The ad certainly draws attention. Buy a trailer and put it into operation before the end of the year and write off the whole cost on your 2017 taxes. It sounds too good to be true, but the fact is, it is, at least for some fleets. But there are many fleets than can benefit from this tax break the ad highlighted.
As 2017 winds down, many carriers are taking a hard look at their tax situation. Is there anything they can do now that can reduce their tax liability? There is, in fact, and it goes back to that trailer ad. For those fleets that have had a good year and have some extra cash on hand, there is an opportunity to acquire some new or used equipment and receive some tax benefits for doing so.
“You don’t buy equipment for equipment’s sake, but if you were going to buy equipment early in 2018, you may want to consider accelerating that,” explains Mark Flinchum, partner in the Business Advisory Group and member of the Transportation Service Group at tax specialists Katz, Sapper & Miller.
Flinchum notes that the government is still offering several tax programs of which fleets can take advantage before the end of the year.
The first is Section 179 of the IRS tax code, which allows a business to expense acquired assets as long as they don’t exceed $2,030,000 in the calendar year. Up to that amount, the business can expense $510,000. For larger fleets purchasing dozens of power units, chances are they have already reached this level, but for smaller fleets or owner-operators that have been looking at a new truck or trailer, this could be a tax boon if done before the end of the year.
The best part, Flinchum says, is that Section 179 can be applied to used equipment, but it can only be taken if you have taxable income and it can’t exceed the taxable income. For instance, if the carrier’s taxable income was $100,000 in 2017 and it acquired $300,000 worth of equipment, it can only expense $100,000.
“If you are a small carrier and don’t exceed $2 million and buy a trailer, you can write off the whole amount,” Flinchum explains.
The second tax break that is available to all carriers, regardless of size, revenue or how much equipment has been purchased so far in 2017, is bonus depreciation. Flinchum says this amounts to a 50%-plus depreciation plus a three-year acceleration of depreciation, amounting to a two-thirds write-off. This will be phased out, beginning in 2018, Flinchum says.
For smaller fleets that may not have the cash on hand to acquire equipment, Flinchum says it’s not necessary to pay for the entire asset now, but it must be in service before the end of the year. Fleets and owner-operators can turn to companies such as Triumph Business Capital that specialize in providing working capital for trucking industry participants.
With used truck prices falling recently, even carriers that don’t buy new could potentially take advantage.
Carriers may also want to consider pushing some income into 2018.
“Typically, tax planning is to defer income to the next year, maybe even more so this year as the tax rates may be lower next year,” he advises.
While the fate of the Republican tax plan is uncertain, Flinchum says rates are unlikely to go up in the near future, so moving some income into next year, if possible, will only be a benefit.
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