Driving the Deduction
The Economic Stimulus Act has turned the tax status of car buying upside down. Usually, the tax code gives a bigger break for leasing, says Gail Rosen, because you can deduct most of the lease cost each year. For a luxury car, that can make the deduction for three years of leasing equal to about five years of write-offs on a purchase.
The bonus: But the bonus depreciation provision allows you to write down $10,960 on a car bought in 2008 and approximately another $11,300 over the next three years. That's about 50 percent more than would normally be allowed. SUVs over 6,000 pounds are eligible for a $25,000 deduction under Section 179 (unchanged by the stimulus package), on top of the maximum depreciation you can normally take, provided the vehicle is used at least half the time for business.
The paperwork: In all cases, you can deduct or depreciate a vehicle only in proportion to its business use. If you are ever audited, you will need contemporaneous records documenting that use.
The Internal Revenue Service (www.irs.gov) is the original source for tax information. There's a one-stop resource for small businesses under the site's Businesses tab.
The National Federation of Independent Business's site (nfib.com) has a wealth of tax articles and links to other useful sites in its Tools & Tips menu.
At smbiz.com, you will find updated links to tax news and forms and other resources.
Finally, Inc.com's Law & Taxation resources section compiles tax articles from Inc. and elsewhere. Vist www.inc.com/resources/tax.