Explore the nuanced world of business tax deductions with Hunter Brockway of Boca Retirement Strategies and Marlon Wolfman of Futurefy. This enlightening discussion sheds light on the financial strategies surrounding luxury vehicle deductions and their impact on your business and retirement planning.
Key takeaways include:
- An overview of tax deductions for luxury vehicles.
- Insights on depreciation and IRS regulations.
- Practical tips for smarter business and retirement planning.
Hunter and Marlon provide expert advice without delving too deep into the complexities, making this a must-watch for anyone considering luxury cars as a business expense. Tune in for strategic guidance on leveraging your business spending for financial freedom and retirement success.
Watch now to empower your financial decisions.
Introduction and Overview
“Wait, but the government’s still going to pay for my G-Wagon, right? Because that’s today’s status symbol you made in business. Hi, I’m Hunter Brockway, founder of Boca Retirement Strategies. With me today is Marlon Wolfman, founder of Futurefy. We’re going to pull back the curtains on debates between financial advisers and CPAs and in turn help you future-proof your business, build a life of financial freedom, and set you up for a successful retirement with more money and fewer taxes.”
Understanding Tax Deductions
“All right, Marlon, so let’s start with what I would hope would be a softball question: Do you believe that it’s a good thing to pay fewer taxes and incorporate tax deductions?” “I think that’s a fantastic idea. Get every penny that you owe, don’t pay a penny more.” “Love it, couldn’t agree more. Okay, so I own a small business. I’m about to head out to the Mercedes dealership and pick up a G-Wagon because the government’s going to pay for it. Well, actually, you’re going to pay for it, but the government is going to subsidize it, right? How does that work? Everyone’s doing it, how does that work?”
The Concept of Depreciation
“Well, the story behind this one, and there’s always a story, there is. Obviously, you know what we’re talking about is depreciation. So when you buy a fixed asset for your business, you get to depreciate it. That just means you’re expensing it over a certain period of time. Now, one of the current laws that’s out there is that we have what’s called bonus depreciation, Section 179. There are a couple of ways to do it, but long story short, it’s accelerated depreciation, where normally you’d have to depreciate a car over 5 years, you get to take it in one single year, the current year, the year you put it in, 100% of the cost of the car. Okay, so I’m just going to buy a new car every year, right? Obviously, just keep it rolling, just one into the other.”
The Catch in Buying Vehicles for Business
The Weight Limit and its Implications
“The weight limit today, do you know that off the top of your head? I do, and of course, you know, it’s exactly what you said. You know, there’s always intended law and then there’s the loopholes around it. Yeah, so the current weight limit for that is 6,000 lb. So, whenever you see a vehicle that’s over 6,000 lb, technically, it falls into that range where you can accelerate the depreciation greater than other vehicles. And to back up that a little, ’cause I probably should have said this first, you know vehicles themselves are subject to more restrictions purposely because people abuse the system.
So, there’s what we call the Luxury Auto limitation, which means like you can go out and buy a Porsche and deduct the Porsche in the entire year. There’s a hard cap; it changes every year, but there’s a hard cap on how much you can depreciate from a vehicle. The difference there, or the change is, when you go over that 6,000 lb, the intent is well, this is a heavier vehicle, it is most probably a work truck or a work van, and so they’ve got you know, so the reality is you’re probably using that more for business than you are personal. So, let’s let them take all the depreciation up front, and that’s why you see a lot of these trucks and heavier work vehicles being advertised as expensable all upfront right away. Gotcha.”
“And so, you mentioned Porsche. I would include a G-Wagon, you know, heavier. I think that those are around 6,000 lbs, that maybe more, under or over amount, I’m not a car expert, but I would still classify that as a luxury vehicle. I mean, they’re over $100,000. I’m certainly not going to buy one tomorrow. Um, what do the IRS, you touched on a little bit, what does the IRS specifically say about luxury vehicles as a business expense? So again, two different factors here. One, standard luxury vehicles under 6,000 lb, you’re going to be subject to that limit. Even if it’s a luxury vehicle over 6,000 lb, you’re going to have the added benefit of that accelerator, of the higher accelerated depreciation.”
The Red Flags in Auto Deductions
“Do you think that with this new hire of 87,000 IRS agents, that potentially causes an extra red flag on your return if they see you depreciating a luxury vehicle? I think that auto is always a red flag, um, and the crazier you go with Auto on your return, there’s more that they have to look at. And I could say Auto is definitely one of those red flags, you know, because again, they know that you’re going to do this. They know that a lot of people are going to do this.”
“And there are other cons to this that I like to go into. Like, you know, we talked about well, you got the immediate expense, so that’s great. Wow, okay, I’m going to deduct this entire thing right now. But beyond that, what I like to talk about with my clients is, you know, do you need that expense right now? You know, these are the questions more so. Hey, I can deduct this whole car right now, but do you need it? Are you generating the income where it’s going to be worthwhile?”
“You know, I have people, clients, business owners that buy these vehicles that qualify for 100% bonus depreciation, and then we don’t take it. There’s actually an election not to take the accelerated depreciation because they don’t need it. Like, it’s not going to help them. So what, like let’s spread that out and let them take the EXP in the year where they could actually use it more. It might be more beneficial.”
The Need for Professional Financial Advice
“My mind always goes to people who are doing these types of things, doing either this, which seems to be a bit of a trend, or any other trendy deductions. You’re going out and you’re spending money, you’re spending $100,000, $200,000 to get a percentage of a deduction of that money spent. What if you just never spent that 200 grand and put it away into other means to grow your business, or save it for retirement? I’d have to imagine what percentage of these people that are going out to buy a vehicle just to get a tax deduction aren’t already maximizing the standard things that are available to them, like traditional IRAs, SIMPLE IRAs, SEPs, HSAs, 529 plans, all of those types of things, rather than going out and buying cars or equipment that they don’t need.”
“And furthermore, I’d add to it, in kind of a different tone, that it seems like this is a trend towards the younger generation. And so then we’re starting to talk about, well okay, are you now talking about deferring taxes and things like that as you talk about recapture versus let’s think about some strategies to put away because what does that money do if it’s growing for the next 30 years, and then you’re going to have to pay taxes on it later. And that’s a different topic, but as my mind goes talking about trends and things like that.”
“So that leads me back to working with professionals who can plan ahead for you. Hunter, I totally agree with you, and listen, that’s the nail in the head because that’s the other part of the conversation that we have, like, you know, well do you need the expense now, and the other thing is do you need it at all?”
The Importance of Revenue over Deductions
“Do you really need the car? I’m not a proponent of getting a deduction just to take a deduction. You have to ask yourself, is it going to benefit you? Is it somehow going to increase the ROI of your company? Are you going to generate more money from it? An expense is great, but at the end of the day, you want more revenue. And there are other ways to generate expenses that create more money for you. You hit the nail on the head.”
“Always think of it like this: a vehicle is a depreciating asset 99% of the time, because there’s always that 1%. 99% of the time, they go down in value. At the end of the day, you bought something for $100,000, and when you go to trade it, it’s worth $80,000. You got use out of it, but there was a $20,000 difference there. What if you put $7,000, $6,000, whatever the current limit is, into an IRA? Like you said, you’re getting that deduction, and that asset’s going to grow for you in the future. That’s the point. That is an appreciating asset that’s going to make you more money in the long term.”
Conclusion and Contact Information
“No, not really a financial advisor versus CPA debate on this one; it sounds like we pretty much agree on it. So, there you have it, a little behind-the-scenes look with the angles of different professionals, which I think that you need both professionals in your corner.”
“So with that said, I’m Hunter Brockway, founder of Boca Retirement Strategies. If you’d like to learn how we help our clients build a fulfilling life of financial freedom and a successful retirement, you can book a call on our website at bocaretirement.com. We work with clients in South Florida, Western Massachusetts, and scattered throughout the US.”
“Marlon, take it away on your end. Beautiful. Hi, I’m Marlon Wolman, the founder of Futurefy Tax and Accounting Solutions. We empower small business owners with year-round proactive tax planning and customized accounting strategies tailored to your unique goals, and to help you with better financial storytelling. Happy tax planning. Until next time, have a great day.”