The “Tax Savings” Truck: What is really costs you
- Megan Rueckert
- Jan 27
- 5 min read
For as long as I have worked with small business owners, there has been one very popular year-end tax strategy.
“Just buy a new truck.”
But this has always sat wrong with me for a few reasons.
The business didn’t usually need a new truck.
The business didn’t have cash to buy the new truck so a loan was taken out to pay for it. Current interest rates are not cheap so this is a lot of interest to pay over 5-7 years. Not to mention that cash outflow over the next few years to make the payments.
There are times when showing a profit in the business is actually a good thing, it shows you are winning. For example if the business owner is trying to sell the business or take out a personal mortgage showing that the business is profitable is a good thing.
So between the debt, the cash flow strain, and the optics of profitability, the math has never quite mathed for me.
After talking with my strategic tax partner, I decided to run the numbers. Starlee Galbraith is the owner of Peak Tax Consulting and specializes in proactive tax planning for small business owners. She will be helping us break down the actual tax impact so we can look at this from both the accounting and tax side.
For proactive, strategic tax planning that actually supports your business goals, you can learn more about Starlee and Peak Tax Consulting here: https://www.peaktaxconsulting.com/
Now that we have the right people at the table, let’s run the numbers and see how this really shakes out.
The Assumptions
For this example, we are assuming:
The owner buys a truck for $80,000 in December
The truck is financed with a 5 year loan at 7%
The owner is married filing jointly
The owner is in the highest marginal tax bracket
The business is an S Corp, so income passes through to the owner
The truck is fully expensed using Bonus Depreciation or Section 179 Expense
What the Truck Really Costs
An $80,000 truck financed over 5 years at 7% looks like this:
Monthly payment: $1,575
Total interest paid: about $15,000
Total cost over 5 years: about $95,000
So before we even talk about taxes, let’s be honest. This is not an $80,000 truck, this is a $95,000 truck. I’ve included the loan amortization table below to show exactly how this breaks down.
A loan amortization schedule shows you how much of each payment goes to principal and how much goes to interest, as well as the total interest paid over the life of the loan. Any time you finance equipment, vehicles, or buildings, you should ask to see this schedule so you understand the true cost of what you are buying.
Period | Principle | Interest | Total Payment | Cumulative Interest |
1 | $1,108.24 | $466.67 | $1,574.91 | $466.67 |
2 | $1,114.76 | $460.15 | $1,574.91 | $926.81 |
3 | $1,121.32 | $453.59 | $1,574.91 | $1,380.41 |
4 | $1,127.91 | $447.00 | $1,574.91 | $1,827.40 |
5 | $1,134.54 | $440.36 | $1,574.91 | $2,267.77 |
6 | $1,141.22 | $433.69 | $1,574.91 | $2,701.46 |
7 | $1,147.93 | $426.98 | $1,574.91 | $3,128.44 |
8 | $1,154.68 | $420.23 | $1,574.91 | $3,548.67 |
9 | $1,161.47 | $413.44 | $1,574.91 | $3,962.12 |
10 | $1,168.29 | $406.61 | $1,574.91 | $4,368.73 |
11 | $1,175.16 | $399.75 | $1,574.91 | $4,768.48 |
12 | $1,182.07 | $392.84 | $1,574.91 | $5,161.31 |
13 | $1,189.02 | $385.89 | $1,574.91 | $5,547.20 |
14 | $1,196.01 | $378.90 | $1,574.91 | $5,926.10 |
15 | $1,203.04 | $371.87 | $1,574.91 | $6,297.97 |
16 | $1,210.11 | $364.80 | $1,574.91 | $6,662.76 |
17 | $1,217.23 | $357.68 | $1,574.91 | $7,020.45 |
18 | $1,224.38 | $350.53 | $1,574.91 | $7,370.98 |
19 | $1,231.57 | $343.33 | $1,574.91 | $7,714.31 |
20 | $1,238.81 | $336.10 | $1,574.91 | $8,050.41 |
21 | $1,246.09 | $328.82 | $1,574.91 | $8,379.22 |
22 | $1,253.42 | $321.49 | $1,574.91 | $8,700.72 |
23 | $1,260.78 | $314.13 | $1,574.91 | $9,014.85 |
24 | $1,268.19 | $306.72 | $1,574.91 | $9,321.57 |
25 | $1,275.64 | $299.27 | $1,574.91 | $9,620.84 |
26 | $1,283.13 | $291.77 | $1,574.91 | $9,912.61 |
27 | $1,290.67 | $284.24 | $1,574.91 | $10,196.85 |
28 | $1,298.26 | $276.65 | $1,574.91 | $10,473.50 |
29 | $1,305.88 | $269.03 | $1,574.91 | $10,742.52 |
30 | $1,313.55 | $261.36 | $1,574.91 | $11,003.88 |
31 | $1,321.27 | $253.64 | $1,574.91 | $11,257.52 |
32 | $1,329.03 | $245.88 | $1,574.91 | $11,503.40 |
33 | $1,336.84 | $238.07 | $1,574.91 | $11,741.47 |
34 | $1,344.69 | $230.22 | $1,574.91 | $11,971.69 |
35 | $1,352.59 | $222.32 | $1,574.91 | $12,194.01 |
36 | $1,360.53 | $214.38 | $1,574.91 | $12,408.39 |
37 | $1,368.52 | $206.39 | $1,574.91 | $12,614.78 |
38 | $1,376.56 | $198.35 | $1,574.91 | $12,813.13 |
39 | $1,384.64 | $190.27 | $1,574.91 | $13,003.40 |
40 | $1,392.77 | $182.14 | $1,574.91 | $13,185.54 |
41 | $1,400.95 | $173.96 | $1,574.91 | $13,359.50 |
42 | $1,409.17 | $165.73 | $1,574.91 | $13,525.23 |
43 | $1,417.45 | $157.46 | $1,574.91 | $13,682.69 |
44 | $1,425.77 | $149.14 | $1,574.91 | $13,831.83 |
45 | $1,434.14 | $140.77 | $1,574.91 | $13,972.60 |
46 | $1,442.56 | $132.35 | $1,574.91 | $14,104.95 |
47 | $1,451.03 | $123.88 | $1,574.91 | $14,228.83 |
48 | $1,459.55 | $115.36 | $1,574.91 | $14,344.19 |
49 | $1,468.11 | $106.79 | $1,574.91 | $14,450.98 |
50 | $1,476.73 | $98.18 | $1,574.91 | $14,549.16 |
51 | $1,485.40 | $89.51 | $1,574.91 | $14,638.67 |
52 | $1,494.12 | $80.79 | $1,574.91 | $14,719.46 |
53 | $1,502.89 | $72.02 | $1,574.91 | $14,791.48 |
54 | $1,511.71 | $63.20 | $1,574.91 | $14,854.68 |
55 | $1,520.58 | $54.33 | $1,574.91 | $14,909.01 |
56 | $1,529.50 | $45.41 | $1,574.91 | $14,954.41 |
57 | $1,538.48 | $36.43 | $1,574.91 | $14,990.84 |
58 | $1,547.51 | $27.40 | $1,574.91 | $15,018.25 |
59 | $1,556.59 | $18.32 | $1,574.91 | $15,036.57 |
60 | $1,565.72 | $9.19 | $1,574.91 | $15,045.75 |
What You Actually “Save” in Taxes
This is where Starlee’s expertise comes in.
A business deduction is not a dollar-for-dollar tax savings, so let’s run the actual math.
We’ve already established that the true cash cost of the truck is approximately $95,000 once interest is included.
Federal Tax Impact
In year one, the business can deduct the full $80,000 purchase price using Section 179 or bonus depreciation under current tax rules.
Because the owner is in the 37% marginal federal tax bracket, every $1 of deductible expense reduces federal tax by $0.37.
Year-one tax savings: $80,000 × 37% = $29,600
In addition, the interest paid on the loan is deductible over the life of the loan. Assuming approximately $15,000 of total interest, that creates additional federal tax savings in years two-five:
Years two-five savings: $15,000 × 37% = $5,550
Total estimated federal tax savings over 5 years: $29,600 + $5,550 = $35,150
State Tax Impact
If the business operates in a state with an average income tax rate of approximately 5%, the combined deductions (depreciation plus interest) could generate roughly:
State Tax Savings in Years one-five: $95,000 × 5% = $4,750**This will vary by state, but this is a reasonable average of the states. Some don’t have tax and others are up to 13%.
The Part Almost Everyone Ignores
Unless the truck is driven until it is completely worthless, it will likely be sold or traded in at some point.
Because depreciation was taken on the full purchase price, any amount received on sale is generally taxable due to depreciation recapture.
In other words, part of the tax savings may simply be deferred, not eliminated.
So… Was This Really the Best Use of Cash?
Lowering taxes at any cost is not always the best strategy. Smart tax planning supports the business. It doesn’t just reduce the tax bill.
The Hard Truth About your "Tax Savings"
You spent $95,000.To save $39,900 in taxes (Federal & State).
Yes, you get a truck. But unless you had enough liquidity to pay cash, you also committed your business to five years of fixed monthly payments.
That means you have less flexibility, more pressure on cash flow, more risk during slower months, and higher fixed costs across the board.
Sometimes buying equipment is absolutely the right move. When you need it. When it improves efficiency. When it supports growth.
But buying a truck just to “save on taxes” is rarely the win people think it is.
The Takeaway
If your year-end tax plan is “buy something expensive so I owe less,” it is time for a better plan.
The goal is not just to pay less tax. The goal is to build a profitable, healthy business that supports your life while being tax efficient.
And that starts with understanding the numbers, not reacting to them.
If you need help understanding your numbers, I would love to help.
And if you need a strategic tax partner who plans instead of panics, Starlee at Peak Tax Consulting is an incredible resource.
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