The problem with driving a car below your means
If you have done some research on financial books, blogs and other sources for advice on the car you drive, the messages will be pretty much the same:
A car is the worst thing you can spend your money on.
The depreciation is enormous, there will constantly be unforeseen costs through repairs or damages, insurance is necessary, and so forth.
Often the proposed solution is to drive around in a 15 year old rust bucket in order to save the money and have more left for investing.
Financially speaking, this is solid advice for sure.
However, there comes a point when it all will make less and less sense for you:
When the car worth 3.000$ is so broken and old that you have to pay 4.000$ per year on repairs annually just to get it running.
And even with these high costs, the car still breaks down regularly causing you to miss meetings or be handicaped in your work.
And let's be honest:
It just is neither attractive nor fun to drive around in a worn down piece of junk which threatens to fall apart every minute on the highway.
If you are serious about your career or business, you will also need reliable transportation daily to be able to attend meetings, conferences and so on.
Plus a shabby car gives you a shabby appearance.
We know you shouldn’t judge people based on their appearance - but in the end we all do it.
Living below your means has certain limits.
And a huge pile of money in the bank becomes worthless if there is just nothing about life you can enjoy.
Thus we need a way to afford a decent vehicle without breaking our financial commitments or even taking on additional debt in the form of financing or leasing the car.
What you will learn in this post is very simple:
Drive a luxurious car, and don't pay for it.
Sounds crazy?
Read on.
Exponential costs of luxury vehicles
A word of warning before we move on.
Driving a beautiful car is a great feeling without a doubt.
But you should be fully aware of what will go on beneath the “financial surface”.
I personally, for example, love big Trucks and SUVs.
I love sitting high, being just bigger than other cars and that “king of the road” feeling you get when you drive around in one of those.
So my first car became a used SUV which I thought was a bargain because of the low price despite being just 2 years old.
I thought I was a smart shopper.
What I did not consider however was how much it would cost to maintain such a vehicle.
These costs remain “hidden” until it is too late.
You will only discover them, when you already have to pay them.
When I had that SUV myself in my early 20s as a student with a small side hustle, that thing was eating me alive (at least in financial terms).
Costs for fuel, maintenance and repairs suddenly triple and quadruple compared to a standard car like a sedan.
When I was meeting friends somewhere it would take them just a few dollars to get to almost any place.
Whereas I with my SUV would have to pay 30-40$ or more just for the additional fuel this thing was consuming.
But it isn't just SUVs and Trucks that have such expensive maintenance.
I know from fellow entrepreneurs who bought sports cars that the costs for tires and other regular maintenance are even much higher.
For example:
The costs for a simple oil change for a Mclaren are 8.000$ or higher, depending on your country and the hourly rate of your mechanic.
As we already highlighted in other posts about how to handle money, cars are liabilities - they will constantly take money out of your pocket.
The bigger the engine and the larger or faster the car is, the more it will destroy any financial plans for your future.
The associated costs with maintaining it rise exponentially.
Meaning a car with 2 times more horsepower will not cost 2 times more to maintain it, but 4-5 times more, etc.
Despite all the fun I had with my SUV and the wonderful feeling like riding a giant Marshmallow when driving it, I had to let it go and settled for a sedan until my assets like companies and stock portfolios did make me enough money to pay for such an additional expense.
How to drive an expensive car for free
Think you can’t afford the car of your dreams after reading the warning?
Settle down because you are about to learn one of the best financial tricks ever created in our financial system.
It is a secret how to get an expensive luxury car for basically no money, used by accountants and self-employed people worldwide.
A car will always produce a huge load of expenses and bills to pay.
The ideal financial plan is to not even notice the bills for a car.
You want to have it paid, the tank filled up, and have it maintained all without thinking about it - and much less actively paying for it.
That is admittedly a very ambitious plan.
How should you ever buy a luxury car with a 6-figure price tag and fuel costs as high as other people´s monthly salary all without not noticing its bills?
At first this sounds like total nonsense.
But I heard that there is a way to do this from fellow entrepreneurs.
And that was when my investigation began.
To make it short for you:
There is a way to buy luxury cars cheap, and have them paid fully by the government.
Yes, the government.
And this works in just any country in the world where there are corporate entities - meaning everywhere.
Just too few people know about this trick.
To learn more about getting a luxury car for cheap we have to dive into the topic of taxes and how corporate entities or persons get taxed at all.
In every country in the world the law has a totally different tax treatment for either private persons or corporate entities.
But what they all have in common is that taxes on labor, meaning the “normal” income taxes every working person has to pay are the highest tax rates that exist.
Meaning the average worker will always pay a larger share of their income to the state than a corporate entity.
Why should anybody be so unfair as to let a multi-million dollar corporation pay little or almost no taxes, while the average worker often pays 30%, 40% or even 50% depending on the country the person lives in and the income they have?
The answer is because our governments' financing and tax system rely on the working class and the masses as their tax cows.
Corporations get to enjoy far less taxes, because their presence creates jobs.
Jobs in turn fuel the local economy, and furthermore they attract - drumroll, please - working people who pay taxes on a monthly basis!
How clever.
The system is designed in a way that the masses have to pay the largest amount of all taxes, by far.
Corporations not only pay less percentages in taxes, they also can make use of a huge selection of different methods to lower their tax burdens. Ways to lower your taxes are exclusive for corporate entities and alike and unfortunately restricted to the masses of working people in their jobs.
I can’t tell you exactly why it works this way or who came up with it in all countries of the modern world, I just learned to accept it and try to use the system for myself as best as possible.
We can't change how the game is played, but we can learn how to play better.
And this is precisely what we will do.
I think one reason is that politicians usually either own corporations themselves, or come from wealthy backgrounds where their relatives have corporations, or maybe also because they know after their mandate they hope to get a job as director or consultant for big money in any corporation.
The masses of working people do not have this kind of representation and connection to where the laws get made since they can't offer high-paying positions in exchange for favors like corporations do.
And so they end up always being the other party who gets the bill in the end.
But what has this to do with your dream car?
Use taxation laws to your advantage
Political discussions aside.
What is important to know for you is this:
A worker earns his money, gets taxed immediately and has to spend only what is left.
A company earns its money, then spends all it wants or has to and gets taxed AFTERWARD on what is left.
What does that mean when you buy a car as a private person?
All the bills surrounding the car will have to be paid with your after tax dollars.
That means every dime you spend on a luxury car will be missing on other ends in your personal finances.
The financial result of what you are left with at the end of the month will be directly affected by the decision to drive a more expensive, luxury car.
The money will be lacking in other places like your retirement account, your investments, or your kid’s college fees.
What does that mean when a company buys a car?
The business owner who drives around in his luxury Mercedes S500, who do you think pays the fuel, the repairs, the insurance?
Do you think the business owner's finances will be affected in the same way as the finances of a working person?
You probably guessed it already.
Right, the business or even the tax department does pay for all the costs surrounding the luxury car and the car itself.
The car and all associated costs can be declared as a business expense.
Why is it so beneficial for companies to buy vehicles?
The business can spend money on its vehicles as part of the inventory.
Vehicles are often necessary tools in delivering goods or services. Tax laws however do not regulate which company can write vehicles off, meaning any corporate entity can enjoy this benefit.
You don’t need a corporation with dozens of employees or a factory to do this.
Just any self-employed person such as a freelancer can make use of this, and declare their car as business inventory.
Business inventory gets deducted from the tax burden before the taxes are due.
That means for you, if you ever had a dream car that you wanted but you had no idea how to afford it - Find a way to start a business now!
Creating a business from your existing job
But what if business has never been for you?
You don’t even have to quit your job right away.
This move also works when you keep your day job and start a side hustle for example.
But what if you just really don’t feel like a business person and have no idea what you should offer?
If you have a job - you can also have a business.
Put simply, you are already selling your time to a company in exchange for a certain amount of money.
The company is already buying your work and expertise from you.
Some people now offer their employers to sell their services to the company instead of being employed. How this works is actually very simple:
As an employee, you basically exchange your 8 hours a day for a fixed salary every month. The company does not only have to pay your salary, but also insurances, non-wage labor costs and additional taxes, depending on the country.
This makes employment actually very expensive for the company.
Thus many companies will be happy to employ you in a different form - as an external service provider. A corporate entity.
This means you can still do the same job you did before, the only difference is that you are not hired to do it.
Instead you bill the company your services.
Often you will even get a much better rate for the same job than your salary - because all the non-wage labor costs, insurances and so on now have to be paid by your business.
Keep an eye on these costs however and take them into account for your bottom line.
Overall you should end up better than with a salary, because you now have lots of methods at your disposal for reducing your tax bill.
One of them is to declare your car a business expense.
Now the car in your driveway doesn't have to be paid by after-tax dollars, but can be deducted and you pay taxes on what is left after all costs for the inventory (your car) are paid off.
Result:
The government will pay for your car.
Cars as business expense
As soon as you have enough revenue to safely pay for all expenses and even your own salary, your business can then buy the car and pay for it including all further expenses and simply write it off your tax bill.
Not only the sticker price will reduce your tax payments, also the tires, insurance, car washes and everything associated with the car.
Any business will require its owner to be mobile - to visit clients, attend meetings, networking, whatever.
Thus a car is from the tax departments´ view a legitimate business expense. After all, you have to get places somehow.
Sure you could also deduct your train or airline tickets as well, but for this article we want to focus on cars
You can deduct the car including all its costs like fuel, tires, financing, interest payments, repair work and everything else from your pre-tax dollars.
By purchasing a car via your business you therefore lower your tax burden.
The bigger and more luxurious the car is, the more you will save on taxes.
From your net, after-tax dollars you pay ZERO for that car.
How about having the cars you always wanted in your driveway, forever with all fuel and other expenses paid for you?
Legally speaking, before you have done your tax declaration at the end of the year, all the money that would potentially be taxed doesn't belong to you.
You might have earned it, you might have started the business, but rightfully the money in this bank account is not yet yours.
It belongs to the government.
If you would not pay it to them, you could even go to jail.
And since you will deduct your car including all its associated costs from exactly this taxable money - you will pay for the luxury car with money that actually belongs to the government.
Please read that last sentence again.
Result: the government is paying for your car.
Buying or leasing your dream car?
We now understand that a car has to be a business expense and not paid from your after-tax dollars.
Next you have to decide what the best way of purchasing the car is.
There are differences in every country how exactly you can use the car as a legitimate business expense.
Some will have more benefits than others.
For this reason I would urge you to search for a skilled accountant and discuss your situation individually.
Generally when you purchase a vehicle, buying it with cash is always cheaper than leasing it.
Leasing or other forms of financing have additional costs included in the contract such as fees and interest payments.
Meaning if you finance a car with a sticker price of 40.000$, you will end up paying 50.000$ or more.
Leasing is a great business for the bank as well as for the dealership who can then take your car in afterwards and again sell it to the next person, possibly financing again.
If 2 of 3 parties make great money in the transaction, you can already guess who is paying for the party - you, the customer.
Financing the car with whatever method you use will thus always result in a much higher price you pay at the end.
As a private person buying the car with cash is therefore always the better idea.
How to pay a car with tax-dollars
We are now purchasing the car as our business inventory, and the rules are somewhat different here.
Buying the car with cash from your business will result in less tax advantages for you.
In my country for example, cars have to be deducted for 8 years no matter what.
This means your tax reduction will be spread over 8 years, while the bill has to be paid right away and it reduces your current cash flow.
As a corporate entity, other rules apply now for you and your inventory.
Despite additional costs, leasing is in such a case often the better solution.
But leasing contracts also come in different formats.
As a business owner buying a car, the most beneficial form for you will be operative leasing.
Operative leasing means that you basically “rent” inventory, or in our case the car.
As a form of rent, you can now deduct the entire amount of the leasing directly from your tax bill.
All associated costs for the car such as insurance or tires will be separately deducted as well.
With this form of financing the all round price of the car might be more due to the additional costs for the financing.
However, since we can now fully deduct all costs from our tax bills, we still end up paying ultimately less for the car than with any other form purchasing the car.
Operative leasing or other forms of financing where you rent the vehicle instead of owning it will therefore be the cheapest form for you to get your dream car in your driveway for basically nothing.
Tax Code Section 179
For readers in the US, there is an even better way to get a luxury vehicle and pay basically nothing for it.
There is a section in the internal revenue code that was initiated by George Bush and the lobby of oil companies within the US government.
It was their goal to get as many people as possible to drive large, gas-guzzling vehicles to keep the demand for oil growing year after year.
This was how Section 179 came into the US Tax code.
Explained shortly, Section 179 helps small business owners to make immediate expense deductions on their inventory.
Officially it should help small business owners to purchase new equipment.
As we have already stated, cars are also business equipment.
There are now certain rules to follow, like the maximum amount of more than 1 million US dollars that have to be taken into account (enough to buy almost any car) or the minimum weight class that the car has to be in.
In other words, this makes buying big, expensive cars easier and cheaper.
All you have to do is to explain clearly that your vehicle is mainly used for business purposes.
An example how this works:
You are a small business owner such as a Freelancer and have 200.000$ profit at the end of the year.
As Freelancer, you hardly have anything to deduct because you work from a laptop.
There is no machinery, no factory, no special equipment.
All you have to reduce the tax bill now is the laptop (800$) and your phone bill (400$ for the entire year).
That leaves you with more than 198.000$ taxable income - way too much!
So you now make clever use of Section 179 and buy a brand new vehicle at the end of the year for 160.000$.
Now your taxable income is only 38.000$!
This is an incredibly powerful way to pay almost no taxes and drive a luxury vehicle instead!
What vehicles qualify for Section 179?
As stated previously one of the main rules for section 179 deductions are the weight class of the vehicle.
This makes it particularly useful for SUVs and Trucks.
Here are a few examples what kind of car you can deduct from your taxes under section 179:
Mercedes Benz G-Wagon
Mercedes Benz GLS
BMW X5
BMW X6
BMW X7
Cadillac Escalade
Chevrolet Suburban
Ford F250 Super Duty
Ford F150 Raptor
GMC Sierra 2500 HD
Toyota Sequoia
Toyota Land Cruiser
Nissan Titan XD
Range Rover P525
Tesla Model X
Infiniti QX56
Lexus GX
… and many more!
Basically if you like big vehicles, section 179 deduction is just right for you.
Sports cars or luxury sedans will be difficult to write off in this manner - but if you like such vehicles, there is still the method of operative leasing for business owners we described previously.
Use the system and drive the car of your dreams
The only thing you will have to watch out for is that the business of yours has to have some operating revenues at a certain level.
That means if you bake cookies on the side and make about 300$ per month, that will not be enough to pay for your new BMW.
But if on the other hand you are selling construction equipment and have revenues of 800.000$ per year with decent margin and cash flow, then you can already go to the next car dealership and look at the types of cars you would like to buy.
You don’t need to create the next Apple or any multi-billion enterprise for this strategy by the way.
It is enough to have a side hustle making around 100.000$ per year, and you will easily be able to afford most cars on the market.
You can also keep working in your day job, enjoy all the benefits provided there for you and have a safe and steady income, while working your side hustle on weekends and nights.
The side hustle pays for the car, while the income from the job provides steady income for all other expenses like shopping, mortgages and family vacations.
Depending on where you live and how your local tax department sets the rules, you can also add other things to the list you want to deduct from your taxes. But please first understand for yourself how far you can go in this regard and always stay within the legal rules of this system.
It can vary vastly from one country to the other, so find the rules in your country for yourself and see what kind of expenses of your private life will be financed with government money in the future.
But where is the catch?
The catch is pretty simple.
As a worker of a 9 to 5 job, you are not able to make use of any of such tax advantages.
You need another form of income, like rental income from real estate or income from a business. You could even use dividend income or other forms of capital gains, as long as it is received through a corporate entity.
The only important thing to note is that such benefits are blocked for “normal” people working their 9 to 5 jobs.
That means you can drive the car of your dreams and pay basically nothing for it. So go out and enjoy the ride you always wanted paid with your taxes.