Rob asks,

I have a first child on the way. I need to buy an SUV, but I put all my money back into my business. Is there a way to use my business to write off the SUV?

[You can ask your question here]

I answer:

Since I’m not an accountant or a lawyer and more to the point, I’m not YOUR accountant or lawyer I don’t know enough to advise how the rules apply in your situation. What follows is not advice, but education.

The general idea is any cost you incurr in order to do business is a write off. That means if you have to travel on business you could fly coach, fly first class or charter your own plane. The IRS won’t tell you which choice to make as long as you pay fair value and it’s a business expense. (Fair value means it won’t work to pay your wife $10,000 to make your travel arrangements if she books a flight for $350 and takes the rest as “commission”).

Even if you could write off any of those expenses, and chartering your own plane is a bigger write off, you’d have more money in your pocket if you fly coach for the reasons I explain below.

For example, if you have a business that makes $100 profit. You’re in the 40% tax bracket (including state income tax etc) so you pay $40 in tax and put $60 in your pocket. If you spend $10 on something (that you can’t write off) you end up with $50 in your pocket.

But suppose you could write off that $10. Then you only make $90 profit. In the 40% tax bracket you pay $36 in tax and put $54 in your pocket.

Bottom line: $54 in your pocket is better than $50 but worse than $60. What does that mean? It means if you spend money you weren’t going to spend anyway – even if it’s a write off – you end up worse off. ($54 instead of $60). But if you’re going to spend the money anyway, you’re better off if you spend it in a way that you can write it off ($54 instead of $50).

There are detailed rules about how much you can write off if you have a vehicle you use for business and personal use (same with a computer or a phone line for that matter – though the rules may differ). And there are rules regarding how much travel you can write off if you combine business and personal. And no, it won’t work to charter a plane to go to Hawaii for a week and spend 2 hours (or even 168 hours) that week talking business with your wife over lunch. There has to be a business reason that you have to talk in Hawaii.

Are there ways to arrange things so that you spend money you were going to spend anyway and get a write off? Sometimes. But you better get specific advice for your situation, from someone who knows this year’s tax law.

Do people break the rules and get away with it? Yes, but it’s not a risk I like to take. The penalties run from very costly to jail.

Takeaways:

• Write-offs are not a profit center.
• Do get the right advice and write off as much as you legally can.
• After that, it’s better to put your energy and inventiveness into making more money rather than gaming the system.
• The good news about paying a lot of taxes is it means you’re making even MORE money than you’re paying Uncle Sam. Poor people don’t pay a lot of taxes.