I had the same problem. Paid off mortgage, cars, don't use credit much. I actually went out and got a new mortgage on the house, invested the money, automatic mortgage payments from broker account. Instant credit history.
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Showing Tesla as a business expense
- Thread starter talhas3
- Start date
I had the same problem. Paid off mortgage, cars, don't use credit much. I actually went out and got a new mortgage on the house, invested the money, automatic mortgage payments from broker account. Instant credit history.
Super Snake
Member
What type of flags does leasing the car back to your company raise? I spoke to my accountant about leasing VS buying but not leasing the car back to the company. I will do this on Monday. Personally I hate making payments. I opted to purchase the car with a 3 year term to get out of payments as soon as possible. I understand tax advantages and all but a payment is still a payment and the quicker I can stop making them the better I'll feel. I was considering on leasing the car back to my company though, so again what are the flags?
Thanks
Thanks
Well - they are paid with pre tax dollars. In my state, 3% or $3000 which is only $1500 post tax. A far cry from wiping out $7500.
But you can't claim much on a luxury car (defined as something ridiculous as over $32k) for depreciation. So "business deduction" isn't worth much at all. But you can buy in your personal name and then lease back to your company. But the lease payments may still count as income....
AMDCPA has it right, depending upon your personal circumstances, state of registration, etc. I spent the past two weeks working with my CPA and investigating whether to lease or purchase personally or through my business (I'm a solo attorney with a sub-s corp.), as well as the "purchase and lease back" in order to maintain the federal tax credit. Following assumptions are made: Personal driving limited to a few miles per day (my office is within a mile from home); current (2014) mileage reimbursement $.56; depreciation of a luxury car is limited; not a cash transaction i.e.: lease or finance; goal is to reduce taxable income AND drive a Tesla MS.
1. Purchase by business doesn't make sense if you're going to finance. The loan repayment is not a business expense; you can only depreciate the value annually. At the depreciation rate it'll take you years and years to depreciate fully. When you sell, you're probably going to sell for less than the depreciated value, and will be able to use the "loss". You can get the $7,500 tax credit. Purchase by business won't work for me.
2. Purchase personally will allow for the tax credit of $7500 (with my marginal rate, this equate to an AGI reduction of nearly $24,000); reimbursement of $0.56/mile for business use; all vehicle costs (insurance, tag, etc) are paid for personally and not a business expense; loan repayment is made with aftertax dollars. We crunched every number possible, and it was clear that purchase and finance personally would not provide the benefit of reducing pre-tax income.
3. Lease personally. Same issue as with a personal purchase with financing. All paid for with after tax dollars.
4. Lease through business. This is the only option which makes financial sense in my circumstances. My business leases the vehicle, and all lease payments are considered a business expense (to the extent the car is used for business: it's reduced by the percentage used personally), as well as insurance, tag, Florida sales tax on leasing, etc. These payments are made with pre-tax dollars, which part of the objective here. Yes, I lose the $7,500 tax credit and the reimbursement of business mileage. However, it doesn't measure financially to purchase the car (caveat: I don't want to use cash for an outright purchase as the car is a 1st gen MS, and as someone stated above, the technology is changing rapidly. Also, I don't want to tie up that much cash in a depreciating asset).
5. The purchase and lease back. If you can find a way to do this which actually makes financial sense, please post a spread sheet which shows me how. My CPA said that it's mostly smoke and mirrors, and great tale to tell at cocktail parties, not to mention the issues with technical defaults under a loan when you transfer or lease. Not intending to minimize or criticize anyone who has figured this strategy out, but it just doesn't make sense for me.
Just to conclude: I'm going with a business lease in order to take advantage of the pre-tax expense. While I can't prepay the lease (you can only deduct the actual period), this option simply works the best for me as a small business owner looking at reducing taxable income, and getting to drive this amazing car. In 3 years, when the lease expires, my business has the option of a purchase. However, in 3 years, the MS is going to be even more fantastic, so I'll probably go through this exercise again.
One caveat here: I AM NOT A CPA or TAX PROFESSIONAL. Please rely on the advice of your own CPA. This is just a summary of what works for me in my particular circumstances.
KARMA
1. Purchase by business doesn't make sense if you're going to finance. The loan repayment is not a business expense; you can only depreciate the value annually. At the depreciation rate it'll take you years and years to depreciate fully. When you sell, you're probably going to sell for less than the depreciated value, and will be able to use the "loss". You can get the $7,500 tax credit. Purchase by business won't work for me.
2. Purchase personally will allow for the tax credit of $7500 (with my marginal rate, this equate to an AGI reduction of nearly $24,000); reimbursement of $0.56/mile for business use; all vehicle costs (insurance, tag, etc) are paid for personally and not a business expense; loan repayment is made with aftertax dollars. We crunched every number possible, and it was clear that purchase and finance personally would not provide the benefit of reducing pre-tax income.
3. Lease personally. Same issue as with a personal purchase with financing. All paid for with after tax dollars.
4. Lease through business. This is the only option which makes financial sense in my circumstances. My business leases the vehicle, and all lease payments are considered a business expense (to the extent the car is used for business: it's reduced by the percentage used personally), as well as insurance, tag, Florida sales tax on leasing, etc. These payments are made with pre-tax dollars, which part of the objective here. Yes, I lose the $7,500 tax credit and the reimbursement of business mileage. However, it doesn't measure financially to purchase the car (caveat: I don't want to use cash for an outright purchase as the car is a 1st gen MS, and as someone stated above, the technology is changing rapidly. Also, I don't want to tie up that much cash in a depreciating asset).
5. The purchase and lease back. If you can find a way to do this which actually makes financial sense, please post a spread sheet which shows me how. My CPA said that it's mostly smoke and mirrors, and great tale to tell at cocktail parties, not to mention the issues with technical defaults under a loan when you transfer or lease. Not intending to minimize or criticize anyone who has figured this strategy out, but it just doesn't make sense for me.
Just to conclude: I'm going with a business lease in order to take advantage of the pre-tax expense. While I can't prepay the lease (you can only deduct the actual period), this option simply works the best for me as a small business owner looking at reducing taxable income, and getting to drive this amazing car. In 3 years, when the lease expires, my business has the option of a purchase. However, in 3 years, the MS is going to be even more fantastic, so I'll probably go through this exercise again.
One caveat here: I AM NOT A CPA or TAX PROFESSIONAL. Please rely on the advice of your own CPA. This is just a summary of what works for me in my particular circumstances.
KARMA
3s-a-charm
Active Member
+1 but I don't get a $7,500 credit or any rebates unfortunately. I can only write off up to $900/mo I believe and the rest gets allocated personally.
I am continually amazed by how you get different answers from different CPAs (although maybe it is just my comprehension).
The purchase and lease back situation that I know of involved someone purchasing a $60k car with his personal money (cash). His S-corp paid him $1000 a month to lease the car. That $1000 was not treated as income. No 1099 was generated of course. And I suspect it is against the rules since that $12k a year should become income even if passive. My suspicion is that it was just ignored. So a win win. Buy car in cash, get tax credit, enjoy tax free lease payment. Legal - probably not.
No spreadsheet needed to see the benefit.
Perhaps the different answers from CPAs has to do with differing degrees to bend the law.
The purchase and lease back situation that I know of involved someone purchasing a $60k car with his personal money (cash). His S-corp paid him $1000 a month to lease the car. That $1000 was not treated as income. No 1099 was generated of course. And I suspect it is against the rules since that $12k a year should become income even if passive. My suspicion is that it was just ignored. So a win win. Buy car in cash, get tax credit, enjoy tax free lease payment. Legal - probably not.
No spreadsheet needed to see the benefit.
Perhaps the different answers from CPAs has to do with differing degrees to bend the law.
David, I think the income is the real determining factor for the lease-back not making sense. If you want your business to write off the expense of the lease, you probably need to issue a 1099 to the person you are paying, in this case yourself. If you ever get audited, any benefit would be erased as a result of the time spent trying to defend it.
I've found in life that the more complicated you, or your clients try to make things, the more likely that it's not worth the effort. What's the old saying about a "straight line is the shortest distance between two points"?
I've found in life that the more complicated you, or your clients try to make things, the more likely that it's not worth the effort. What's the old saying about a "straight line is the shortest distance between two points"?
jstepy
Member
+1!!! Exact situation I'm in with my small business S Corp. When I financed my first MS my CPA was very mad. I have always leased vehicles in the past and for some reason I opted to finance thinking the whole buy back guarantee was great. He quickly explained the whole luxury vehicle write off the Fed allows which is a complete joke. Like you said it would be many many years to fully book all that depreciation. So my CPA was all for it when I said I wanted to trade it in for the P85D... As long as I leased this time. Now if it was a truck that qualified for the section 179 write off that's a different story.
There is no sales tax on used vehicles in Arizona, and 5 year EV registration is under $250.
brucet999
Active Member
While the $32k rule may annoy you, a business can buy a perfectly serviceable car for that amount. Not having other taxpayers subsidize $60k additional for luxury over and above functionality strikes me as a perfectly reasonable rule.
kuttakamina
Member
The simplest option is to pay for the car cash and take business miles deduction.
Or you could setup a tesla hotel for 3 years.
Or you could setup a tesla hotel for 3 years.
For those who have leased a Model S through your business what have you done about getting insurance?
We have an S Corp and are leaning towards leasing via our business as the tax benefit is quite significant. Basically we get to write off the entire depreciation and do that using pre-tax money.
I called our insurance agent at State Farm and unless I am mistaken, she told me that if the car is leased under the name of our business that she would not be able to insure the car through our regular personal multiline policy. This would not be preferable for a variety of reasons as then we'd loose our multi car discount and likely will end up having to pay more for the Tesla and our Mercedes. For those who have leased under the name of your business how did you handle insurance and did you figure out a way to insure the car so you can keep your personal multicar/multiline discount?
Tesla told me that they can put both my name and my business's name on the lease paperwork. Can I use that to get around the insurance issue as I can claim to State Farm that the car is "also" under my name?
We have an S Corp and are leaning towards leasing via our business as the tax benefit is quite significant. Basically we get to write off the entire depreciation and do that using pre-tax money.
I called our insurance agent at State Farm and unless I am mistaken, she told me that if the car is leased under the name of our business that she would not be able to insure the car through our regular personal multiline policy. This would not be preferable for a variety of reasons as then we'd loose our multi car discount and likely will end up having to pay more for the Tesla and our Mercedes. For those who have leased under the name of your business how did you handle insurance and did you figure out a way to insure the car so you can keep your personal multicar/multiline discount?
Tesla told me that they can put both my name and my business's name on the lease paperwork. Can I use that to get around the insurance issue as I can claim to State Farm that the car is "also" under my name?
Yes, we have state farm and have both personal and business names on the title, it satisfied everyone....
-m
-m
Karma and Jstepy... I need to look at this for my wife whom is in a similar situation. I am no means a finance/accountant person. However, just so I can give her an idea of what she's looking at... what would you say your savings is when doing a business lease w/ write off? 30%? 60%?
What I am looking for is something to the effect of.... my business lease with tax write off is in effect $345/month vs $800/month on a personal lease with zero write off.
Hopefully what I am after makes sense.....
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