The automotive dealership industry is unique because each dealership is in a constant state of construction, remodeling, expanding or purchasing existing properties. The only way to ensure this constant state of flux doesn’t bankrupt a dealership is to review these assets to determine the shortest recovery life possible, expensing in the current tax year.
By taking advantage of all eligible tax deductions it opens up cash flow for your dealership that would have otherwise been lost. A fixed asset review can easily be done by having a cost segregation study performed.
The Tax Cut and Jobs Act or TCJA was the most sweeping tax code change in 30 years and has significant impact on the automotive dealership industry along with the tax incentives that allow you to obtain the benefit from a cost segregation study.
There are three significant aspects of the TCJA that when combined make for an interesting ride for auto dealerships looking to obtain their rightful tax deductions. Let’s take a look.
The TCJA expanded section 179 from a $510,000 limit to $1 million and now includes improvements it did not previously such as: roofing, fire protection and alarm systems. All of which are large expenses for an auto dealership in the midst of new construction or remodeling.
Floor Plan Interest
The TCJA preserved the 100% deduction of floor plan interest. If you are eligible for floor plan interest you must claim it, it is not optional. However, there is a catch. If you are eligible you cannot claim bonus depreciation. This doesn’t mean an automatic sigh and slump in your chair, not all dealerships qualify for floor plan interest and bonus depreciation is not the only aspect of a cost segregation that benefits auto dealerships.
Bonus Depreciation was highly expanded with the TCJA. It was increased from 50% to 100% and applies to both new and used properties acquired through December 31, 2022. This is an unheard of expansion of bonus depreciation and has such a significant impact that the National Automobile Dealers Association (NADA) is currently working through hearings with the IRS demanding the 100% bonus depreciation because the TCJA eliminated the like-kind exchange tax benefit for all but real property. We expect to see continued discussion on this topic over the next several months.
Although some automotive dealerships won’t be able to benefit from the expansion of bonus depreciation because of the changes with the TCJA it does not eliminate the enormous financial impact that a cost segregation study has for an auto dealership.
To find out more please contact speak to your Advisor today!
Two of the biggest tax provisions that affect the restaurant industry are the 15-Year Restaurant Depreciation and the Worker Opportunity Tax Credit.
Both tax provisions expired at the end of 2011 but look like they are back with the initial passing Family and Business Tax Cut Certainty Act.
The National Restaurant Association mounted a wide scale campaign to inform Congress of the importance to provide tax certainty to restaurateurs.
Simply put this provision allows a taxpayer to allocate the costs of an asset over the period in which they are used. The 15-year Depreciation provision allows leasehold improvements, restaurant improvements and new restaurant construction, and retail improvements to be depreciated over 15 years rather than the standard 39-year recovery period that would normally apply to nonresidential real property.
Due to the nature of the industry restaurant buildings experience daily wear and tear that many industries do not. As a result of this increased wear and tear, most restaurants remodel or update their buildings every six to eight years. Thus, the 15 year provision more accurately fits the recovery timeframe.
Benefits of the 15-year Depreciation provision:
- Reduces cost of capital expenditures
- Increases cash flow
- Allows hiring more employees
- Allows capital expenditures to expand business
- Reinvestment in construction & renovations positively affects the economy
Worker Opportunity Tax Credit
This tax credit is made available to employers who hire individuals from several targeted groups facing significant barriers to employment.
Examples of WOTC-target groups:
- Veterans receiving food stamps or are unemployed suffering a service related disability
- Former Felons
- Disconnected Youth
- Family Members receiving TANF
Currently the restaurant industry employees over 13 million people nationwide. Many of these individuals were hired specifically due to the WOTC act being in place. The WOTC provision allows workers who may not have been able to, move into self-sufficiency by earning a steady income and becoming contributing taxpayers.
Hiring from the group of qualified job seekers via the WOTC provision can mean direct federal tax savings to your business ranging from $1,200 to $9,000 per qualifying employee. Restaurants tend to experience better than average qualification rates in state and federal hiring credit programs. Hundreds of thousands of dollars are provided via this provision annually.
You are a small business owner who owns and operates a restaurant. Your time is consumed with ensuring tables are turned and your business is moving forward. You do not have time to research specialized tax incentives let alone determine if you qualify. You are not uncommon.
Below is a brief summary of tax incentives you may be missing out on:
- Commercial Building Tax Deduction
Tax deduction for expenses incurred for energy efficient building expenditures
- Engineering-based Property Cost Allocation
Recover costs through deprecation of tangible property used in the operation of a restaurant business.Qualified Items Include: Beverage Equipment, Storage Area, Furnishings, Bar Area, Flooring, Lighting, Wiring, Sound System, and Kitchen Area
- Employee Tax Credits
Local, State, and Federal Incentives to hire and retain employees. Available credits up to $9,000 per qualified new hire.Credits are available for employees in the following categories: Those living in Empowerment Zones, Young Adults, Wounded or Disabled Veterans, Food Stamp Recipients, and those receiving Supplemental Security Income
- Commercial Property Tax Reduction
Reduction available on both Personal and Real Property Taxes paid.
- Section 179
Can take an increase in deduction up to $35,000 of the cost of eligible equipment purchases
The above is merely a brief list of some of incentives you could benefit from if you are a restaurant owner. The easiest way to determine your qualification is to ask an expert.