Take Advantage of Tax Reform Now

Running a small business can be difficult and time consuming. This is particularly true when it comes to restoration firms, in which much of the business is project-based. Quality and appropriate equipment are a necessary part of any restoration business, and that includes a commercial vehicle. For instance, firms specializing in water restoration need air movers, dehumidifiers, and air scrubbers, as well as power washers, extractors, and other tools.

With the passage of the Tax Cuts and Jobs Act (TCJA) in 2017, restoration professionals now have the unique opportunity to get more out of their business.

In an interview with Fox Business, Small Business Administration Administrator Linda McMahon said that in the four months since the federal tax reform bill was signed into law, she has visited 35 states and spoke with more than 600 business owners. They told her, “’Now my employees have more money in their paychecks. Now I’m going to be able to buy that new piece of equipment.’” She said the investment in TCJA is expected to spur economic growth, and small businesses are a big part of that.

Know Your Tax Breaks

Restoration firms want to try to buy new commercial-grade equipment because used equipment can be unreliable, which can slow down projects and add to costs. However, initial outlays for equipment can be costly, particularly for machines. Contractors also should bear in mind that they should only purchase what they can afford and save additional purchases for a time when business has picked up and more money is available. Under the new tax law, not only was the corporate tax rate reduced to 21 percent, but there also are a number tax breaks available that could affect equipment acquisitions.

Restoration firms can now fully and immediately deduct the cost of certain equipment. The provision is retroactive to Sept. 27, 2017, and runs through Dec. 31, 2022. Both new and used assets also now qualify, according to experts, and the new law will allow bonus depreciation for cars and light trucks.

Additionally, restoration contractors and other businesses in need of equipment can use Section 179, the first-year expensing write-off, and the equipment’s use does not have to begin with the restoration contractor’s business. TCJA also enables restoration contractors to expense up to $1 million in asset costs in 2018, with the new phase-out amount set at $2.5 million. Experts recommend that contractors treat these write-offs like any other fixed asset, but it may be best to consult a tax professional before making a big financial commitment.

Business Vehicle and Other Possible Deductions

When buying a business vehicle, contractors can now deduct up to $10,000 in the first year, up from the previous limit of $3,160. For passenger automobiles placed in service after 2018, these dollar limits are indexed for inflation, and for those eligible for bonus first-year depreciation, the maximum first-year depreciation allowance remains at $8,000.

Moreover, the reform law capped the deduction for interest expense at 30 percent of the adjusted taxable income of a business, and the determination must be made at the entity level, not the tax filer level. Another exception for small businesses with gross receipts not exceeding $25 million for a three-year period could enable them to write off the interest on loans, which would lead restoration contractors to hire workers or increase wages, say experts.