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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 10142
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I grossed 118k this year and am self employed as a Realtor.

Customer Question

Good Day,
I grossed 118k this year and am self employed as a Realtor. I support my son and his mother. But I believe I can not claim her. I am also in the process of purchasing a home (need to show substantial net income in order to be approved, I am thinking I shouldnt net less than 85k)and am scared of paying 25k in taxes as it will cut big into my savings. My expenses this year for running a business are roughly 10-15k (in the process of going through my bank statements as its intermingled with my personal expenses unfortunately). I am considering purchasing a new work vehicle for business that costs 19k but my trade in has negative equity and the dealership requires 10k down. I am trying to figure out how much I am going to have to pay in taxes and if taking advantage of section 179 makes sense especially since I have to put down 10k, will the purchase significantly reduce my tax obligation?
Submitted: 11 months ago.
Category: Finance
Expert:  PDtax replied 11 months ago.

Hi from Just Answer. I'm PDtax. I can assist.

My suggestion: purchase a vehicle large enough to qualify for expense treatment, and use it 100% for business. That means a vehicle with a gvwr of 6000 pounds or more. This is the largest SUVs, and most pickup trucks.

Customer: replied 11 months ago.
Thank you for your response however my question was a little more complicated. Please review my question and answer completely or request more information if needed.Thank you so much!
Expert:  PDtax replied 11 months ago.

I have to step away, but I can say that puchase, not lease, of a vehicle and using it 100% for business in 2015 will create a deduction that could save much of your tax obligation.

If you need a more specific forecast, i will post an Offer to grind the numbers and be more specific. I will be back by 4 to work on it if you choose.

PDtax

Customer: replied 11 months ago.
I have to decline your offer. Your responses were not helpful.Thank you
Customer: replied 11 months ago.
Please make my question available to other experts
Expert:  Lane replied 11 months ago.

I hold a JD (Juris Doctorate, a doctoral degree in the law), concentration in Tax Law & Corporate law, an MBA (specialization in finance & tax), and BBA from Stetson School of Business and Economics, as well as CFP and CRPS designations.

I can help here.

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First, you'll need to provide your filing status (married filing jointly, married filing separately, head of household, or single). Each of these carries it's own set of tax brackets, so an estimation of your tax liability cannot be done without this.

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Second, the section 179 deduction (especially given the fact that you likely need the vehicle) can make a lot sense.

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The opportunity cost (what's given up) for taking this up front deduction (this acceleration of the normal depreciation that would be done with the vehicle over its class life - likely five years - all into the first year placed into service) is he fact that, given the assumption that you will be paying the loan for the next several years, you will not see the normal depreciation that would continue (to help offset those loan payments in fture years.

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Regardless, the immediate gratification, in terms of expensing the total purchase price of the car in the first year, is considerable.

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You have provided no real numbers except for your gross and net, so lets start there.

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To err on the conservative side, lets say that your gross is 118000 and that your expenses are that higher number you mention, 15000. This indicates that your taxable profit would be 118,000 - 15000 = 103000

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And not knowing filing status, I'll assume, given what you've said about supporting your son, that you will file as single, with one dependency exemption (although much is not known here either; age of son, whether he qualifies under the qualifying child test, etc.)

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At a business profit of 103,000 filing single with NO 179 deduction here's an estimation of your taxes:

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Expert:  Lane replied 11 months ago.

Based upon the information you provided, it appears that your estimated federal income tax liability will be approximately $19,027. Your effective tax rate is 18.5% and your marginal tax rate is 28.0%.

Estimated Tax Analysis

Gross income$103,000

Qualified plan contributions-$0

Adjusted gross income=$103,000

Standard/Itemized deductions-$6,300

Personal exemptions-$4,000

Taxable income=$92,700

Tax liability before credits$19,027

Child tax credits-$0

Estimated tax liability=$19,027

Expert:  Lane replied 11 months ago.

Now, lets say that you purchase a vehicle for 25,000 and use the section 179 expense to expense it all in this year (we're getting a little late here) but this would lower your business profit by another 25,000, making your taxes look like this:

Expert:  Lane replied 11 months ago.

Based upon the information you provided, it appears that your estimated federal income tax liability will be approximately $11,869. Your effective tax rate is 15.2% and your marginal tax rate is 25.0%.

Estimated Tax Analysis

Gross income$78,000

Qualified plan contributions-$0

Adjusted gross income=$78,000

Standard/Itemized deductions-$6,300

Personal exemptions-$4,000

Taxable income=$67,700

Tax liability before credits$12,719

Child tax credits-$850

Estimated tax liability=$11,869

Expert:  Lane replied 11 months ago.

Again, this is very "broad brush," given that I don't know your filing status, whether you itemize or not (I assumed the standard deduction for filing as single and used one dependency exemption, your son)...

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But this is a good place to start, and gives you a relative feel for the effect of taking the §179 deduction

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Let me know what questions you have from here...

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Lane

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Expert:  Lane replied 11 months ago.

Are we getting closer to what you're asking?

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Let me know what else you need here

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I'll also make an additional services offer (for the smallest amount that JA will allow ($5) - so that, if you'd prefer, we can talk about this in the kind of confidential, detailed manner that would allow us to drill down further on the issues.

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Only accept if you'd like th phone consult.

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If this HAS helped, (and you don't have any other questions on this), I'd really appreciate a positive rating(using those stars on your screen) … That's the only way I'll be credited with a portion of what you've paid JustAnswer.com

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Let me know...

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Thank you,

Lane

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