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To preface, my goal is not to game the tax system. I'm trying to understand this to see if it is financially reasonable.

So I am legitimately interested in starting a blog/YouTube channel in the tech space. I have significant expertise in this area. One area of interest specifically is Tesla. Well to blog about a Tesla, it is reasonable to have a Tesla. I do not have one. So let's say I start a tech blog with a real goal of making money from the blog. So how does it work if I purchase a Tesla?

While with a regular automobile used for transportation, you figure how much is allocated to personal vs business, is it different here? For me to draw conclusions and have experience with the car, I have to drive it. So how does it work? Assuming I am able to deduct it against this new side business, do I deduct the down payment and monthly payments? How do I figure out much of it to deduct? And am I in the clear on the hobby vs business distinguishing? What happens if my income every month from the site is $400 but the car payment is $700?

Any help would be appreciated.

  • I think it'd be hard to justify anything more than a very low percentage of the vehicle expense, but you've definitely hit upon an example that's harder to figure. – Hart CO Dec 31 '17 at 22:57
  • Why only a low percentage though? What's the difference in my hypothetical and someone who purchases a cell phone to review on their tech blog? – iq78 Jan 1 '18 at 0:17
  • Why is it a lot of explaining? Also my point is kind of that in order to post reviews or thoughts about a large purchase like that, you have to use it. So driving around just to drive around seems wasteful. Not like I have to go make a work related trip. – iq78 Jan 1 '18 at 0:19
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    'What's the difference in my hypothetical and someone who purchases a cell phone to review on their tech blog? ' The size of the investment vs. reasonably expected return from their business. It's relatively easy to make a case that the income from a blog could pay for a cell phone and leave a profit. You'd need to be prepared to show the IRS that your the income from your blog could reasonably pay for the Tesla AND leave a profit. The IRS is generally suspicious of 'hobby' businesses that have no path to profit. – Charles E. Grant Jan 1 '18 at 0:22
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    "Making a thousand dollars a month from ad revenue is pretty common from blogs and such" Citation needed. If you want to try to write off a Tesla, and can make a case that your blog will turn a profit in three of the next five tax years, go for it. However, the IRS will expect to see more than just your optimistic guess. Granting that you have experience. they'll probably want to see evidence of a good faith effort: things like a business plan and market research demonstrating your plan is prudent. – Charles E. Grant Jan 1 '18 at 0:44
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I agree with Charles and Hart in the comments that the size of the investment does matter, especially because you have no expected return on investment. Meaning, as you have no "followers" now, it is unlikely that buying a Tesla will result in automatic fame or notoriety. I would say that you cannot expense a vehicle to start a blog about that vehicle.

The federal government would appear to agree:

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.

It is important to separate business expenses from the following expenses:

-Expenses used to figure the cost of goods sold

-Capital Expenses,

-Personal Expenses.

I would argue that buying a vehicle is neither ordinary nor necessary. I happen to know a medium-sized auto review YouTube creator, and I know that it is normal to borrow or at the most rent cars. When they do a video on their own cars, they could expense fuel, but certainly not the cost of a new car. Further, the majority of the car's use will be for personal, and not driving to a and from clients or shoots.

Finally, although we've determined you wouldn't be able to expense a whole car for blogging about it, let's cover the rest of the question. First:

Assuming I am able to deduct it against this new side business, do I deduct the down payment and monthly payments?

Normal accounting principles would say that you would deduct based on amortization. That is, taking the value of the car and spreading it over the useful life of the vehicle. In businesses where the vehicle is only used for company purposes, you would set a certain amount against your revenue. This decreases your bottom line, and would be classified as a tax shield.

What happens if my income every month from the site is $400 but the car payment is $700?

Then your monthly profit is -$300 (assuming all else equal). Companies may reach negative profits by depreciation and amortization, and using them as a tax shield like I explained before is common.

Hope this helps!

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    I was thinking expensing rentals would be much more defensible. – Hart CO Jan 1 '18 at 1:45
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    @HartCO a lot more defensible... – RonJohn Jan 1 '18 at 2:13
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    Good point about the rentals for sure. So would you guys consider any part of the car business related? Again, I'm really not trying to game the system. Trying to understand it. – iq78 Jan 1 '18 at 3:18
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    Really, if it's going to be used also for personal use, I would say no. Maybe think of it like this: If you think you could clearly and reasonably explain a purchase to the IRS without cracking a smile or lying, then you can expense it. For example: say you by new wheels you like, and blog about them. Because you bought them not for the sole purpose of making money, you can't expense it. Hopefully this makes sense? It's definitely better safe than sorry when dealing with tax stuff. – Michael Hartmann Jan 1 '18 at 3:23
  • It is possible to claim a portion of car expenses as business expenses if the car is used for both business and personal use. Supposedly, however, doing so makes an audit more likely. I agree that the high price of a Tesla and the relatively low expected blog revenue makes it unlikely that the potential tax writeoff is even worth the hassle of potentially having to explain it to the IRS. – BrenBarn Jan 1 '18 at 19:42

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