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Thread: getting a car for work

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    Default getting a car for work

    i would love to travel more, but i REALLY hate flying and airports and greyhound is no good for a dancer- i'm sick of them.

    my car is getting up there in age, runs well and i truly hate to part with it.

    it has crossed my mind to get a new car specifically for work and work only. this way i can go places and not worry about breaking down. i am skilled at travelling light. the smart car was an option i was looking into. it's better on gas (my clunker isnt bad though) and i can go places like vegas and phoenix. i would porbably use it to drive to and from my current club as well.

    so, my question is: can this be a tax deduction? i plan on using the current one for my fun time to show it off- it's pretty wacky looking.

    should i become incorporated before doing this and use the car as a company car? how about insurance? if anyone has done this let me know.

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    God/dess Emily's Avatar
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    Default Re: getting a car for work

    only if you lease it, and you can't use it for commuting back and forth to the same club

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    Default Re: getting a car for work

    ^^^ agreed on incorporating and leasing. However this carries extra accounting costs and also potential double taxation, so you have to do enough full time road work to have the benefits outweigh these extra fixed costs.

    Also, trust me that you'll be a lot happier with a 'real' car that still gets good gas mileage than the Smart FourTwo. One thing you'll quickly find about dancer road trips is that riding for hours in an uncomfortable car will take a heavy toll on your back / neck, which will wind up interfering with your earnings potential. I might recommend a VW Golf diesel, a Mazda Miata, even a Honda Civic ...

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    Default Re: getting a car for work

    Quote Originally Posted by Melonie View Post
    ^^^ agreed on incorporating and leasing. However this carries extra accounting costs and also potential double taxation..
    Incorporating doesn't necessarily mean double taxation. There is incorporation for liability protection, and incorporation for taxation. Most people can easily choose flow-through taxation.

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    Default Re: getting a car for work

    Quote Originally Posted by Katrine View Post
    Incorporating doesn't necessarily mean double taxation. There is incorporation for liability protection, and incorporation for taxation. Most people can easily choose flow-through taxation.
    Quite correct. You can form a corporation under your state's corporation law and elect to either be a sub-chapter C corporation which means you will pay taxes on the corporation's income and any dividends the corporation pays to you will also be taxed. That may not be a bad thing if your state has a high personal income tax rate. You may want to keep the money in corporate solution.

    You may also form a corporation and make the sub-chapter S election thus avoiding federal corporate income taxes. All the company's ordinary and necessary business expenses are still deductions but the corporation does not pay taxes. All its income is taxed to you, at your rate. Thus avoiding the double taxation of a C corporation.

    You may also form a limited liability company. Some states even allow a single member LLC. This is really a partnership under state law. But, it has at least one attribute of corporateness, usually limited liability. If the LLC fails the corporateness test of the IRS, it is treated as a partnership for tax purposes. Like a sub-S corporation, a LLC is taxed only once and at the personal rate. Like a sub-S corporation a LLC gets to deduct all the company's ordinary and necessary business expenses. Like a sub-S if you are going to be taking money out of the company it may be preferable to be a LLC than a C corporation.

    The choice is really about tax planning and before doing that, consult a CPA and an attorney.

    HTH
    Z

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    Default Re: getting a car for work

    ^^^ hence my comment about potential double taxation.

    Actually, there is a very nice 'trick' that you can utilize with a C corp (and ONLY a C corp) re reimbursements and depreciation of an 'employee' owned vehicle ...

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    Default Re: getting a car for work

    The excerpt brings up another good point. When the corporation reimburses the employee for expenses paid out of the employee's pocket, they are deductions for the corporation, but NOT income for the employee.

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    Default Re: getting a car for work

    ^^^ yes exactly, that is the handy 'trick' I was alluding to. This also applies to the corporation paying the 'employee' for depreciation on that 'employee's' personal vehicle as well as making direct reimbursement for business travel expenses. But this only works with a C corp.

    Related perks include being able to deduct the auto loan interest costs of a business vehicle, being able to deduct license and registration fees and repair costs associated with a business vehicle etc. in direct proportion to the percentage of business vs personal use.

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    Default Re: getting a car for work

    Quote Originally Posted by Melonie View Post
    ^^^ yes exactly, that is the handy 'trick' I was alluding to. This also applies to the corporation paying the 'employee' for depreciation on that 'employee's' personal vehicle as well as making direct reimbursement for business travel expenses. But this only works with a C corp.
    The actual expense method works for C corporations only. But, an S corp or LLC can reimburse the employee for mileage and that is a deduction for the S corporation or LLC and not income for the employee. However, the IRS reimbursement rates, set by the GAO, are an average, and not always reflective of the true cost to operate the vehicle. However, if you have an efficient vehicle, say a Honda Civic, it may be better to take the standard mileage than actual expenses.

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