Tax Guru – Ker$tetter Letter

Q:

I have a small electrical business. I have been told by my CPA that my taxes could be lowered overall if I were to purchase the trucks I use for my business, in my name, and then lease them to the company. The company is a C-Corporation. How could I deduct my the depreciation on these personal vehicles that are leased to the Corp?

A:

That is a very common strategy that can save a lot of tax money by avoiding the payroll taxes that a salary would entail. It is also a popular technique for people who are receiving Social Security income and have a limit on how much earned income they can make without having their benefits reduced.  Lease income is not classified as earned income.

The lease income is reported on your Schedule E (or Sch. C as some people use) and the expenses of the leased item that you pay personally, including depreciation and Section 179, are deducted on that same schedule.

What I am most curious about is why your personal CPA didn’t explain these basic facts to you and you had to ask a stranger on the internet.  Tax pros should always be prepared to explain the pros and cons of any strategy that they advise for their clients.

I hope this helps.  Good luck.

Kerry Kerstetter