Size matters to the IRS.The size of the automobile you buy for business use matters to the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. . In fact, there is a tax benefit to purchasing a heavier, less fuel-efficient automobile. The annual depreciation deduction for most automobiles used in a trade and business is subject to the limited luxury automobile rules (LLAR), which limit the amount of depreciation that can be taken annually on a luxury automobile under the modified accelerated cost recovery system Modified Accelerated Cost Recovery System (MACRS)
A 1986 act that set out rules for the depreciation of qualifying assets, allowing for greater acceleration over longer periods of time. (MACRS See Modified Accelerated Cost Recovery System.
See Modified Accelerated Cost Recovery System (MACRS). ) rules. The normal MACRS life for an automobile is five years, but since the amount of LLAR limits the annual deduction, the depreciable depreciable
Of, relating to, or being a long-term tangible asset that is subject to depreciation. life of the vehicle is extended. If the taxpayer purchases a $20,000 automobile subject to LLAR, it must be depreciated Depreciated may refer to:
However, heavier automobiles are not subject to LLAR. A $20,000 automobile, whose gross vehicle weight is more than 6,000 pounds, for example, can be depreciated over its expected five-year life. The IRS, however, limits the taxpayer to only a half-year's depreciation in the year of purchase and a half-year's depreciation in the sixth year. The tax benefits of purchasing the larger vehicle thus are clear (see exhibit below). For example, in 1999, the difference between the depreciation that could have been taken if a $20,000 automobile was subject to LLAR or not was almost $1,000.
To further complicate the calculation, in the year of purchase, the taxpayer can elect to take a first-year accelerated deduction under section 179, Election to Expense. This election must be taken in the year the automobile is purchased, and it allows the taxpayer to deduct $19,200 of a $20,000 automobile that first year. The taxpayer then deducts the balance ($800) of the cost of the automobile over the remaining five-and-one-half-year life of the automobile as allowed by MACRS. Even though the annual deduction is very small, it must be stretched over the entire life of the automobile.
The depreciation calculations under the three plans are illustrated in the exhibit below.
Since most taxpayers want to enjoy the tax advantages of accelerated depreciation Accelerated Depreciation
Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years of the life of an asset.
The straight-line depreciation method spreads the cost evenly over the life of an asset. and do not keep automobiles for eight years, they may be better off purchasing vehicles not subject to LLAR.
Tax practitioners should advise clients of the benefits of purchasing heavy vehicles for business use. Many sport utility vehicles This page lists sports utility vehicles currently in production (as of April 2007), as well as past models. The list includes crossover SUVs, Mini SUVs, Compact SUVs and other similar vehicles. (SUVs), vans and large trucks meet the weight requirements. For example, the lightest Chevy/GMC Suburban weighs 6,800 pounds and may go to a beefy beefy, beefyness
1. in dog conformation, used to describe overdevelopment of musculature in the hindquarters.
2. in cattle, used to designate the desirable physical conformation of a beef animal, but an undesirable character in dairy cattle. 8,600 pounds depending on the options selected. Some vehicles may or may not meet the weight limit. For example, the Chevy Astro/GMC Safari Van ranges from 5,600 pounds to 6,100 pounds depending on the options. Automobile weights can be obtained from the manufacturer or dealer selling the vehicle.
Depreciation for $20,000 Car
Annual depreciation Annual depreciation Year charge under LLAR charge under MACRS 1999 $ 3,060 $ 4,000 2000 $ 5,000 $ 6,400 2001 $ 2,950 $ 3,840 2002 $ 1,775 $ 2,304 2003 $ 1,775 $ 2,304 2004 $ 1,775 $ 1,152 2005 $ 1,775 2006 $ 1,775 2007 $ 115 Total $20,000 $20,000 Annual depreciation Year charge under LLAR 1999 $19,200 2000 $ 320 2001 $ 192 2002 $ 115 2003 $ 115 2004 $ 58 2005 2006 2007 Total $20,000
--Marc I. Lebow, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , PhD, and P. Michael McLain, CPA, DBA, assistant professors of accounting at Hampton University Hampton University, at Hampton, Va.; coeducational; founded 1868, chartered 1870 as a normal and agricultural school; known as Hampton Institute 1930–84. School of Business, Hampton, Virginia Hampton is an independent city in Virginia, and therefore not part of any Virginia county. One of the Seven Cities of Hampton Roads, it is on the southeast end of the Virginia Peninsula, bordering on Hampton Roads and Chesapeake Bay.
As of the 2000 U.S. .