Strategy for maximizing tax benefit on new vehicle.
June 20, 2010 8:17 AM Subscribe
I am about to put a new-to-me truck on the road for my business. Is there more benefit to claiming a lower purchase price (to reduce immediate sales tax) or to paying the tax now and deducting the full amount from my income?
Not that I ever have, but many other people reduce the purchase price at registration time to reduce the sales tax paid. I am probably going to deduct the whole price of the truck on this year's taxes (it cost under $3000) and wondering which is the better strategy? Pay more now and less later or less both now and later?
Purely theoretical, of course. I am certainly going to pay the full tax on the $150 I spent on it.
Not that I ever have, but many other people reduce the purchase price at registration time to reduce the sales tax paid. I am probably going to deduct the whole price of the truck on this year's taxes (it cost under $3000) and wondering which is the better strategy? Pay more now and less later or less both now and later?
Purely theoretical, of course. I am certainly going to pay the full tax on the $150 I spent on it.
How do you just "reduce the purchase price"? Fake receipt? Probably not a good idea to save a few dollars.
Many states just charge flat rates or bluebook rates for vehicles, especially older ones. So the fraud would be for nothing anyway.
You probably ought to talk to a tax adviser, or run some fake numbers through TurboTax or something, to see what the best option is.
posted by gjc at 10:55 AM on June 20, 2010
Many states just charge flat rates or bluebook rates for vehicles, especially older ones. So the fraud would be for nothing anyway.
You probably ought to talk to a tax adviser, or run some fake numbers through TurboTax or something, to see what the best option is.
posted by gjc at 10:55 AM on June 20, 2010
We all know this is purely hypothetical because: 1) The IRS and your local government share information. Thus, if you deduct, say, $2000 as a purchase price the IRS will want to know why you overstated the price of the $150 truck you registered. 2) The cost of those anxiety pills you will be buying, knowing that one or another governmental entity has seven years to come after you will be more than the tax "savings." 3) It is, of course, not only illegal, but indefensible in court. While innocence of the law is no excuse, the obvious fact that you knew what you were doing wipes out any defense.
Now, as to the math: Let's assume you are in a jurisdiction that charges a 10% Use Tax. Reducing that hypothetical cost from $2500 to $150 will save you $235 in Use Tax. If you are in a 15% bracket and claim only the amount you claimed to the DMV, you lose $353 in actual tax savings at the Federal level, let alone if you live in a state that has an income tax.
Lastly, most fraud penalties start well above the amounts shown above and can get way higher. Why would you even be thinking about this?
posted by Old Geezer at 1:25 PM on June 20, 2010
Now, as to the math: Let's assume you are in a jurisdiction that charges a 10% Use Tax. Reducing that hypothetical cost from $2500 to $150 will save you $235 in Use Tax. If you are in a 15% bracket and claim only the amount you claimed to the DMV, you lose $353 in actual tax savings at the Federal level, let alone if you live in a state that has an income tax.
Lastly, most fraud penalties start well above the amounts shown above and can get way higher. Why would you even be thinking about this?
posted by Old Geezer at 1:25 PM on June 20, 2010
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posted by Old Geezer at 9:02 AM on June 20, 2010