As the end of the year approaches, many clients and readers are looking for strategic ways to reduce their tax bill. One effective—and often overlooked—strategy is buying a car. Whether it’s a conventional vehicle or an electric one, purchasing before year-end can yield some serious tax savings. Here’s what you need to know to leverage this opportunity and maximize your deductions.

Understanding Section 179 Deductions for Business Vehicles

If you’re considering a vehicle for business use, Section 179 is one of the most valuable deductions you can take. Section 179 of the U.S. tax code allows businesses to deduct the full purchase price of qualifying business assets, including vehicles, in the year they’re purchased. For tax year 2024, this deduction limit is set at $1,160,000.

Key Points:

• The vehicle must be used for business more than 50% of the time.
• A range of vehicles qualifies, from cars and SUVs to trucks and vans.
• This deduction applies immediately, helping to lower taxable income in the purchase year.

Depreciation Deductions: Spreading Out the Savings

For vehicles used predominantly (over 80%) for business, depreciation deductions let you gradually expense the vehicle’s cost over its useful life. Thanks to the Tax Cuts and Jobs Act, businesses can also take advantage of 100% bonus depreciation, which allows the full cost of the vehicle to be deducted in the first year.

For more on depreciation and eligibility, see the link: Publication 946 (2023), How To Depreciate Property | Internal Revenue Service

Tax Benefits for Electric Vehicles: Federal and State Incentives

If you’re considering an electric vehicle (EV), there are additional tax benefits that go beyond standard depreciation and Section 179. The federal EV tax credit offers up to $7,500 for qualifying electric cars, with the specific amount depending on battery size and the manufacturer. Note that for 2024, the vehicle must be assembled in North America, and some manufacturers have phased out credits due to hitting sales caps.

Combining Section 179, Bonus Depreciation, and EV Credits

Electric vehicles used for business can qualify for both Section 179 and bonus depreciation, making them doubly advantageous. For instance, if your business purchases a heavy electric vehicle that meets IRS criteria (such as a gross weight over 6,000 pounds), you could fully deduct its cost under Section 179 and claim the federal EV tax credit. This combination can significantly reduce your tax liability while aligning with eco-friendly goals.

Conventional vs. Electric Vehicles: Which Is Right for You?

Choosing between a conventional or electric vehicle depends on your business needs and tax goals. Conventional vehicles offer solid tax savings through Section 179 and depreciation, while electric vehicles bring additional federal and state credits. Here are some examples:

• Conventional Vehicle: Buying a reliable truck for your delivery business? You could take advantage of Section 179 and bonus depreciation to reduce your taxable income.
• Electric Vehicle: Opting for an electric SUV like the Ford F-150 Lightning? You might qualify for both a Section 179 deduction and the $7,500 EV tax credit, maximizing your tax savings.

Make the Most of Year-End Tax Planning

Purchasing a vehicle before year-end is a smart way to reduce taxable income and potentially lower your tax bill. Consider which vehicle type aligns best with your business or personal needs, and keep in mind the added benefits of EV incentives if you’re interested in sustainability.

Have questions or need personalized guidance? Don’t hesitate to book a consultation with me here. Tax Advisory Services | Powerhouse Accounting Services LLC Let’s discuss the best strategy for you or your business!