The 2010 Affordable Care Act added a 40% excise tax on high-cost employer-sponsored health insurance (sometimes called “Cadillac” plans). “High-cost” means plans with an annual cost of more than $10,200 for an individual and $27,500 for a family. Beginning in 2018, the tax applies to the amount above that limit. The tax is assessed annually and is permanent, nondeductible, and applicable to many types of health coverage.
Because of its potentially broad impact, you’ll want to start reviewing the health insurance coverage you offer to employees to learn how your business will be affected.
The IRS is just beginning to issue guidance. We’ll keep you informed as information is released
Although a vehicle’s value typically drops fairly rapidly, the tax rules limit the amount of annual depreciation that can be claimed on most cars and light trucks. Thus, when it’s time to replace a vehicle used in business, it’s not unusual for its tax basis to be higher than its value.
If you trade a vehicle in on a new one, the undepreciated basis of the old vehicle simply tacks onto the basis of the new one (even though this extra basis generally doesn’t generate any additional current depreciation because of the annual depreciation limits). However, if you sell the old vehicle rather than trading it in, any excess of basis over the vehicle’s value can be claimed as a deductible loss to the extent of your business use of the vehicle.
For example, if you sell a vehicle with an adjusted basis of $20,000 for $12,000, you’ll get an immediate write-off of $8,000 ($20,000 – $12,000). If you trade in the vehicle rather than selling it, the $20,000 adjusted basis is added to the new vehicle’s depreciable basis and, thanks to the annual depreciation limits, it may be years before any tax deductions are realized.
For more ideas on how to maximize your vehicle-related deductions, contact us.