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Planning for 2013

With the election over we move towards resolution of the so-called fiscal cliff….whatever that means. All I know is, we owe a lot of money and our US balance sheet looks pretty bad. When you include the unfunded debts related to Medicare and Social Security the US total debt accounts for a big portion of GDP, a place we have never been before.

I don’t know if you remember my comments from the forum I attended in September, where two economists flatly stated that if the debt issue is not dealt with in a satisfactory manner by the end of the year any recovery in the housing and construction side of the economy will be pushed out another two years. We all know when housing comes back most other economic segments follow suit. Consequently, I hope the fix is in the works by the time you read this.

I also hope all plan on doing your homework. Should the Bush tax cuts be reversed, I believe you will find that no matter what filing category you are in you will be paying significant additional taxes. The tax rates, payroll taxes, AMT provisions, bonus depreciation and Section 179 expensing, estate gift and GST tax will all change for the benefit of the government coffers. I suggest you get your 2012 returns filed and use the 2012 results with the 2013 rates to see how you will fare for 2013. If you are not sure of your position you may want to increase withholding or add a little to that first estimated tax installment.  

There is no doubt that dealer accounting and tax planning will be more complex going into 2013. This is especially true for the flow-through entities with taxes due to increase as noted above, and the additional 3.8% tax due on investment income which will include profits from your rental business. Dealers using both short-term and long-term rentals will be affected by these new rules. Since rental activities are considered passive under current IRS rules any tax profits from rental transactions and the sale of rental equipment would be considered investment income and fall under this new 3.8% tax. That would be a nice surprise, would it not?

AED, the association I work with, and Steve Pierson, the dealer tax expert I have mentioned previously have sent suggested language to a member of the Ways and Means Committee to exempt equipment dealers from this tax treatment like they have for the real estate industry. It may be a tough sell but I will keep you informed as to the outcome.

A few comments on the status of manufacturing in the US.

I was read an article recently about US manufacturing. I thought, like a lot of other people, that US manufacturing has disappeared or is in a sharp decline. Thus, I was surprised to find out that US manufacturing production is doing fine and is the largest producer in the world putting out a fifth of the world’s production. It is manufacturing employment that is having the problem because in order for US producers to become more competitive manufacturers increased productivity to the point where manufacturing jobs decreased by 40% between 1978 to 2012.

According to government stats, production has doubled over the last 20 years. Automation and robots have been put in place to help manufacturing companies remain competitive in global markets. And, if I had to guess, more examples of this phenomenon are in the offing covering all aspects of production and administrative work.

With manufacturing companies all aspiring to improve productivity I am sure material handling dealers have assisted customers to improve their bottom line. Dealers have been doing this for many and continue to do so with lift trucks, systems and services. As customers strive to become more productive they expect their vendor partners to do the same, and I know many dealers that hit the mark.

As far as 2013 planning is concerned, there is still a lot of uncertainly out there for lift truck dealers. There is a possibility for another major recession to be in the works. If that is the case, you may want to keep your 2013 planning on the conservative side with a goal to max cash flow.

Steve Pierson and I plan to attend Pro-Mat this year and will be available to meet you in the MHW booth. If you plan on attending please stop by to say hello. The date and time we will appear will be supplied by MHW. Steve is prepared to discuss tax issues and I will provide information about a new service we have available specifically for dealers who want to increase shareholder value.  

See you at Pro-Mat.
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