DEAR DAVE:
I’m self-employed, and I travel about 30,000 miles a year in my van.
I’m three payments away from having the vehicle paid off, but it has
170,000 miles on it.
Do you think it would be a good idea for me to buy a new van and have the tax advantages that would go along with it?
— Doug
DEAR DOUG: There are two things you can do on taxes when it comes to your automobiles. You can straight-line depreciate them, which is what you do with expensive vehicles, or you can write off the mileage. That’s a good idea if you drive a lot. The thing is, you get the mileage whether you have debt or not.
Let’s say you bought a $25,000 van. If you depreciate that over five years, that’s $5,000 a year. If you made $65,000, and take $5,000 from that, you’d pay taxes on $60,000.
If you didn’t have that, you’d end up paying $1,250 in taxes. In other words, you’d be spending $25,000 over five years to save $1,250 a year on taxes. That’s a trade I don’t think you want to make.
Remember, too, that you basically destroy whatever you drive. You have to think of your vehicle as overhead. So, you’re going to destroy a $25,000 van or a $5,000 van all in the same period of time.
As a businessman, which would you rather destroy?
The answer is whatever is the least expensive and gets the job done.
