Benefits of Using a Business Motorcycle
There are drunk bikers.
There are old bikers.
There are NO old, drunk bikers.
If you know me, you know that I HATE being in a car. This is especially true for driving in Florida because we seem to have the worst drivers in existence. Since I don’t like being in an automobile, I really don’t want to be on a fast, unprotected vehicle with only two wheels. However, lots of people are using automobiles in business because of the fabulous gas mileage and ease of parking. Thus the question is: “What are the tax advantages of using a motorcycle instead of a car in your business?”
Generally, both types of vehicles have some similar rules. For example, you have to keep the same mileage log that you would for a car in order to write off motorcycle expenses. However, even though the motorcycle is both cheaper than most cars and lighter, the tax benefits tend to be greater than that of most cars.
Here are some differences and similarities between the tax effects of using automobiles and motorcycles in business.:
- Methods of write offs: Cars, trucks, vans, and SUVs are allowed two methods for writing off the vehicles. You can use the actual method where you itemize your expenses such as gas, oil, wash, wax, depreciation, repairs, insurance based on the business usage as well as deducting the business usage of sales tax and interest. The other method is the IRS method ,which gives you a flat rate of 53.5 cents per mile in 2017 and is in lieu of actual expenses, although you can also deduct the business use of the sales tax and interest on loans.
Motorcycles can only use the actual method. You are NOT allowed to use the IRS method on motorcycles. So much for tax simplification.
- Methods of depreciation: There are three ways you can depreciate vehicles: the fast, accelerated way, the slower straight line way and, with some vehicles, you can write off the entire business usage in the year you buy the vehicle or motorcycle. All this assumes that your business usage is more than 50% for business. If not, you will be much more limited in depreciation, which will be discussed below.
- Depreciation limit for luxury cars: Passenger cars, other than some heavy metal monsters such as light trucks, heavy SUVs, and Vans, are subject to yearly limits on depreciation. Thus, the most you can depreciate a passenger car in 2017 in year one is $11,160. In year two, the depreciation limit is $5,100, In year 3, your limit is $3,050 and $1,875 per year thereafter on that vehicle.Motorcycles are NOT subject to these limits. You could generally write off the entire business cost of the motorcycle over six (6) years. Even better, you can elect to write off the entire cost of the motorcycle in the first year that you buy it and use it in business.This is known as making a section 179 election,which is creatively named after section 179 of the Internal Revenue Code that allows a write off of business equipment in the first year.
Example: You purchase a Motorcycle for $15,000. If you use it 80% for business, you can elect to write off $12,000 of the cost in the first year.
Note: This all assumes that you use your motorcycle or car at least 50% or more for business. If you don’t meet this basic threshold, you first must use the slower straight line method of depreciation, and secondly, you can not elect to write off the motorcycle or car in the first year.
- Keep using your motorcycle or car over 50% for business for at least five full years. If your business usage drops to less than 50% business usage at any time in the next five year after the year that you started depreciating your vehicle or after the year that you elected to write of your vehicle, you will have to “‘pay back” some of the depreciation taken. This means that the IRS will make your recompute your depreciation using the slow straight line method. Any excess depreciation taken will result in income to you in the year of recapture. This is known as “depreciation recapture” and is a trap for those who don’t realize it. This trap also applies to all vehicles including cars, trucks, vans, and SUVs.
- Don’t donate your motorcycle that you depreciated: When you make a charitable donation, your deduction is generally limited to the fair market value at the time of the donation LESS any depreciation taken. Thus, if your motorcycle is worth $5,000 at the time of donation, and you took $5,000 or more in depreciation, your charitable deduction will be zero.
- Keeping track of mileage: Both types of vehicles require a mileage log in order to determine what part of the expenses could be deductible. Your write offs are based on the business usage, which is your business mileage divided by your total mileage. It is NOT based on time as some articles have suggested.Example: If on December 30, you purchase a motorcycle and use it 80% for business during the remaining part of the year, you can generally write off 80% of your expenses (such as gas, insurance, depreciation, repairs etc.) incurred in operating and using the motorcycle in your business. You can also deduct the business use of incidental items for the motorcycle such as helmets, the cost of special horns and decorations etc.
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