People who say "It was a Tax Write Off"

[ACRDSPORT14]

Can someone explain why people say this? Here is just one example I just heard.

"My new F-150 Raptor only gets 10mpg, but it's a write off" He makes it sound like it's free.

I understand how tax deductions and credits work, but ----THIS IS MY QUESTION---- aren't you you still are better off paying tax on your surplus of money then just wasting money on gas guzzler truck? I'm all for the Ford Raptor 100% but to say the gas is horrible, and it's just write off sounds silly.

 

[Andy S]

That's the same arguement my wife uses when she goes shopping, "Since it was on sale, I couldn't pass it up", makes no sense to me.

 

[Bruce]

Or the same basis as my buying 2 Diehard Platinum batteries for $400 to save 25% when I could have bought 2 Interstates for $250.

 

[BoaterGuy]

"My new F-150 Raptor only gets 10mpg, but it's a write off" He makes it sound like it's free.

Lets say he pays $500/month for it which is $6K a year. Assume he gets to write it off his income as a business expense and that he makes $100K before taxes and he is an S corp which gets taxed at personal income tax rate vs. the 35% C Corp tax. So his tax bracket will be the 28% bracket. Lets assume that this truck is his only write off which means he has to pay that 28% of his income.

So at the full 100K his total tax liability is $21,293 or with this the $6000 expense deduction his total tax is $19,613 yielding a $1,680 (or more simply $6K * .28) spread. Thus his total realized cost of the truck with the tax benefit is $6K - $1680 = $4320.

If he drives it 15,000 miles a year and gets 10 mpg he will burn 1500 gallons of fuel @ $4/gal = $6000 in fuel costs.
If he got 20mpg instead of 10mpg he would burn 750 gals @ $4/gal = $3000.

Subtract the tax savings from the $12K in truck and fuel cost and that yields a $8,640 total expense. He saved $3,360 by deducting his fuel and truck bills.

If he only spent $3K on fuel @ 20 mpg vs $6K @ 10mpg he would have saved $2,520 total ($840 fuel tax benefit + $1680 truck payment benefit). His total expenses would be $6,480. Total additional expense between 10 mpg and 20mpg with tax savings is $2,160. (8640 - 6480).


Edit*** to answer you original question... no the truck is not free but he gets a $1680 (%28) discount per year on it. He would be better off keeping his full $6000.

 

[ACRDSPORT14]

Tx for some better explanations, I do realize he saved around 30% for the truck, but he still has to have money to do this. Meaning, it's just not a "TAX WRITE OFF" he still needed the 6k for fuel and the money for the truck payments each month.

 

[woodard1983]

It all depends on the person's specific tax situation, but most likely they don't realize that they really aren't benefiting themselves....my uncle is a farmer and watches this type of stuff very closely so that he knows exactly how much he will make in the year by the time December comes around....he will only buy new machinery (for write off purposes) if it will make a substantial difference in his tax liability and most of the time the goal is to drop him into a lower tax bracket, so that he doesn't get all of the additional taxes added for the upper income brackets....

that is about the only time I see it being a benefit, other than an excuse to buy new toys

 

[Magic]

"Look how much I saved us by buying 5 pairs of shoes on sale!" lol!

 

[Evil Sports]

I think you can still do the 179 deduction which allows you to take over $20k in depreciation the 1st year on trucks over 6kGVW

 

[xoomer]

I'm unaware of anything you can spend $1.00 on and expect to get back $1.01 from the government when the final accounting is done.

 

[maboat]

Can someone explain why people say this? Here is just one example I just heard.

"My new F-150 Raptor only gets 10mpg, but it's a write off" He makes it sound like it's free.

I understand how tax deductions and credits work, but ----THIS IS MY QUESTION---- aren't you you still are better off paying tax on your surplus of money then just wasting money on gas guzzler truck? I'm all for the Ford Raptor 100% but to say the gas is horrible, and it's just write off sounds silly.

You are basically correct and thinking along the right lines. Legal tax deductions dont result in savings that equal the expense itself. Simple case-in-point:
Most of us with mortgages can deduct 100% of the mortgage interest. But that doesn't mean its deducted from the taxes due. Its deducted from the gross income, giving an Adjusted Gross Income which is still taxed at 28% or so (depending on your tax bracket). Lets say mortgage interest is $5k and income is $100k. Without the deduction the tax due is $100k x .28 = $28k. With the deduction the tax due is $(100k-5k) x .28 = $26.6k. So the net tax Reduction would be $1.4k (same as the $5k deduction times the .28 tax bracket).

 

[txav8r]

It is a simple rationalization to own the truck he wants, nothing more. We all rationalize, right?

 

[4x15mph]

Its not how much you make but how much you save. I like this one. A great book is "rich dad, poor dad".

 

[txav8r]

Indeed it is how much you save. But buying a 2-3 year old truck or car (no boat) will yield more in savings in your future. It is all rationalization.

 

[xoomer]

In my case it wasn't rationalization I used to buy a new boat, I needed one for medical reasons--to maintain what's left of my sanity .

 

[txav8r]

In my case it wasn't rationalization I used to buy a new boat, I needed one for medical reasons--to maintain what's left of my sanity .

Now that I will swallow hook, line, and sinker!

 

[ACRDSPORT14]

Thanks for the replies.

 

[Zarrella]

And now I know why my accountant charges me a small fortune to do my corporate returns....lol

 

[ACRDSPORT14]

He may be talking about getting the standard mileage deduction of .56 cents per mile using it for work, so if he gets 10 miles to the gallon it costs him let's say $ 3.2o per gallon, the same 10 miles he would get a write off of $ 5.60, so he would net $ 2.40 every 10 miles driven.

He owns his own company, just him and another person. Is the .56 a tax credit or deduction? Thanks

 

[maboat]

Is the .56 a tax credit or deduction? Thanks

Its a deductible business expense which reduces net profit which reduces taxes on profit

 

[Zeus2013]

I bought it cause I wanted it...end of discussion.