We bought a vehicle for our business in June of 2010 for $29,000 and wrote it off on taxes. In October of 2011 we had to trade in the company vehicle due to the economy for something that was more fuel efficient we got $19,000 trade in value on the truck (the rest of the loan was rolled over to the car loan for the new vehicle) Now the person doing our taxes is trying to say that we owe $8,000 to the feds and $3,000 to state since we sold the vehicle it is considered profit. I guess I am confused how the tax could be so high. My husband and I both work regular jobs and our LLC is done on the side. Our business profited maybe 2,000 last year.

Is this correct that they can tax that high on the pickup since we did not sell it but traded it in for another work vehicle (even though they only gave us 19,000) Help please we can't afford that!!

“Is this correct that they can tax that high on the pickup since we did not sell it but traded it in for another work vehicle (even though they only gave us 19,000) “---->I guess it depends.If you do have a vehicle to trade, the trade value is deducted from your new vehicle's sale price and tax is figured on the remaining balance(including unrecaptured depreciation that you took to write it off on taxes). If you have a loan on your trade vehicle, its payoff does not affect the vehicle's trade value and tax savings, even if you owe more than the car is worth. Since a depreciated asset, your business use vehicle, is sold for more than its depreciated value, the IRS will tax that profit through a process known as sec 1245 depreciation recapture as ordinary income. One way to avoid this recapture is to trade an asset, the company vehicle, instead of selling it. If you trade and previously depreciated item for another without getting any money in the process, then you won't have to worry about depreciation recapture. This is known as a like-kind exchange. A like-kind exchange is a transaction that allows for the disposal of an asset and the acquisition of another replacement asset without generating a current tax liability from the sale of the first asset. Several requirements must be met in a like-kind exchange to ensure that tax liability is not created upon the sale of the first asset:the asset being sold “old property” must be held for investment or use in a trade or business;the asset being purchased with the proceeds “new asset” must be "like-kind" to the oldasset;the proceeds from the sale must be used to purchase the new property within 180 days of the sale of old property, although the new property must be identified within 45 days of the sale. As an example, cars are not like-kind to trucks.
Please visit the IRS Website for more information ; Like-Kind Exchanges Under IRC Code Section 1031