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Has anyone here used a lease instead of buying? My accountant suggested I have my business lease a vehicle, then the business could deduct the lease payments, and I would just pay personal use tax. Would this be cleaner than the rental arrangement?
I did this with my marketing company! Way cleaner for tax purposes. The business leases the vehicle and takes the deduction for the business portion of use. You just need to track personal vs business miles and pay for personal use (either reimburse the company or report it as compensation). Much less likely to trigger audit flags than renting from yourself.
The lease approach is definitely cleaner from a compliance standpoint! I've been doing this with my consulting business for 2 years now. The key is establishing a clear policy for personal use reimbursement upfront. I calculate my personal miles monthly and either write a check to the business or add it to my W-2 as additional compensation. One thing to consider is that lease payments are generally fully deductible for the business portion (unlike depreciation limits on purchased vehicles), so you might get better tax benefits overall. Just make sure you're comfortable with the ongoing monthly commitment versus owning an asset. Also keep detailed mileage logs - the IRS loves auditing vehicle deductions regardless of the structure you choose.
One thing I haven't seen mentioned yet is the potential impact on your business insurance and liability exposure. When you own rental vehicles through your LLC but then become a regular user of one of those vehicles, you need to make sure your commercial auto policy covers this arrangement properly. I learned this the hard way when my insurance company questioned a claim because I was driving a "rental" vehicle that I technically owned through my business more than any actual rental customer. They wanted detailed records showing it was truly operating as a rental business vehicle vs. a personal vehicle owned by my business. Also consider the bookkeeping complexity - you'll need to track rental income from yourself, maintain separate accounting for that specific vehicle vs. your other rental fleet, and potentially deal with different depreciation schedules if the IRS determines it's not primarily a business asset. The lease approach others mentioned really does seem like the cleaner path here. You avoid the related-party transaction issues entirely while still getting legitimate business deductions.
Don't forget about life insurance as part of this! My parents set up an irrevocable life insurance trust (ILIT) to provide liquidity for estate taxes without the insurance proceeds themselves being subject to estate tax. Might be worth looking into.
That's interesting - how exactly does the life insurance trust work? Would the policy need to be purchased by the trust or can existing policies be transferred?
Life insurance trusts (ILITs) can work with new or existing policies, but there are important timing considerations with existing policies. If your aunt transfers an existing policy to an ILIT and then passes away within three years, the insurance proceeds will still be included in her taxable estate (this is called the "three-year rule"). For new policies, the trust would apply for and own the policy from the start, avoiding the three-year rule. Your aunt would make annual gifts to the trust to cover premium payments. These gifts typically qualify for the annual gift tax exclusion ($18,000 per beneficiary in 2025) if structured with proper "Crummey powers" that give beneficiaries temporary withdrawal rights. The big advantage is that when structured correctly, the insurance proceeds aren't included in her taxable estate but are available to pay estate taxes, equalize inheritances among beneficiaries, or provide liquidity so other assets don't have to be sold quickly.
As someone who recently went through estate planning with my elderly father, I'd strongly recommend your aunt work with both an estate planning attorney AND a CPA who specializes in estate taxes. The interplay between federal estate tax, California state rules, and income tax implications is incredibly complex. One thing that caught my attention in your post is that your aunt's $6.8 million estate might actually benefit from some strategic gifting now while she's alive. She can give $18,000 per year to each beneficiary (you and your cousins) without any gift tax consequences, which gradually reduces her taxable estate. Over several years, this could bring her estate down further below the federal exemption threshold. Also, since she's 76, she should consider her health and longevity when choosing between revocable and irrevocable strategies. Irrevocable trusts offer better tax benefits but require giving up control permanently. At her age, a revocable trust might provide the right balance of flexibility and probate avoidance, especially since her estate is currently under the federal exemption. Don't rush into any decisions - this stuff is permanent once you sign the documents. Take time to understand all the options and their long-term implications for both your aunt and the beneficiaries.
This is really comprehensive advice! I'm curious about the strategic gifting you mentioned - with multiple cousins as beneficiaries, could my aunt potentially gift $18,000 to each of us every year? That could add up to significant estate reduction over time. Also, when you mention working with both an attorney AND a CPA, did you find they coordinated well together or did you have to manage the communication between them yourself?
Uggh this is confusing... so if I get a $50 face cream to review on my shop account, I have to pay taxes on that $50 even if I would never buy that cream myself? What if I hate it and give it away to a friend? Still taxable?
Yes, it's still taxable even if you give it away. The IRS considers it compensation for your content creation services the moment you receive it. Think of it like this: if someone paid you $50 cash to review a product, then you spent that $50 on a face cream and gave it to a friend, you'd still have to pay taxes on that $50 income, right? The IRS sees this the same way.
This is exactly why I started keeping a detailed spreadsheet at the beginning of this tax year! I track every single item I receive - date, brand, product description, retail price (I screenshot the current selling price online), and whether I kept/used it or gave it away. The $1,800-2,000 you mentioned could result in a pretty significant tax bill if you're not prepared for it. At a 22% tax bracket, that's potentially $400-440 in additional taxes owed. I learned this the hard way last year when I got hit with a surprise bill because I hadn't set aside money for taxes on the "free" products. One tip that's helped me: I now set aside about 25-30% of the estimated value of products I receive into a separate savings account specifically for taxes. That way I'm not scrambling come tax time. Also consider making quarterly estimated payments if this income is substantial - the IRS doesn't like it when you owe too much at the end of the year without having paid throughout.
Ravi Gupta
Nobody's gonna mention that you're supposed to make quarterly estimated tax payments on self-employment income? I'm not saying the IRS is going to come after you for one year of small DoorDash income, but technically you should be making payments throughout the year, not just at tax time.
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GalacticGuru
ā¢Is that really necessary for such a small amount though? I made like $4000 on Instacart last year and just paid it all when I filed my taxes. Nobody told me about quarterly payments.
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Ravi Gupta
ā¢Technically yes, but practically speaking the IRS usually doesn't assess penalties for missed quarterly payments if it's your first year of self-employment or if the total tax due is small. The rule is that you need to pay at least 90% of your current year tax or 100% of your prior year tax through withholding or estimated payments to avoid the penalty. For someone making under $3000 from DoorDash with a total tax bill around $550, any penalty would be minimal even if it was assessed. But it's good to know for the future - if you continue doing gig work and your income increases, you should make quarterly estimated payments to avoid penalties later.
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Freya Pedersen
Just FYI - if this is your only income and it's under $12,950 (standard deduction for 2023), you won't owe any regular income tax, just self-employment tax. That's probably why your calculator showed around $550 - it's just the 15.3% SE tax. So don't stress about the income tax part.
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Paolo Conti
ā¢That actually makes me feel a bit better. So even without deductions, I'm only looking at owing the self-employment tax? And if I estimate my mileage and other expenses, that would reduce even that amount?
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Mohammad Khaled
ā¢Exactly! You're only looking at self-employment tax on that $2,850, which is calculated on your net profit after deductions. So if you can legitimately claim mileage and other business expenses, it reduces the amount subject to SE tax. For example, if you drove 3,000 miles for DoorDash deliveries, that's about $2,040 in deductions at 65.5 cents per mile (2023 rate), which would significantly reduce your tax liability. Don't forget you can also deduct things like insulated delivery bags, phone accessories for your car, and a portion of your phone bill. The key is being reasonable and honest about your estimates.
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