I pay more in tax every year than the cars I own (or sell) are worth. That's a statement that reflects more on my automotive taste than income.
If challenged, I'm sure that I can demonstrate that my net effort, and consequently losses, FAR outweigh the IN vs OUT sales price of said vehicle....in fact, I probably missed a deduction somewhere.
Edit....our tax code is bullE36 M3, but it could be so much worse.
In reply to Tyler H:
Yeah, but Toyotas are so reliable you never have to spend ANY money on them
In reply to stan:
As I understand it, if you're charging your own time, you're telling the IRS that it's a business. A business can't avoid taxes simply by deducting payments made to itself.
Or looked at another way, even if you personally could deduct the amount you paid your business to perform the work, your business would then have to pay taxes on the profits it made from you as a customer, which it would then deduct out your wages as an employee, which you as an individual would then pay taxes on as income...And as a sole-proprietorship, any profit not distributed to you as wages would still fully pass through to you as the owner at the personal income tax rate anyways. So after jumping though all those hoops, you'd realize a $0 net savings.
Taking the extra effort to carefully treat it as a business, and completely separate legal entity, from the start could however allow you to realize some tax savings in there, as you make completely legal business deductions...But you'd probably want to be looking at a pretty compelling financial gain to make it worth the effort.
I treat it as a business, but then again I sell approximately 30 cars a year.
I unfortunately have to pay taxes on the profits.
pimpm3 wrote: I treat it as a business, but then again I sell approximately 30 cars a year. I unfortunately have to pay taxes on the profits.
Wouldn't you need a dealers license at that point?
Shawnb wrote:pimpm3 wrote: I treat it as a business, but then again I sell approximately 30 cars a year. I unfortunately have to pay taxes on the profits.Wouldn't you need a dealers license at that point?
Yes. Pimpm3 has a dealers license (or access to one- I forget which)
I'm pretty sure the comments in this thread about flipping cars are incorrect.
You don't have to be flipping by cars to owe taxes. The IRS is happy to make you pay taxes on your appreciated assets, regardless of whether you are in the business or not.
The tax structure will change if it is a business, and you will be able to deduct the related expenses.
But for most of us, they will never know.
It is a grey area in Canada, but I have been led to believe that as long as I licence and insure the cars in my name before I sell them, they become my primary vehicle, and as such, are basically ignored by Revenue Canada. I have also heard that any more than five personal car sales per year will make them laugh at your hearty denials, and you will be paying taxes. I'd hope they have bigger fish to fry, but that is probably not important to them.
The one point that I'd bet would make taxes due and payable on each and every car you sold in the last seven years is if some auditor got a bean up his ass about you.
In reply to Streetwiseguy:
I know nothing about Canadian law on this.
I do, however, know most Americans misinterpret things like the "5 car per year" rule.
For example, GA law says, "The sale of five or more used motor vehicles in any one calendar year shall be evidence that a person is in the business of selling used motor vehicles". People usually misinterpret that to mean they can sell 4 cars per year without a license. But that isn't what it says. It says 5 cars shall be evidence a person IS IN THE BUSINESS of selling cars. It doesn't say anything about what a person is doing if they sell 4 cars, nor does it give the freedom to do so. GA revenuers are well within their mandate to try to show that someone who sells only 1 car per year is in the business of selling cars, they just can't prove it by the quantity of cars. They have to prove it in other ways.
I've been pretty leery of the five cars per year thing. I'd bet your explanation is pretty close to the truth.
In reply to SVreX:
In legalese a "rebuttable presumption."
dculberson wrote:Ian F wrote: In reply to Enyar: Yep. My mother is going this right now after her husband died and left her with a few times of value, including a 2014 Kia Soul and a '73 Kawasaki H1 with less than 4000 miles (but hasn't moved under its own power since 1974). While determining the estate value of the car was fairly easy, trying to determine the valve of a somewhat obscure 44 year old motorcycle has been fun.I thought there was no estate taxes or probate to go through with a spouse passing away. Sorry to hear about your mother's husband. (FIL?)
No apologies necessary. He was a bit of a dick and became more so over the last decade. While he had a will, it apparently wasn't as clear in certain areas as it could have been (when you have actual assets, maybe a free will-maker program is less that you need?). Anyway, some of the complication comes from her trying to transfer some of these items to his son (from a previous marriage). I'm not sure she had to pay taxes on the bike, but might have been something about declaring the value of the estate. Paperwork...
For better or worse, my mother pushed paper for the Govt. for 32 years, so none of this really surprises her and she's pretty good at it.
Ovid_and_Flem wrote: In reply to SVreX: In legalese a "rebuttable presumption."
Hahahaha. The Gov't has to prove something?? That's a good one.
Rebuttable presumption. Those are two words that just brought back an unpleasant flashback. Not long after they were formed, the EPA was charged with re-registering ALL of the pesticides on the market. They did this through RPAR (Rebuttable Presumption Against Registration). Basically, what they did was to cancel all pesticides unless the company took the time and $$$$ to prove each one was not bad. EPA did not have to [rove they were bad. A lot of pesticides got the deep six because not enough was sold to justify the cost of defense. In some cases, they basically had clerks analyzing mouse feeding study data.
SVreX wrote: In reply to Streetwiseguy: I know nothing about Canadian law on this. I do, however, know most Americans misinterpret things like the "5 car per year" rule. For example, GA law says, "The sale of five or more used motor vehicles in any one calendar year shall be evidence that a person is in the business of selling used motor vehicles". People usually misinterpret that to mean they can sell 4 cars per year without a license. But that isn't what it says. It says 5 cars shall be evidence a person IS IN THE BUSINESS of selling cars. It doesn't say anything about what a person is doing if they sell 4 cars, nor does it give the freedom to do so. GA revenuers are well within their mandate to try to show that someone who sells only 1 car per year is in the business of selling cars, they just can't prove it by the quantity of cars. They have to prove it in other ways.
Not sure about that. It's going to be two separate issues. In both cases you'll be paying taxes on the sale of the vehicle (either in capital gains or income tax if the cars are treated as inventory). The 5 car thing is for the requirement of a dealers license.
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