No matter how we try, the dealer landscape seems to get more complex every year. 2012 is no exception, and you can throw in 2013 as well. Most of the changes will deal with taxes, with the remainder dealing with accounting issues. I try to keep dealers informed about these issues for two reasons. To help them avoid costly errors and to minimize the ever growing tax bite. And I believe we are pretty good at that.
I mentioned last month that I was disrupting the industry to some extend because the teams of industry experts I work with are able to reduce what you spend on accounting, tax and legal issues as well as operational consulting. We do this by reducing what your vendors have to charge for doing research into new issues that affect material handling dealers. For example, Steve Pierson and I have produced a webinar as part of an annual series of dealer webinars covering the following tax issues:
- Pre and post Bush tax cuts and what to do in 2012 and 2013 depending on what choices Congress decides to make.
- The 28 Tax Provisions created by the Health
- The new Tangible Asset Regulations and how they relate to
- Materials and supplies.
- Costs to acquire or produce tangible property.
- Costs to improve tangible property.
- Disposal of property.
These are all very complex issues and how they affect dealers is different from how they affect other types of distributors. Because dealers have rental assets that are depreciated any number of ways for tax purposes, how you apply the options available to you is a very complex process which needs to be taken into account for both present and future tax periods.
Many dealers will be selling rental assets in 2012 and beyond that have zero or little tax basis because Bonus Depreciation was applied in the past. As I have mentioned previously this potential tax bomb is probably one of the highest risk factors facing dealers with rental assets. Not only do you have the 2012 tax risk you have a 2013 estimated tax payment risk, and to add to this financial headache you have the potential of higher personal tax rates.
Not only do regular tax rates have the potential of increasing you have the pending new tax on investment income…..and if you have not guessed already taxable rental income and tax gains on sales of rental assets are considered investment income for tax purposes. The investment income applies to personal tax returns. If you use a flow-through entity (Sub-S or LLC) this time bomb winds up on your 1040. It does not, however, apply to C-Corps.
CEO’s and other C-level dealer executives with considerable salaries and bonuses, and who may also have considerable investment income, have some heavy thinking to do to minimize this potential unexpected tax bite. So now you can grasp the complexity of this situation. In some cases there is talk of using more C-Corps to avoid the investment income penalty and minimize the tax bracket. There is also more discussion about using Like-Kind Exchange to defer the equipment tax gains. When some dealers realize what this maze looks like and how complex it is they are going to wonder if their tax bill is being properly planned out and executed.
As far as the Health Care Law is concerned I have asked the tax, legal and health care experts to participate in a “Hot Line” and blog to address dealer specific issues regarding the implementation of these new provisions and to answer questions pertaining to the tax changes. I assure you these experts know their business and are prepared to help you make the right Health Care decisions going forward. If nothing else this “Hot Line” will be a great sounding board if you just need to get a second opinion on the Health Care or Tax Provisions of the law. The link to this “Hot Line” appears at the end of this article.
The Tangible Asset Regs is just a new way to get you to have to capitalize more in the expenses you incur to purchase, repair and maintain rental assets, shop equipment, transportation equipment and real estate. In short, it covers all your fixed assets. The goal of these Regs is to reduce deductible expenses and have a portion of expenses incurred to purchase or repair fixed assets capitalized and depreciated for tax purposes over a longer period. It is very similar to the 263a regs that apply to inventory. These new Regs as you can surmise will also increase your personal taxable or corporate taxable income. One good thing about these Tangible Asset Regs is that by increasing your tax basis they will most likely reduce investment income if in fact you cannot pass along the increased cost to customers.
The Tangible Asset Regs is a tax issue that is best complied with by the taxpayer instead of having the IRS make the adjustment for you. I can assure you the IRS calculation will not be to your liking. You can also make compliance of these regs more complicated than they really are. The trick is to create a realistic capitalization policy and enforce it. For material handling dealers with rental fleets they may need to prepare a separate capitalization policy for short and long-term rental assets.
Did I mention you have a “complex” fourth quarter and 2013 ahead of you? If you agree and believe extensive industry expertise can help you make the right decisions I suggest you contact Steve Pierson at 630 954 1400 and use the Alper Services Blog Topics on Employee Benefits (Medical Insurance) and Health Care Reform. Both of these Dealer-Success team members know your industry and are waiting to help you.
The webinar referred to earlier is available from AED. There will also be a Rental Conference in Chicago on October 11 and 12, where we will spend time on each of the subjects mentioned in this column. Need more information, you know where to find me.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. You may contact him by e-mailing firstname.lastname@example.org.