Your 2018 Tax Bill

This time of year, you can count on a few things…the Superbowl countdown is on, the Rose Parade is not rained out, and YOUR TAXES will need to be filed soon. As your company prepares for its tax return, here’s a few things to keep in mind.

Federal tax rates are down! C Corporations now have a flat tax rate of 21%.  The previous rates ranged from 15% – 34%.  Individual tax rates were previously as high as 39.6%.  For 2018, the maximum rate is 32%.  There is a new Qualified Business Income Deduction which has the potential of reducing some types of income by 20%. The types of income that may be eligible for reduction include income generated by a Sole Proprietorship, S Corporations, Limited Liability Companies, and Partnerships. Rental income may also be subject to the 20% reduction. Add to this new accelerated depreciation options (see November’s Nerd News) and you can be scratching your head in frustration while preparing your return. AHH!

Changes to long-standing tax law may have less than desirable results. Net operating losses can no longer be carried back and carried forward amounts will have some additional limitations. Like-kind exchanges will no longer apply to motorcoach purchases but will still apply to real property.

This sounds complicated to most business owners; which is OK because it is! 

Are you assisted by a CPA professional, especially one that knows the transportation industry? Are you estimating your taxes along with your budgeting process? How about asset additions and the effect on taxes?

Let us at BUSBooks help you get the most benefit out of the tax law changes effecting your 2018 tax returns and your long term tax planning.

The next Nerd News will discuss helpful federal tax credits that may reduce your costs or add some more cash to your bank account.

Written by Tracy Fickett, CPA and Peter Shelbo, Veteran Bus Operator

BUSBooks is a unique CPA accounting firm dedicated to the motorcoach industry.

When Purchasing Buses, Planning is Key

There was a time when I needed to convince bus lenders that I was a worthy risk and needed to grow the fleet. During those early years the challenge was overcoming tight cash flow and a less than stellar payment history. Paying corporate income tax was not an issue as we continued to generate losses carried forward. Later the company matured and prospered, and as a result the earlier asset created tax losses disappeared. When a company and its bottom line are healthy, you will probably find yourself paying taxes.

As you may know, one way to reduce your tax liability for the short term is to take advantage of tax laws regarding asset depreciation. Bonus, Section 179 and accelerated tax depreciation allows you to expense the asset quickly, sometimes all in the first year, therefore reducing your net taxable income. This can help you if you continue to expand and really NEED the new buses. Adding buses to the fleet only to save on taxes is not always the answer. You can grow yourself to bankruptcy. As we have referred in previous blogs, planning is a key to running a successful business. So…

Why buy?

  • Long term plan >24 months out
    • Obsolescence
      • My bus is worn out
      • Maintenance costs are extreme
      • There is no curb appeal
      • Desired amenities are lacking
      • The government says I cannot run this engine anymore

An investment made to upgrade this bus is always an option. This will depend on your market. Is there a continued need for a clean, well running and updated early model bus? Will the continued use of a refurbished bus recap the investment made to upgrade it, or will it sit in your yard regardless? Perhaps it is best to trade or sell it, keeping the fleet size the same. Can you afford a new addition, or must you replace it, not having enough business for both? These are important asset decisions every bus operator must make.

  • Planned Expansion
    • Cash reserves are up
    • More loans are paid off
    • Additional payments cash flow, new credit is available
    • Company stability is achieved. The human resources are ready for growth

Your company has matured through its last expansion, and as planned, you are financially and psychologically prepared to expand. This long-term planning takes your personal life into consideration, your goals, desired life style and planned secession.

  • Short term plan 6-24 months out
    • Market changes
      • Competition is falling short
      • New competition has entered the market
      • Economic conditions

The market drives much of what a business can and cannot do. Although a business is generally unable to control market fluctuations, it must react accordingly and be prepared to expand, maintain, or retract its business model to withstand market volatility.

  • New business
    • Existing clients demand more service
    • New clients are seeking service
    • Opportunity to operate additional types of service
  • Shift in customer expectations
    • Demand for new bells and whistles
  • Previous purchases
    • Lack of support from dealer
    • Model not performing to expectations

The above are all reasons to add or replace buses. Be careful to think it through and not make a knee jerk decision. Is the new service well planned and is ready to be marketed? Do you have a marketing plan so that potential customers know you are adding the cool new stuff? The new business your sales team has generated – what are the expectations, will early model buses work or do they require new? Business that can use your older models is golden as it keeps the debt free buses running. Can you work out the issues that you are having with the problem bus, or do you need to trade it out and take the hit? Do you have the human resources to expand? Or is it best to maintain and use the opportunity to raise rates? And by all means, run budget scenarios to explore what your proposed changes to the fleet will do to your bottom line.

  • Immediate need
    • Unexpected expansion
      • Contract awarded unexpectedly
      • Competition closed its doors

Here is where a company’s planning can pay off the most, being prepared for the unexpected. Your business plan is up to date, your financial reporting is current and accurate, your loan request package is always ready to deliver. You have solid business relationships with dealers and lenders who are always ready to assist your company’s needs.

  • Tax saving
    • Tax savings should not be the only reason to purchase
    • Incorporate your purchasing plan into your tax plan

Understand the tax saving opportunities available. Seek the help of a CPA who is familiar with your industry. Plan by budgeting. Your tax liability should not be a surprise and force you to buy December leftovers. Predict a few years out what your net income, additional purchases, and tax liability is expected to be. Then monitor and adjust as the months roll on. Do not wait until year end to make your buying decision.

  • Impact of panic year end purchasing
    • Limited choices to buy
    • Inconsistencies of last-minute purchasing
      • Varied fleet make and model
      • Different power trains
      • Amenities not available
    • Limited price negotiation
    • Limited credit negotiation
    • STRESS! Avoid it through proper planning. Be prepared.

Let the experienced team at BUSBooks help you plan your future and move your company forward. 

The next Nerd News will discuss 2018 Taxes.

Written by Tracy Fickett, CPA and Peter Shelbo, Veteran Bus Operator

BUSBooks is a unique CPA accounting firm dedicated to the motorcoach industry.

Asset Depreciation – the 2018 tax year environment

 

Depreciation is something we think of at year end and the tax filing time.  And the 2018 tax year holds some new expanded opportunities to maximize use of depreciation for income tax purposes earlier in an asset’s life.  What are these changes? To understand this, let’s take a brief look at some basic depreciation concepts.

Depreciation is the allocation of an asset’s cost over its estimated useful life.  The simplest form of depreciation is straight-line depreciation.  To calculate straight-line depreciation, simply divide its cost by the estimated useful life.  For example, a $7,000 asset with an estimated life of 7 years would be depreciated at $1,000 a year.  There are also accelerated methods which provide more depreciation in earlier years than in later years of the estimated useful life. Depreciation used for tax purposes for most equipment is generally an accelerated method.

Assets purchased in 2018 are now eligible for increased amounts of accelerated tax depreciation for federal purposes.  There are two general methods accepted by the IRS. One is called Modified Accelerated Cost Recovery System with the availability of Bonus Depreciation and an other is governed by code section 179.  In addition, the IRS issues guidance on acceptable useful lives for assets depending upon what they are.  Equipment generally has a 7 year life.  Land improvements have useful lives of 15 years.  Real property has lives ranging from 27.5 years to 39 years.

For the 2018 tax year, bonus depreciation is available at a 100% rate,  meaning a qualifying asset may be written off in the year of acquisition.  Luxury automobile limitations have also increased and first year depreciation can be as high as $18,000 utilizing bonus depreciation.  A company may also “opt out” of using the bonus depreciation.  The option to “opt out” of bonus depreciation has to be chosen for each group of assets that are determined to be of the same useful life.

Also increased for the 2018 tax year is the Section 179 limit.  This limit was previously set at $500,000 maximum use as long as new asset additions did not exceed $2,000,000 for the year.  The 2018 maximum limit is now $1,000,000 as long as new asset additions do not exceed $2,500,000.  This form of immediate expensing is available to be used on most equipment and can be utilized on an individual asset or multiple assets as determined by the company.

In order to determine which depreciation method is best for your company, analysis of the company’s net income before depreciation, how long an asset is to be held, and various other factors effect which methodology is best for your company. Your state’s income taxes may or may not have similar changes.  It just depends on the tax laws in the states in which you operate. A CPA experienced within your specific industry will assist you in making the best tax planning decisions for your company.

Let us at BUSBooks help you know what your depreciation options are, when it is good to accelerate depreciation, and when it is better not to accelerate it! Together we can maximize your deductions.

The next Nerd News will discuss Equipment Purchase Planning.

Written by Tracy Fickett, CPA and Peter Shelbo, Veteran Bus Operator

BUSBooks is a unique CPA accounting firm dedicated to the motorcoach industry.