The recent tax reform legislation is the largest tax overhaul since 1986. Visit our NADA booth #553N to ask CLA professionals your tax questions. We’ll fill you in on all the ways tax reform changes things for both you and your dealership.
President Trump signed the tax reform legislation on Friday, December 22, 2017 – while there are some elements of simplification (increasing the standard deduction, removing the alternative minimum tax (AMT) for businesses, etc.), the law as passed is quite complex. It will take years for the IRS to issue rulings and interpretations and for tax court rulings to settle disputes and offer clarity.
The change most dealers are immediately curious about is the treatment of pass-through entity income (e.g., income flowing to an owner’s personal return from an S corporation or LLC). Under the new law, the top personal tax rate was reduced from 39.6 percent to 37 percent. Dealerships structured as pass-through entities are eligible for an additional 20 percent deduction against income, reducing the effective tax rate to 29.6 percent.
The following list contains common questions dealers are asking about the new law:
- Is interest still deductible?
- Was LIFO affected?
- Is the cash method now allowed for dealerships?
- Is full expensing allowed for fixed asset purchases?
- If we don’t get bonus depreciation, can we still claim Section 179 expense?
- Are entertainment expenses affected?
- Because the C corporation rate is lowered to 21 percent, should a dealership switch from an S corporation to a C corporation?
- If I plan to sell my dealership in the near future, does a C corporation now make sense more than an S corporation?
- What about state income tax?
- Is my home mortgage interest still deductible?
- Does the estate tax still exist?
- Does this mean estate tax planning is no longer needed if my estate is less than $22 million?
- If my dealership loses money, can I still claim refunds of prior year tax?
- Did Obamacare go away?
“It will take some time for the dust to settle on this law,” says Dave Wiggins, CLA dealership tax principal. “The IRS interpretations are just starting to come out and will continue for years. They will be followed up by tax court decisions.”
CLA’s dealerships professionals can work with you to assess your current structure and any future business transactions and understand the impact of the new tax law on your business and your family. Stop by our NADA booth #553N to ask your tax questions.
CLA is a professional services firm delivering integrated wealth advisory, outsourcing, audit, tax and consulting to help enhance our clients’ enterprise value and assist them in growing and managing their related personal assets — all the way from startup to succession and beyond. Our professionals are immersed in the industries they serve and have deep knowledge of their operating and regulatory environments. With more than 5,000 people, more than 100 U.S. locations, and a global affiliation, we bring a wide array of services to help clients in all markets, foreign and domestic. For more information visit CLAconnect.com. Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor.