Will Section 179 Survive 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 no longer be available to convenience store owners.
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 is 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.
Impact of Lower Tax Rates on Section 179 Depreciation
If corporate taxes are lowered to 15%, for many companies capital equipment will effectively become 25% or more expensive. This will happen regardless of an increase or elimination of the maximum $500,000 Section 179 deduction.
Today, a convenience store in a 35% tax bracket would have an after tax cost of $65,000 on a $100,000 gas pump, major oil brand reimaging or other purchase. This reflects the $35,000 deduction the business would realize.
If the maximum tax becomes 15%, this $35,000 would become $15,000, or $100,000 times 15%. The after tax cost for the c-store is now $85,000, $20,000 or 30% more than today.
What is fairly certain is that purchasing equipment today will benefit a business owner with both a higher rate of depreciation and the ability to use Section 179. Both of these can have significant cash flow benefits to your convenience store, QSR or manufacturing business. Waiting to see what the Trump Tax Plan yields may result in a significantly higher after tax cost for small business equipment.
For examples of how Section 179 could benefit your business, please see this article from CSP Online. For a discussion of the potential impacts of the Trump Tax Plan on convenience store operators, please see this article.
**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.
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.