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Business Services Industry

Put on the brakes

Entrepreneur, Feb, 2004 by Jennifer Pellet

The small-business write-off for Ford Excursions, GMC Yukons, Hummers and other vehicles weighing in at6,000 pounds or more (known as the "Hummer loophole") has come to a screeching slowdown.

Under the Bush tax cut enacted last May, taxpayers purchasing a vehicle weighing 6,ono-plus pounds for business use were briefly able to write off $100,000 in the first year, a measure intended to encourage small businesses to invest in new equipment. But last October, the Senate Finance Committee slashed the first-year accelerated deduct-ion from $100,000 back to $25,000 for hefty vehicles.

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The good news: The Committee kept the $100,000 write-off for certain heavy trucks and refrigerated vans--and the $25,000 deduction still far outweighs the $7,660 first-year deduction allowed for a car. Yet Hummer and SUV buyers may want to rethink that fat deduction, say tax experts.

"Once you elect a method for deducting the business use of a vehicle, you can't change it," explains Jim Thigpen, president of Monarch Financial Services Inc. in Roswell, Georgia. "The operating expense method allows the big depredation write-off in the first year, but a limited one for the rest of the years you own the vehicle. If you use the mileage rate of 37 cents per mile, you can take that for as long as you own the vehicle."

Often, says Thigpen, business owners are lulled by the prospect of a fat first-year deduction, when writing off mileage annually will actually net the biggest long-term tax savings. He advises, "Factor in how long you'll own the vehicle and how much you'll drive it."--J.P.

Business Services Industry

Put on the brakes

Entrepreneur, Feb, 2004 by Jennifer Pellet

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