Are Vehicle Start-Up Costs Tax Deductible for a New Corporation?

Are Vehicle Start-Up Costs Tax Deductible for a New Corporation

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However, there are also several responsibilities that come with it which include understanding your finances and specifically what tax deductions your can take for the expenses you incur prior to incorporation if you plan to launch a corporation. One potential expense that many new brick and mortar type businesses incur prior to incorporation is the expenses associated with having a business vehicle. This expense in most cases would be considered a start-up cost.

How to Account For the Loan & Interest

For accounting purposes, the start-up costs should have a due to shareholder journal entry for the the personal funds used to finance the vehicle. In addition, the loan will have to accrue interest. That interest is due to you and the corporation needs to issue a 1099-INT for any interest that accrues and is paid to the debt holder (you) which exceeds $10. If you aren't aware, 1099s are information returns that are sent by the payer or the corporation to the payee or the business owner for the interest that is paid to the business owner. The 1099s must be sent to the recipient by January 31st and to the IRS by February 28th.

Transfer Title to Business

Secondly, you need to transfer title of the vehicle to the business if you haven't already done so.

It is very difficult to provide an exact answer regarding the tax deduction amount for your vehicle, but, below are some general guidelines regarding start-up costs and tax deductions.

Start-up Costs Deductible Up to $10,000 compared to $5,000 in Prior Years

Generally speaking, business start-up costs prior to incorporation can be deducted up to $10,000 which is up from $5,000 in previous years. If expenses exceed $60,000, the $10,000 deduction is decreased dollar for dollar. This means that $65,000 in first year expenses would allow a partnership to deduct $5,000 on their tax return. The remaining amount is deductible or amortized over 180 months or 15 years. So, in your case, if the vehicle is in fact used solely for business purposes it would appear as though you would be able to deduct those start-up costs up to $10,000 in the year incurred. Any amount of costs thereafter would be amortized.

Vehicle amortization can vary so more information is need to provide further detail.

Ryan S. Himmel is the founder of BIDaWIZ - the online marketplace for trusted answers from licensed business professionals (i.e. CPAs, CFAs, CFPs & More).

Visit us at BIDaWIZ to ask tax questions and get reliable answers from licensed tax experts online that are CPAs.

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