2024 How a New Vehicle Could Maximize Tax Deductions for Small Business Owners

As a small business owner, one of the most effective ways to reduce your tax liability is by taking advantage of tax deductions. If you require a new business vehicle, 2024 could be an excellent opportunity to get the vehicle you need while securing significant tax savings.

Here’s a guide for purchasing a new or used vehicle before December 31, 2024, and how it could benefit your bottom line.

Key Tax Savings for Business Vehicles

To maximize your tax savings, ensuring that the vehicle is “placed in service” by the end of the year is crucial. This means you need to both own and drive the vehicle for at least one business mile before December 31, 2024. Once that’s done, you can take advantage of several tax incentives available for qualifying vehicles.

SUVs, Crossover Vehicles, and Vans

If you purchase an SUV, crossover, or van that the manufacturer classifies as a truck and it has a Gross Vehicle Weight Rating (GVWR) of 6,001 pounds or more, you can unlock multiple tax benefits.

Tax Benefits for SUVs, Crossovers and Vans

• Bonus Depreciation
  You may be able to deduct up to 60% (reduced to 40% in 2025) of the vehicle’s purchase price in the first year.
• Section 179 Expensing
  For heavy vehicles, you can deduct up to $30,500 in the first year. Find out more.
• MACRS Depreciation
  Depreciate the vehicle over 5 years using the Modified Accelerated Cost Recovery System (MACRS). Read more about MARCS.
• No Luxury Limits
  Unlike other vehicles, there are no caps on how much you can deduct for luxury vehicle depreciation.
  These combined benefits can lead to substantial savings, especially if your business uses the vehicle daily.

Pickup Trucks

If your business needs a new or used pickup truck, you can qualify for similar tax deductions but with higher limits for Section 179 expensing.

• Bonus Depreciation
  Deduct up to 60% (reduced to 40% in 2025) of the truck’s cost in the first year.
• Section 179 Expensing
  Deduct up to $1,220,000 in the first year, depending on the vehicle’s cost and business use.
• MACRS Depreciation
  Depreciate over 5 years. Read more.
• No Luxury Limits
  Unlike SUVs, pickups are not subject to the typical luxury vehicle depreciation limits.

To qualify for full Section 179 expensing, the pickup truck must have a GVWR over 6,000 pounds and meet the specific requirements for cargo area size. If your truck doesn’t meet the cargo area requirement, it will be treated like an SUV, but you can still take advantage of similar deductions.

Tax Benefits for Hybrid or Electric Vehicles

If you’re considering purchasing an electric vehicle (EV) or plug-in hybrid, there’s an additional incentive available. You may qualify for a tax credit of up to $7,500. The credit applies first, and then you can follow the standard depreciation rules for business vehicles. EVs offer both environmental and tax advantages, making them a great option for businesses looking to invest in sustainable practices.

Year-End Auto Tax Strategies

For small business owners looking to reduce their 2024 tax liability, purchasing a new or used vehicle before the end of the year could be a smart move. You want to make sure you understand all the rules before making your purchase. This includes buying the vehicle personally or in the name of the business.

By understanding the rules surrounding business vehicle deductions and ensuring your vehicle is placed in service by December 31, you can take full advantage of Section 179 expensing, bonus depreciation, and other tax incentives.

If you’re unsure how these deductions apply to your specific situation, we can help you navigate these rules, contact us to help tax planning for company vehicles.