NATDA Magazine May/Jun 2018 May/June 2018 - Page 24

Trailer Dealerships and the New Tax Reform Act Written by : David J . Wiggins , CPA | CliftonLarsonAllen

The recent tax legislation enacted is the largest tax

overhaul since 1986 . While there are some elements of simplification ( increasing the standard deduction , removing Alternative Minimum Tax for businesses , etc .), the law as passed is quite complex . It will take years for the IRS to issue rulings and interpretations of the law , and then more years for tax court rulings to settle disputes and offer clarity .
Of great importance to trailer dealers is the treatment of pass through entity income ( typically income flowing to an owner ’ s personal return through an S Corporation or LLC ). Such income did receive tax relief , although the amazingly complex methods contained in the law to determine the level of tax will cause the dealer ’ s effective tax rate to constantly change from year to year .
Thanks to lobbying efforts , some late amendments and changes saved some items very important to dealerships , including preserving LIFO and deductions for floor plan interest . Unfortunately , the floor plan interest exclusion may have been overlooked regarding trailer dealerships . We are talking with the IRS to see if such dealers can be added in future regulation . The following is a summary of many of the questions dealers are asking as well as some detail on other noteworthy provisions :
Is interest still deductible ? For businesses with less than $ 25 million in sales , interest will continue to be deductible in full . For businesses with over $ 25 million in sales non-floor plan interest is limited to 30 % of net income before interest , taxes and depreciation . Floor plan interest is deductible in full for many dealerships . Unfortunately , trailer dealerships were not included in the floor plan exclusion . At this time , we do not know if this exclusion may be broadened to include “ trailer ” dealers .
Interest ( other than floor plan ) exceeding the limitation amount can be carried forward to future years . If elected by the taxpayer , the limitation would not apply to interest incurred in real property development or rental real estate operations . Loss of the floor plan expense carve out for “ trailer dealers ” could be expensive . Keep in mind , floor plan interest for tax purposes might not be netted with floor plan assistance received from the factory ( depending on each manufacturer ’ s reimbursement program ). If floor plan interest is limited , it is possible a dealership could break even or lose money for the year yet still owe significant tax .
As the analysis of the law unfolds , it is likely your existing debt situations will need to be reviewed to ensure the structure still makes sense .
Was LIFO affected ? Although discussed at various times in the process , LIFO remains with no changes from the current law . As such , it is a viable tax savings strategy . Since tax rates will likely be reduced for both C corporations and S corporations , dealerships on LIFO prior to 2018 will likely not only get deferral benefits from LIFO but permanent tax savings due the rate changes ( based on the expected tax rates ). Since the Alternative Minimum Tax has been eliminated for C corporations , this will also ensure that dealers on LIFO realize the full benefits of the related deductions .
Is the Cash Method now allowed for dealerships ? The new law allows for businesses with less than $ 25 million in gross receipts to adopt the Cash Method . For many trailer dealerships , this may be helpful . The gross receipt test will be applied on a combined basis for similarly owned businesses . A dealership meeting the gross receipt test then will be eligible to adopt the cash method . A dealership ’ s specific situation will need to be reviewed to determine if the cash method would be of benefit . It should be noted that for dealerships with significant inventories that the cash method does not mean that inventories will be expensed when purchased .
Is full expensing allowed for all fixed asset purchases ? Yes , 100 % bonus depreciation has been reinstated for all purchases made after 9 / 27 / 17 . Thus , new and used equipment purchases can be completely written off in the year of purchase .
24 NATDA Magazine www . natda . org
Trailer Dealerships and the New Tax Reform Act Written by: David J. Wiggins, CPA | CliftonLarsonAllen T he recent tax legislation enacted is the largest tax overhaul since 1986. While there are some elements of simplification (increasing the standard deduction, removing Alternative Minimum Tax for businesses, etc.), the law as passed is quite complex. It will take years for the IRS to issue rulings and interpretations of the law, and then more years for tax court rulings to settle disputes and offer clarity. of the floor plan expense carve out for “trailer dealers” could be expensive. Keep in mind, floor plan interest for tax purposes might not be netted with floor plan assistance received from the factory (depending on each manufacturer’s reimbursement program). If floor plan interest is limited, it is possible a dealership could break even or lose money for the year yet still owe significant tax. Of great importance to trailer dealers is the treatment of pass through entity income (typically income flowing to an owner’s personal return through an S Corporation or LLC). Such income did receive tax relief, although the amazingly complex methods contained in the law to determine the level of tax will cause the dealer’s effective tax rate to constantly change from year to year. As the analysis of the law unfolds, it is likely your existing debt situations will need to be reviewed to ensure the structure still makes sense. Thanks to lobbying efforts, some late amendments and changes saved some items very important to dealerships, including preserving LIFO and deductions for floor plan interest. Unfortunately, the floor plan interest exclusion may have been overlooked regarding trailer dealerships. We are talking with the IRS to see if such dealers can be added in future regulation. The following is a summary of many of the questions dealers are asking as well as some detail on other noteworthy provisions: Was LIFO affected? Although discussed at various times in the process, LIFO remains with no changes from the current law. As such, it is a viable tax savings strategy. Since tax rates will likely be reduced for both C corporations and S corporations, dealerships on LIFO prior to 2018 will likely not only get deferral benefits from LIFO but permanent tax savings due the rate changes (based on the expected tax rates). Since the Alternative Minimum Tax has been eliminated for C corporations, this will also ensure that dealers on LIFO realize the full benefits of the related deductions. Is interest still deductible? For businesses with less than $25 million in sales, interest will continue to be deductible in full. For businesses with over $25 million in sales non-floor plan interest is limited to 30% of net income before interest, taxes and depreciation. Floor plan interest is deductible in full for many dealerships. Unfortunately, trailer dealerships were not included in the floor plan exclusion. At this time, we do not know if this exclusion may be broadened to include “trailer” dealers. Is the Cash Method now allowed for dealerships? The new law allows for businesses with less than $25 million in gross receipts to adopt the Cash Method. For many trailer dealerships, this may be helpful. The gross receipt test will be applied on a combined basis for similarly owned businesses. A dealership meeting the gross receipt test then will be eligible to adopt the cash method. A dealership’s specific situation will need to be reviewed to determine if the cash method would be of benefit. It should be noted that for dealerships with significant inventories that the cash method does ЁѡЁٕѽɥ)ݥ͕ݡɍ͕)%ѕɕЀѡȁѡȁፕѡхѥչ)ɥ݅ɐѼɔ啅̸%ѕѡ)хȰѡхѥݽձЁѼѕɕЁɕ)ɕɽ䁑ٕЁȁɕхɕхєɅѥ̸1́%́ձͥݕȁᕐ͕Ёɍ͕)ḛ́ɕѥ́ɕхѕȁ)ɍ͕́ѕȀܼܸQ̰܁͕ե)ɍ͕́ѕɥѕѡ啅ȁɍ͔()9Q5饹%ܹёɜ