I'm busy working on my blog posts. Watch this space!
What You Need To Know About Electric and Hybrid Car Tax Credits
November 22, 2016
Entertainment professionals in the Los Angeles area know a thing or two about business travel. The entertainment business requires a lot of networking, and the costs of traveling to meet clients for meals and other outings can quickly add up. In an effort to reduce travel expenses, many people are investigating the purchase of a hybrid or electric vehicle – but not everyone realizes that purchasing an energy-efficient car can also earn you a big tax deduction. Here are the answers to a few common questions we get from clients who are considering this option:
How much is the tax credit? Here are the federal tax credits available as of April 2016:
Does the tax credit apply if I’m leasing the car? The tax credit is only available to the original buyer of the vehicle. If you’re leasing, the credit belongs to the leasing company – however, as the credit is often factored into the cost of the lease, you may still stand to benefit.
What happens if I sell the car? If the car is being purchased for the express purpose of resale, the tax credit is not applicable. However, if a car is being purchased as a business travel vehicle and ends up being sold down the line, the tax credit can still apply.
What are the additional requirements for the credit to be applicable? The vehicle must be used in the United States and built by a qualified manufacturer. Electric vehicles and plug-in hybrids must also have battery packs that are rated for an adequate amount of energy storage and capable of being recharged from an external source.
Are there other tax credits or benefits I can claim after buying a new car? Yes, there are many state and regional incentives to encourage the purchase of energy-efficient or alternative-energy cars, and most of them apply exclusively to businesses. Some states offer exemptions from fees and inspections, while others offer incentives such as free parking and carpool lane access. At least 13 states also offer some financial benefits such as tax credits, reduced registration fees, or rebates.
Will these tax credits always be offered? As more and more electric and hybrid vehicles are sold, the government will begin phasing out these tax credits. The new technology integrated into these cars is expensive now. As sales increases, the cost of electric and hybrid cars will decrease and eliminate the need government subsidies. At the moment, the quota that will set off the credit expiration is 200,000 cars for each manufacturer, though no company has yet reached this mark. To take advantage of the tax credit and the cost savings associated with driving a fuel-efficient vehicle, business owners should act within the next few years.
Where else can I claim deductions? The IRS provides a standard mileage rate for business owners calculating their business-related car costs, but the fluctuating price of gas can drive the expense of your annual car travel up considerably. If you’re using a hybrid or electric vehicle, you may be prone to underestimating the amount of gas you’re using to make these trips. Making the effort to calculate these costs more precisely means more work, but a higher return. Few people know that expenses relating to the betterment of their vehicle, such as tire changes and car washes, can also be counted towards their deductible. Remember, driving to the office and back home cannot be counted as business-related travel – but entertainment professionals in Los Angeles spend a lot more time in the car than during their commute, and these costs should be scrupulously accounted. A financial advisor can help you develop a foolproof system for keeping track of your expenses and staying informed of new or revised potential tax credits.