Car business expense

[ElBarto]

My SO will be buying a new 6000+ pound car for her business. This car will only be used for business. We realize that she can deduct the cost of the car from her income, but here is the kicker. When we buy that car, I will be selling the dealership one of my carsso as to make things easier as well as lower sales tax on the car purchase. Am I correct my SO can still deduct the full cost of the car since these are technically two separate transactions?

[arcticpineapplecorp.]

if you were to sell your car and she would give you the money (in savings on the car she's buying) then she's still paying 100% of the car price of what she's buying. Right? If she buys a car for $30,000 for business and you trade in your car (not related to her business) for $10,000 even though she's only paying $20,000 for HER car, she still should pay you $10,000 for your car, right? So didn't she still spend $30,000 in total? Otherwise she got a deal and you got screwed!

It could only be different (perhaps) if SHE were selling one of her vehicles used for business for a new car to be used for her business. If that were the case and she bought a car for business for $30,000 and sold a car for business for $10,000 then she would only claim $20,000 as an expense, right?

[stan1]

I'd say go discuss/negotiate with the dealership on what the paperwork is going to look like.

I think you know what you want it to look like, see what they can/will do.

[snackdog]

Make sure you are getting the best price for your existing vehicle by checking Carmax, Carvana and local private sale options. The higher sale price could more than offset the tax savings on the other vehicle.

[bombcar]

How is “your car” titled? If it’s entirely yours, and her business car will be entirely hers, you may have to be careful how you structure it or it’ll look like you’re making a capital investment in her business.

If everything is joint it shouldn’t matter as much, but I’d ask the dealer to make two transactions to make it clear.

[ElBarto]

Make sure you are getting the best price for your existing vehicle by checking Carmax, Carvana and local private sale options. The higher sale price could more than offset the tax savings on the other vehicle.

I am sure I can get a better deal selling private party with some hassle. I don't want to deal with it. CarMAx is offering similar, but then I don't get the sales tax deduction making selling back to dealer the best option.

How is “your car” titled? If it’s entirely yours, and her business car will be entirely hers, you may have to be careful how you structure it or it’ll look like you’re making a capital investment in her business.

If everything is joint it shouldn’t matter as much, but I’d ask the dealer to make two transactions to make it clear.

Car I am selling is titled to my business which I am closing at the end of the year. The car is titled to me and my business reimburses me for the car. The business is closing this year. Her business car will be entirely hers.
I have no interest in making a capital investment into her business. But I have no problem giving her the value I receive for my car and give it to her.
We have separate finances but we do share some expenses via a joint account.

I'd say go discuss/negotiate with the dealership on what the paperwork is going to look like.

I think you know what you want it to look like, see what they can/will do.

I know what I want, but how can they accommodate me while still getting the sales tax deduction?


Edit: I made a correction above

[bombcar]

Car I am selling is titled to my business which I am closing at the end of the year.

This is the part that suddenly makes it potentially way more complicated. Wow!

[ElBarto]

Car I am selling is titled to my business which I am closing at the end of the year.

This is the part that suddenly makes it potentially way more complicated. Wow!

My mistake....the car is titled to me personally but the business has reimbursed me for the car

[bombcar]

Is your SO a wife/husband or an actual non-IRS recognized partnership? That may be material.

[ElBarto]

Is your SO a wife/husband or an actual non-IRS recognized partnership? That may be material.

We are not officially married as per IRS recognition of marriage. We file single.

[stan1]

So seems there is a lot going on, and each of your follow up posts reveals more details.

Two ways to do it:
1) Do what you want, send it up to the IRS next year, and see if they contact you and/or SO
2) Write a solid justification for you and SO now, adjust what you and SO are each doing to match the justificaiton

[cchrissyy]

i don't live in a state where the sales taxes work this way.
but i wonder if you should sell the car to her / her business so that she can turn around and trade it in.
or are there transaction costs that defeat the sales tax savings?

[bombcar]

I don’t see how you get around the transfer of “value of Carl” to your SO.

I also don’t see how the IRS will care unless it’s a quite valuable car (above gift tax limit?) and even that is paperwork not a tax.

The transaction offers enough moving pieces that it may be worth considering something different.

I would verify the “trade-in reduces sales tax” because that itself seems like something the gov’t wouldn’t much like. They love taxing car transfers.

[ElBarto]

i don't live in a state where the sales taxes work this way.
but i wonder if you should sell the car to her / her business so that she can turn around and trade it in.
or are there transaction costs that defeat the sales tax savings?

I want her business to get the full tax deduction on the vehicle. If she trades in a car, then the ost basis of the new car technically decreases by the price of the trade in.

Example:

We buy a $50k car that is 6000+ pounds. All $50k can be deducted from business income. Plus she pays about 5% sales tax on the $50k

She exchanges a business vehicle and gets $20k for the old car. The new car is now $30k and she only gets a $30k tax deduction from her business income plus she only pays sales tax on $30k instead of $50k.

I want the best of both worlds since the care being traded in is not hers. It is mine. Technically the steps are I sell them a car and get $20k which I gift to my SO who uses it to buy a new car for $50k but only has to pay sales tax on $30k.

[smitcat]

i don't live in a state where the sales taxes work this way.
but i wonder if you should sell the car to her / her business so that she can turn around and trade it in.
or are there transaction costs that defeat the sales tax savings?

I want her business to get the full tax deduction on the vehicle. If she trades in a car, then the ost basis of the new car technically decreases by the price of the trade in.

Example:

We buy a $50k car that is 6000+ pounds. All $50k can be deducted from business income. Plus she pays about 5% sales tax on the $50k

She exchanges a business vehicle and gets $20k for the old car. The new car is now $30k and she only gets a $30k tax deduction from her business income plus she only pays sales tax on $30k instead of $50k.

I want the best of both worlds since the care being traded in is not hers. It is mine. Technically the steps are I sell them a car and get $20k which I gift to my SO who uses it to buy a new car for $50k but only has to pay sales tax on $30k.

"Technically the steps are I sell them a car and get $20k which I gift to my SO who uses it to buy a new car for $50k but only has to pay sales tax on $30k."
Which of these are you interested in....
- additional paid in capital to the business which owns the new car
- a personal gift to the business which uses it to buy a new car

[ElBarto]

I want her business to get the full tax deduction on the vehicle. If she trades in a car, then the ost basis of the new car technically decreases by the price of the trade in.

Example:

We buy a $50k car that is 6000+ pounds. All $50k can be deducted from business income. Plus she pays about 5% sales tax on the $50k

She exchanges a business vehicle and gets $20k for the old car. The new car is now $30k and she only gets a $30k tax deduction from her business income plus she only pays sales tax on $30k instead of $50k.

I want the best of both worlds since the care being traded in is not hers. It is mine. Technically the steps are I sell them a car and get $20k which I gift to my SO who uses it to buy a new car for $50k but only has to pay sales tax on $30k.

"Technically the steps are I sell them a car and get $20k which I gift to my SO who uses it to buy a new car for $50k but only has to pay sales tax on $30k."
Which of these are you interested in....
- additional paid in capital to the business which owns the new car
- a personal gift to the business which uses it to buy a new car

gift to SO who uses the cash any way she likes. I do not want equity in the business.

[smitcat]

"Technically the steps are I sell them a car and get $20k which I gift to my SO who uses it to buy a new car for $50k but only has to pay sales tax on $30k."
Which of these are you interested in....
- additional paid in capital to the business which owns the new car
- a personal gift to the business which uses it to buy a new car

gift to SO who uses the cash any way she likes. I do not want equity in the business.

I believe your accountant will not favor 'gifting' any funds to a business owned by you and/or your wife/SO.
I would check with your business accountant before making any moves that are irreversable.

[Harry Livermore]

Are you sure you are saving on sales taxes? We have not traded a car in when buying for a long time now, but I seem to remember the sales tax is levied on the agreed-upon sales price, and the trade-in simply lowers the amount of cash or financing you have to procure.
I assume not all states may work that way?
Cheers

[Jack FFR1846]

I think there are a lot of hand grenades here. In my state:

If you gift the car to your wife, there is no sales tax. She does pay $75 for title and $60 for registration, then is required to get it inspected which is $35.
If you gift the car to your wife's business, your wife's business must pay the above plus 6.25% sales tax.
If you gift the car to a significant other who you are not married to, same as above, she pays sales tax.

I can also tell you that if she buys a new vehicle and you are married to her, and she is buying this personally, not for a business, the dealer can fill out a simple form and your car gets traded in and the sales tax on the value of the trade in is deducted from the tax she pays. I've done this.

Again, this is in my state. Yours can be completely different.