Amazing Auto Deduction Strategies | Mark J Kohler | 2020 Update!!

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 going to have a vehicle and you're going to 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 methods best for you. Now, first of all, of course this is a big topic, so I'm going to break down the general issues and I'm going to pull out the whiteboard here in a minute and give you maybe a little curve graph of sorts that are 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 write in 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 got to be selling something online or a product or service or 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 as average Americans we could write off our car, right? No, 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 could be riding off your vehicle, your significant other's vehicle, or even the kids vehicles if you have a family when they help out in the business. Number two, you've got to track activity or the mileage of your vehicle. Even if you're going to go actual writing off 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 going to want to do your best to track that mileage. What's personal? When did I go to the grocery store or 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 going to a conference three states away? I don't know. So at the end of the year, I asked my clients in our accounting firm for just kind of a general breakdown of 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 will 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, we're 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 by a new car, 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 which is going to 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 going to 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 to consider. Should I lease purchase, should I buy an SUV or truck? And whose car in 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 article. So I tried to link the two, but do a little bit of, a little bit of reading on this. I also have on my website a tax and legal library with 50, 60 videos for business owners on all sorts of topics. Writing off your family members s Corp 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 going to answer all your questions, but it's definitely going to get your mind right 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 going to be. So there's our cost of vehicle, either zero or it could be 50 grand. Let's say, just hypothetically, if some of you are buying a car that's worth More than 50 grand, congratulations. We're going to 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 going to have. Am I going to have a little mileage or a lot of mileage? Because that's going to 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 20,000 miles. So what I want to do is let's start out with this cost of a $50,000 car and we're going to go down to zero. So we're going down in value and I mean, obviously you're not going to buy a car for zero, but we're headed out this direction. Right? That's the concept here. You're going to love this. Then over here we're going to take mileage and we're going to kind of increase that as we go across this border. So we're going to. Mileage is going to start out zero and it's going to kind of go up. And so we're going to increase our mileage on this axis and go down in 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 going to try to write it off over time and I'm going to burn 20,000 miles a year and the mileage this year in 2020 is 57 and a half cents per mile. I mean, that's over a $10,000 write off in that year. And if the vehicle cost is lower and maybe I even get better gas mileage. That's another axes in here. We could really blow this up. But think about it. If the cost of the car is used, it's a little lower value, maybe under 30 or $40,000. And I'm going to have a ton of miles. I'm going to 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 going to 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 going to want to go with the actual method because there I can take an immediate write off with bonus depreciation or a 179 and I can write off all this gas and the vehicle cost itself. But I'm not going to have a ton of miles. So I'm not going to get as good a write off as this guy over here, this gal writing, driving a bunch of miles. So I want to kind of be in this range. And if I'm going to 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 Mark Kohler brain. But I think this is a good starting point for many of you as you talk with your accountant to figure out what method should I go with 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 and accounting firm. Check us out. Please click down below. I've got a free ebook that'll help you get some more tips and strategies on different ways to save money. And if you sign up down below, we'll send you that ebook and you'll get my newsletter every week that's free. And also please hit the subscribe button and get over there. And every time I shoot a new video, you'll get a ping. And most weeks on Thursdays I go live on YouTube and I'm taking live questions from you. 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 tax return.