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National Priorities Project

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  • #31
    Re: National Priorities Project

    Originally posted by cpw View Post
    I understand that, though a lot of businesses gettting to work is stepping out of your house.

    Let's say you drive 50 miles a day for work, and 10 miles a day for pleasure. You have a car payment of $300. The deductible amount is going to be $250, the non-deductible amount is $50. That is perfectly in compliance. If you didn't have that business you would probably be paying the same $300 for a car and not all expenses are really mileage based.

    I'm not saying there is a better way to do it, but IMO it certainly provides a personal benefit. The same thing happens with company cars; though I believe some of that is supposed to be imputed income.
    I don't see how your example represents an unfair advantage to the business compared to the wage earner. If a vehicle is used 5/6 of the time for business and the business expense deduction is 5/6, what's the issue? The car has a finite service life and 5/6 of it is used up in the business application. Fuel, maintenance, tires, etc all scale. The business deduction on the actual car payment is at best loan interest only. You have to depreciate the vehicle cost (scaled for business use) using straight-line depreciation and then recapture any basis difference when you sell it.

    The only significant thing I see that you could argue was an advantage to the business owner would be insurance, because it's not strictly mileage based - although there is a mileage component in those rates that can be significant. Also, most companies will increase insurance premiums if you identify that your vehicle will be used for business purposes. Let's say your rate is $900 for pure personal use. When you start your business, you identify the car as used for business, with more miles driven - and your rate increases to $1200. In your scenario, 5/6 of this deductible, or $1000. At top bracket, this saves you maybe $300 on taxes. So you're back to $900 out of pocket. I'm not saying that it works out this way as a wash in general, but I am saying that most often any difference doesn't amount to a hill of beans. Which shouldn't be surprising. The government has not proven to be a particular friend to the small business owner.

    On the other hand, anyone, W2 employee or owner, can deduct an entire car payment (or house renovation, or vacation) and all the associated vehicle expense by taking out a home equity loan to cover those costs or paying for them using an equity line of credit. Equity lines are often at better rates than car loans, and all interest is deductible. Make sure that there is no pre-payment penalty on the loan. Take the money out of your house with a very long payback term (so it's virtually all deductible interest), and use the cash for the vehicle. Take the difference between your equity loan payments and what WOULD have been the car payment and every month, pay the difference into an annuity. After 3 years or whatever the term of the car loan would have been, pay back the equity loan to your mortgage company. You've just deducted your car, made a bit on the annuity, and it's legal. A lot is made of the business tax deductions, but almost no one arranges their personal finances to take advantage of tax bennies available to the public.

    If you really want to talk inequity, the huge advantages given to homeowners is a much better target. I'm happy to take the advantage, don't get me wrong - I play the game to the max with my finances. But it's pretty absurd.
    Last edited by Andy_M; 04-08-2010, 02:22 PM.

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