Standard mileage rates for business use of automobiles increased to 37.5 cents a mile, up from 36 cents per mile in 2003, due to a rise in fuel prices last year, the Internal Revenue Service said. Taxpayers who use no more than four vehicles at the same time for business purposes may use the standard mileage rate. Previously, taxpayers using more than one vehicle at a time had to track actual expenses for each vehicle.
Vertex Inc., a Berwyn, Pa.-based provider of tax technology, introduced an online service for the leasing industry that allows companies to access taxability rules and rates specific to equipment and vehicle leasing.
Ryder System announced a leasing option offering the advantages of its full-service lease plus the ability to retain the tax benefits of ownership. The Tax Advantage Lease program takes advantage of the 2003 tax reduction law, which provides a first-year “bonus” tax deduction equal to 50 percent of the cost of the qualified transportation property acquired between May 5, 2003, and Jan. 1, 2005, and placed into service before 2006.
California truck owners who paid a higher vehicle license fee before Gov. Arnold Schwarzenegger rolled back the fee should receive refunds early next year. State law allowed former Gov. Gray Davis to reinstate the 2 percent vehicle license fee Oct. 1 in the face of a budget crisis.
Who doesn’t love a tax break? The Jobs and Growth Tax Relief Act of 2003 gave us plenty in the area of equipment depreciation and write-offs. But like all tax efforts to boost the economy, this had nothing to do with making the tax code simpler.
The focus of questions by my clients lately has been on the heavy vehicle breaks, also known as the large SUV loophole. Buy that Hummer or super-sized Cadillac SUV and become exempt from the usual limits on annual write-offs for vehicles purchased through 2004. Some are even using this for company airplanes.
If your personal vehicle weighs in at more than 6,000 pounds fully loaded, then it is exempt from certain luxury auto limitations placed on deductions. With the new rules, then, one could conceivably write off a $60,000 vehicle in the first year, bringing perhaps a $25,000 tax break when combining top federal and state tax rates. The fun may not last, however. Due to unfavorable media coverage, some in Washington are talking about raising the threshold to 14,000 pounds to eliminate the SUV loophole.
But even if the tax break remains in place, there are limits. The first is business use. You must prove that the vehicle is used for business, and your commute from home to work doesn’t count. Personal mileage logbooks are the only real way to support your deductions. You must report the personal use portion on your Form W-2 each year, and the computation of this amount is not simple.
Whether we’re talking about cars or trucks or rigs or office equipment, the limit for a first year write-off is $100,000, but then more fun begins. You can choose to take bonus depreciation for 30 percent or 50 percent for certain purchases.
Here’s how it would work. Let’s say your company bought $200,000 in equipment in year one. The first year, you’d get the $100,000 section 179 deduction, plus up to 50 percent bonus depreciation, or $50,000 more, and then you could depreciate the remaining $50,000 over five years, with year one taking another $10,000. That’s $160,000 in write-off on the $200,000 in year one.
In years two through five, you have deprecation ranging from approximately $7,000 to $16,000 per year. Thus, you are trading your deduction in future years for a big one in the first year.
The deduction of all this may be limited for very small companies. If your total company income is under $150,000 in year one before the write-offs, then you don’t get the full benefit in year one. You must carry forward the deduction to future years. And there are limits on pass-through write-offs at both the business level and the individual level. In reality, you won’t need to worry about these restrictions because only the smallest of motor carriers would be subject to them.
What should you do? Look ahead a few years and guess the future income of your company. It would make sense to take the deductions at the highest tax rates as they are less valuable at lower rates.
And one last, but critically important thing. Do you really need a $60,000 vehicle? No amount of tax breaks can pay for a too-expensive vehicle, or cover the perception by employees or customers that you’re spending too much. But then, when you are even considering buying a Hummer, reason and practicality may not be your highest priority.
RYDER TO BUY TWO MAJOR LEASING GROUPS
Ryder said it had entered into a non-binding letter of intent to acquire Des Moines, Iowa-based Ruan Leasing Co., the equipment-leasing arm of Ruan Transportation Management Systems. In an announcement issued the same day, Ryder said it had reached agreement to acquire substantially all the assets of Davenport, Iowa-based General Car and Truck Leasing System.
Ruan Leasing has a fleet of nearly 6,800 vehicles and another 4,800 units under contract maintenance agreements, serving more than 550 customers in the United States. The General transaction involves more than 4,000 vehicles and more than 700 customers in the United States. Although the word “car” remains in General’s name, it no longer is involved in the car rental business.
Acquisition of Ruan’s leasing assets will add to Ryder’s capabilities in the Midwest, Southeast, Mid-Atlantic and California. The General deal adds to Ryder’s capabilities in the Midwest and Southeast.
The Ruan transaction does not include the company’s supply chain, logistics and dedicated contract carriage businesses. Mark Murfin, Ruan senior vice president, says the transaction represents a “win-win-win proposition” for Ruan, Ryder and their customers.
“We have been talking to Ryder for a while,” Murfin told CCJ. He said it had been part of Ruan’s strategic plan for some time to transition the equipment-leasing piece of its business to another party.
“We think we can provide better value through our expertise in operating vehicles,” Murfin said. “It has also been one of the areas where we have had the most growth.” The benefits of the transaction to Ruan and its customers lie in focus, he said. “Where we had a variety of product lines, it allows us to focus on dedicated carriage and logistics.” After the transaction, Ruan will still operate and maintain a sizable fleet of equipment – about 2,200 power units and 3,700 trailers – that it owns or that are owned by customers or third parties.