With the start of the new year, you’re probably wondering what new tax strategies you can implement to help you increase your tax deductions for 2013.
In keeping with one of our main goals at Gedeon Law & CPA, we endeavor to help our clients convert as much of their automobile use to a legitimate business deduction in order to maximize their tax deductions.
One such strategy we favor is the “two car strategy”.
To implement this tax strategy, you don’t have to drive one mile further. You don’t even have to spend one additional penny. All you need are the right circumstances and a desire to increase your tax deductions.
What are those circumstances?
Simply put, if you are single and drive more than one vehicle or you are married and have at least two cars in the family, then the two car strategy has a high probability of producing more tax deductions for you.
Before we discuss this strategy further, please keep in mind that the purpose of this strategy is for you to get a greater tax benefit if you already have two cars: one for personal use and one for business. So, if you already have two cars in your family, use this strategy to your advantage, but don’t go out and purchase a second car just to implement it.
So how does the two car strategy work?
Simple, you drive more than one vehicle for business. To really appreciate how you can increase your tax deduction by utilizing this strategy, let’s look at an example where you switch cars with your spouse.
Say you drive 2,000 personal and 28,000 business miles on your vehicle (93% business). Your spouse drives 8,000 personal miles on his/her vehicle and does not use it for business purposes. Let’s also assume that the cost basis of each car is $24,000.
Now, if you were to just drive your own car for business, then the maximum depreciation and/or Section 179 deduction you can claim is $22,320 (93% x $24,000).
But say you switch vehicles with your spouse and also use their car for business. Let’s also assume that by alternating cars, the business use on your car drops to 73.7% while the business use on your spouses’ car increases to 73.7%.
Switching cars now creates $35,376 in depreciation and/or Section 179 deductions (73.7% x 2 x $24,000).
The bottom line is you’ve just realized an extra $13,056 in new tax deductions ($35,376 minus $22,320) without having to do anything more than share your car with your spouse.
By simply converting some of the usage of your second car over to business use, you can get a greater tax benefit than the 19.3% of business usage that you “give up” on your first car. Even better, this strategy works regardless of deduction method – standard mileage rate or actual expenses – that you use to deduct your car expenses.
And finally, don’t forget to adjust the seat and mirrors after using your spouse’s car.