and bonus or first-year write-off.

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