tax write offs for small business owners 2016

If you are married and file jointly, you can also count your spouse’s earnings from employment as well as any self-employment income that he or she may earn. However, if you operate as a sole proprietorship, or as a single-member LLC treated as a sole proprietorship for tax purposes, you can count any wages that you earn as an employee as additional business income.

Here are the ones that are most likely to apply.įirst, your Section 179 deduction cannot exceed your aggregate net business taxable income (calculated before the Section 179 write-off). Needless to say, the favorable depreciation rules for heavy vehicles come with limits. Source: IRS Chief Counsel Advice (CCA) 201138048. So heavy crossovers qualify if they are used over 50% for business. More good news: The IRS has confirmed that heavy SUVs qualify for the aforementioned depreciation tax breaks whether they are built on a truck chassis or an auto chassis. You can usually find the GVWR on a label on the inside edge of the driver’s side door. Tundra, Ram pickups, and most other full-size pickups. Scalade, Chevy Tahoe, Dodge Durango, Jeep Examples include the Audi A7, BMW X5 and X6, Buick Enclave, Cadillac It’s easy to find attractive vehicles with GVWRs above the magic 6,000 pound threshold. The Section 179 deduction and bonus deprecation deals are only available for an SUV, pickup, or van with a manufacturer’s gross vehicle weight rating (GVWR) above 6,000 pounds that is purchased (not leased). For a used $45,000 light truck or light van, your first-year write-off would be only $3,560. Nice! In contrast, if you buy a used $45,000 sedan, your first-year depreciation write-off will be only $3,160. For federal income tax purposes, you can deduct the entire cost on this year’s return under the Section 179 deduction privilege. Same basic story but you buy a heavy pickup with a long bed for $45,000. For a new $45,000 light truck or light van, your first-year write-off would be only $11,560. In contrast, if you buy a new $45,000 sedan and use it 100% for business, your first-year depreciation write-off will be only $11,160.

You may get a healthy state income tax deduction too, although some states have refused to go along with the super-generous depreciation rules enacted by the federal government. The $37,000 in write-offs will reduce your federal income tax bill and your self-employment tax bill too.

Your first-year depreciation deduction is $37,000: $25,000 Section 179 deduction + $10,000 first-year bonus depreciation deduction + $2,000 “regular” depreciation deduction. Before the end of the year, you buy a new $45,000 heavy SUV and use it 100% in your sole proprietorship business.

Tax write offs for small business owners 2016