Garry Bartecki Taxes that can hurt you
I had the privilege to make a presentation with my Dealer, Rental, and Equipment team for IEDA (Independent Equipment Dealers Assoc.) in September. It was similar to what we did for MHW One-Day Dealer Conference two years ago. With the new proposed tax law and the remaining ways to get government funding, we had plenty to cover in 60 minutes. I made my presentation regarding the state of the never-ending moving target of the economy, the COVID-19 impact, interest rates, the inflation/deflation possibility, supply chain issues, and let us not forget China because when China sneezes the rest of us catch a cold. And I am sure you can add to the list if you stop to think about it.
There was one sobering fact I heard from the former head of the Dallas Fed who stated that his review of the supply chain issue and the inability of U.S. ports of entry to manage the flow, along with conversations with port authorities and union leaders leads him to surmise that it will take another two years before things get back to normal. Not good news if a major portion of your inventories come in by boat from another country.
So, my presentation suggested dealers manage cash, clean up the Balance Sheet, prepare for the new lease accounting rules (in effect for 2022 financial statement), take the time to understand the new proposed tax changes, and find ways to continue to service customers including ways to reduce cost.
Steve Pierson reviewed the proposed tax changes. He spent most of his time explaining potential risks associated with the phase-out of Bonus Depreciation since dealers currently using bonus sell assets with zero tax basis and then offset any tax by purchasing another unit that will then be deducted using Bonus. But once the phase-out occurs there could be tax exposure each year during the phase-out. The “new” tax liability could still be offset to a great extent using Sec. 179, as long as you qualify to keep in mind that Sec 179 has a $ 1 million cap, which may be less if your 179 purchases exceed $2.5 million. But, no matter what, we can count on both personal and corporate tax hikes.
Paul Rozek, Steve’s Partner, then discussed ERC (Employee Retention Credit), which is still available for both 2020 and 2021. Surprisingly, a good number of attendees were not really familiar with this tax credit that provides substantial bucks depending on how the total sales for each quarter in 2019 compares against the quarterly numbers for the same quarter in 2020 and 2021. If any of your 2020 quarters had sales 50% less than the 2019 quarterly results you qualify for that quarter. They made it easier for 2021 where the 2021 quarterly results qualify if they are 20% less than the 2019 results. The max credit for 2020 is $5000 per employee for the year. For 2021 the max credit is $7000 PER QUARTER per employee. Like I said, big numbers if you qualify. This area is a bit complicated, and you really need a REAL EXPECT like Paul to max your benefit from this credit, with does not have to be repaid but is taxable in the year received.
And last but not least Jim Margner, my SALT guy (State and Local Tax), reviewed the most complicated area of your company tax situation. This is a high-risk and potentially expensive issue if you mishandle reporting state and local taxes post-Wayfair. To get the discussion going Jim handed out a Questionnaire with nineteen questions on it. I think having a clean bill of health regarding SALT is important for every equipment dealer. Who needs to be harassed by the State for tax, penalties, and interest? The last time I received one of these notices there was a perceived $2000 tax missed that wound up with interest and penalties of over $10000, both of which increased daily. Luckily, Jim saved the day and proved the tax was paid and, in the end, it cost me $20. I am going to make Jim’s questionnaire available on the MHW website, along with Steve Pierson’s summary of the proposed tax changes and Paul Rozek’s presentation to help you understand the ERC.
The points here are:
- YOU DO NOT WANT TO MISS OUT ON THE ERC
- YOU DO NOT WANT TO WIND UP WITH A TAX SURPRISE BECAUSE OF THE BONUS CHANGES
- YOU DO NOT WANT TO GET INVOLVED WITH A TIME-CONSUMING, EXPENSIVE STATE TAX ISSUE IF IT WAS SOMETHING YOU COULD HAVE AVOIDED
If you have any questions, feel free to reach out to:
- Steve Pierson [email protected]
- Paul Rozak [email protected]
- Jim Marger [email protected]
Take care!
Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail [email protected] to contact Garry.
