Impact of 2017 Tax Reform on Section 179 Accelerated Depreciation
Dec 22, 2017
With the 2017 tax bill now approved by Congress, we have clarity on how investing in capital goods will be handled and the 2018 impact on Section 179 and Bonus Depreciation for convenience stores and commercial fueling.
Section 179 and Bonus Depreciation originated during the economic crisis as an incentive for businesses to invest in equipment by allowing depreciation to be captured in the year of purchase, rather than over the useful life of the equipment. With the 2017 tax reform bill, these incentives have been expanded. In combination with lower tax rates for many businesses, the environment for investing in your business may make adding new equipment a wise decision for 2018.
Section 179 changes for 2018
In the 2018 tax year, a permanent increase in the annual deduction from $500,000 to $1,000,000 takes effect. Section 179 covers both new and used equipment, including most fueling and convenience store equipment used in retail and commercial fueling operations. Section 179 eligible equipment has been expanded to include improvements to nonresidential property (HVAC, roofs, etc). Additionally, the maximum eligible amount of $1 Million will increase based on an inflation index starting in 2019.
Tax Reform Act Changes to Bonus Depreciation in 2018
The most significant changes are the removal of the previous $2,000,000 cap and the 50% deduction allowance. With the new tax bill, most equipment placed into service after Sept. 27, 2017 can qualify for 100% deduction under this tax treatment, potentially providing cash flow benefits and other advantages for convenience store operators. Additionally, bonus depreciation may now be claimed for used equipment. The provisions are in full effect (100% deduction) through December 31, 2022 and are scheduled to phase out through December 31, 2026.
Combining these income tax benefits with today’s low-interest rate environment may make 2018 a good time to invest in upgrading your site for EMV payment at the pump, underground storage tank (UST) improvements or adding DEF or other alternative fuels including E-85 to your site.
Please consult your tax professional for advice related to your specific situation.
Please contact your local Patriot Capital financing manager for information regarding financing gas pumps, fuel storage tanks, QSR (quick serve restaurant) or other convenience store equipment.
How will Section 179 be impacted by the 2017 Trump Tax Plan?
There is a risk that changes to the tax act will result in gas pumps, underground tanks, LED’s and other convenience store equipment costing retailers significantly more. If the Trump Tax Plan becomes law in 2017, Section 179 benefits may be significantly changed.
Section 179 is a popular tax incentive designed to encourage small businesses to purchase capital equipment. The incentive allows businesses to take depreciation tax deductions that would normally be taken over 5, 7 or 10 years in the first year. This can result in significant cash flow benefits for convenience store operators. For example, on a $100,000 equipment purchase, a gas station operator in a 35% tax bracket could capture $35,000 in first-year tax savings rather than the traditional $5,000 tax benefit.
Current Status of Section 179
Section 179 is now a ‘permanent’ part of the tax code. This means that when Section 179 was made a part of the tax code it was not subject to annual renewal, allowing businesses to plan their capital expenditures with certainty related to the tax benefits.
Options That Could Impact Section 179
There are two trains of thought on how the Trump Tax Plan will deal with Section 179. The Trump plan has been silent on how depreciation will be handled. Bonus depreciation will be caught in a tug of war between for the desire for economic stimulus and the desire to reduce the budget deficit. These goals are in conflict, as the more accelerated depreciation is used the greater the short-term impact on tax revenue and therefore the deficit.
The Ryan Plan suggests that capital investment be fully deductible in the year of purchase. If the Trump Plan ends up going along with this approach, the $500,000 annual Section 179 cap could be removed, increased to $1 Million as Trump proposed on the campaign trail, or have no cap.
**This article is not intended to provide tax or legal advice, please consult your tax and legal professional advisors for advice regarding your particular situation.
How Section 179 Can Help Your Cash Flow - Plan Now
The following is an excerpt from a story that originally appeared in CSP Online. For the full story, please click here.
Fuel retailers, jobbers, and c-stores need to consider taking action now in order take advantage of potentially significant tax savings in the 2016 tax year. Capturing these tax savings will impact cash flow in 2017, providing funds that can be invested to help grow your convenience store business. Utilizing these tax strategies can pull cash into your business that would otherwise be unavailable for 5 to 7 years. This article covers the following tax saving strategies for convenience store owners and gas station operators:
- How does 179 work?
- What is bonus depreciation?
- What fueling equipment and c-store equipment qualifies for Section 179?
There are myriad variables in any financial situation. Patriot Capital does not provide tax, legal or accounting advice. It is recommended that businesses consult with their tax professional to ensure that they are maximizing the available tax benefits from Section 179, Bonus Depreciation and the Alternative Fuel Infrastructure Credit.
Additional information about Section 179 may be found in this IRS publication.
How Can The Tax Incentives Behind Section 179 Work in Conjunction with Gas Pump Leasing & Financing to Improve Cash Flow?
New gas pump purchases or EMV upgrades can comprise a significant portion of any gas stations equipment budget. Whether you are purchasing Gilbarco Encore or Wayne Ovation gas pumps, your business may be able to benefit from Section 179 tax savings. Small businesses in particular use accelerated depreciation tax incentives like those found in Section 179 to make new gas pumps more affordable for gas station owners. What are the benefits of Section 179, and what could proposed changes to the tax code mean for gas station owners? Read on to find out more.
What is Section 179?
Section 179 is designed to spur the economy by providing tax savings to encourage small businesses to invest in new equipment. Section 179 of the IRS Tax Code permits businesses to deduct the entire cost of most capital equipment purchased and installed during that tax year. By taking this deduction in the current tax year, business owners are able to reduce the after-tax cost of new or used equipment faster than with traditional depreciation methods. This can result in a significant tax savings-based upon your tax rate and amount of investment.
The maximum deduction under Section 179 is $500,000 for 2017. Companies that take the full deduction and are in a 30% tax bracket could realize approximately $150,000 in tax savings[i]. Combining this tax benefit with financing your new gas pumps or c-store equipment can improve your cash flow.
Section 179 Benefits
Traditional methods of depreciation usually require c-store and gas station equipment to be amortized or written off over a period of five to seven years. This approach is designed to match the ‘useful life’ of an asset with the tax benefits. As a result, purchasing new equipment did not provide immediate tax relief. This has changed.
Section 179 now creates a significant tax benefit by allowing a full deduction, up to $500,000, in the first year. Many times, this deduction can offset the early years cost of c-store loans or gas station financing. For example, the depreciation tax savings may provide enough cash flow to cover more than one year’s financing payments.[ii]
In 2017, Section 179 is currently a permanent part of the tax code, meaning Congress does not have to renew it each year. Even so, some proposed changes to the tax code[iii] could affect Section 179 in 2018 and beyond. At the time of writing, a few of those proposed changes include:
- Increasing the maximum amount of accelerated depreciation to a higher level.
Readjusting corporate tax brackets. This may decrease the amount of allowable depreciation, in which case after tax equipment costs could increase.
What Does the Future Hold for Section 179?
How future changes to the tax code will affect Section 179 is not yet known. Understanding the tax savings of Section 179 when purchasing Gilbarco, Wayne or Bennett gas pumps may result in savings or other benefits for your business. If you want to learn more, or are in need of a gas pump loans, POS loans, or other C-store equipment financing, please contact us at 1-404-255-1770
[i] Numbers provided are for illustration purposes only. Please contact your financial professional for advice regarding your particular situation.
[ii] Patriot Capital does not provide tax or legal advice. Please contact your financial or legal professional for advice regarding your particular situation.
[iii] This article was written in Nov. 2017. There are a number of proposed changes to the tax code that may impact information provided in this article.
Section 179 Tax Benefit – Are you maximizing your 2017 Tax Savings and optimizing your cash flow?
In December 2015, the government approved legislation making Section 179 an ongoing part of the tax code. The annual deduction of $500,000, which is available for 2016 equipment investments, will be indexed in the future to inflation.
Section 179 is a tax benefit brought from the federal government which enables you to accelerate the depreciation on equipment purchases. What that means is you can take the entire depreciable life of that equipment and push it all into that first year, resulting in a very significant tax savings. When the government comes forward with tax incentives like Section 179, it’s really a great opportunity for small business owners to acquire their equipment. The government wants to spur on the economy and spur job growth. One of the very best ways to do that is to encourage capital equipment purchases because that encourages manufacturing, which is one of the biggest drivers in our economy.
If you are interested in reducing your convenience store taxes in 2017, Section 179 may provide you with some significant cash flow advantages. With EMV for gas pumps creating an investment need over the next three years, business owners may be able to use Section 179 to make the upcoming acquisition more cost and cash flow effective. For a business that’s taxed at a 30% rate, Section 179 could enable you to accelerate $165,000 in tax savings that you would otherwise pay in Federal and State taxes.
Let’s use a real-life example. Let’s say you have a $600,000 acquisition that you’d like to make. It’s comprised of EMV gas dispensers, it’s comprised of a POS system, a canopy, some underground tank work, beer caves, maybe a car wash around back. Section 179 will give you a tremendous tax benefit by acquiring that equipment this year. Remember, the first $500,000 is 100% tax deductible in the current year. That additional $100,000 is 50% tax deductible. So, that $600,000 acquisition results in a tax write-off this year of $550,000. If you’re in the 30% tax bracket, that’s going to result in a tax savings of $165,000.
Let me say it a different way. If you were to not make that acquisition, you would have to pay an additional $165,000 in taxes to the federal government this year.
Planning is the key when it comes to a large spend and the significant spend that’s coming with EMV. Section 179 limits have not been finalized by Congress yet. Consult your tax advisor and your financial planner to help you come up with the very best strategies to help you and your business succeed through the EMV mandate.