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December 2017
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More tax complications

You now have to prepare to implement both the PPACA and HCERA as a result of the Supreme Court decision on Obamacare. It appears that these laws require amendment or additions to the Internal Revenue Code to the extent that these changes will generate the largest set of tax changes in more than 20 years. While some of the changes have been required over the last couple of years the major changes start in 2013 unless they are repealed as a result of this November’s election.

After reviewing these new tax provisions THERE IS NO DOUBT THAT DEALERS WHO RENT EQUIPMENT WILL BE NEGATIVELY IMPACTED BY THESE CHANGES. But no matter what happens dealers need to prepare to implement these changes and at the same time get a basic understanding of how the laws will affect them and what they can do to mitigate the impact. Just so you know my Dealer-Success LLC group will be preparing documents and presentations that specifically deal with the dealer issues created by these new laws. As I mentioned to you last month I have this group of dealer/ rental tax advisors who know this area of the tax law very well because they have extensive on-going experience with dealers and rental companies, who will be able to answer your questions and provide the options available to you for a nominal cost. More on this later.

All dealers have some skin in this game, but dealers who rent equipment need to pay special attention to the new tax on investment income. The tax is a 3.8% surtax starting in 2013. Unfortunately, income from rental activities and the sale of used rental assets probably fall into this investment income category. We are talking taxable income here and not book income. During the Bonus Depreciation days this was not much of an issue but now that those days are over the opposite is true. The tax affects most joint filers with adjusted gross income of more than $250,000 ($200,000 for single filers), which is not hard to do if your company is a flow-through entity for tax purposes (Sub-S or LLC).  If you are a C-Corp you are off the hook for this tax. Bottom line, if you are in the first group you need to spend a lot more time managing your adjusted gross income and investment income. Many of you are thinking this has nothing to do with your rental business. That may be true under certain circumstances but I would bet that most lift truck dealers will fall within the IRS guidelines. There are ways to mitigate the rental results and that is something we will be working on as part of this project Dealer-Success LLC is working on.

If you do find yourself negatively impacted by the investment income tax then you may want to spend more time looking at how you accumulate your adjusted gross income, because you may have ways to minimize adjusted gross income and thus mitigate how much of the investment income you get taxed on. One example would be switching your traditional IRA into a Roth IRA because the payouts from the Roth are not taxable. We are only discussing one part of these new laws, and I have to tell you the balance of just the tax changes are very complex. I worry that health care company’s and brokers are going to have a tough time informing customers what their options are and what they suggest you do. Consequently, Dealer-Success LLC will also cover this aspect of the new laws…..working with individual dealers to help them decide what to do with their health care dollars and still be in compliance with the new laws.

As long as we are talking “taxes” or “mandates” or whatever they are, I thought I would pass along a new tool offered up by the AICPA called the Total Tax Insights calculator, a tool designed to give taxpayers a complete picture of what they pay in terms of federal, state and local taxes. The tool link is located at totaltaxinsights.org. The tool produces an estimated total tax bill with more than 20 federal, state and local levies, and contains tax information for all 50 states and 3035 counties. Enter about 30 pieces of information and you get to know how much of your total income goes to taxes. What a way to spend an evening at home!

 

Garry Bartecki is a CPA MBA with GB Financial Services LLC. You may contact him by e-mailing editorial@mhwmag.com.

 

 

 
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