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Tax Planning for 2017 with an Eye on Tax Reform for 2018

By Guest Blogger David Wiggins
CliftonLarsonAllen

While the United States Senate is still, as of this writing, debating changes to their bill to overhaul the tax code, there still are some tax planning ideas you can take advantage of currently for 2017.  Since taxpayers may have lower rates in 2018 and a number of deductions may be limited for 2018, you may want to look for ways to defer income to 2018 and accelerate certain deductions to 2017. Below are some potential ideas a dealer might want to consider. 
 
  1. Purchase new and used non-real estate assets this year that can be entirely deducted in the year of purchase.
  2. Determine if a used vehicle write down at year-end makes sense. You must make the proper elections on your federal tax return to allow this method.
  3. If you own an interest in a partnership or S corporation, consider whether you need to increase your income tax basis in the entity so you can deduct a potential loss from it for this year.
  4. See if a grouping election on your personal tax return would benefit you to make rental real estate non-passive to help reduce your taxable income.
  5. Consider making any state tax payments due for 2017 by December 31, 2017.  This will allow them to be deducted in 2017; such payments may not be deductible in 2018.
  6. Make sure you are not paying the 3.8% net investment income tax on self-paid interest or rents from your own companies.
  7. Make sure you are recording all your accounts payable and accrued liabilities at year-end to maximize your deductions.
  8. If you “pack” your vehicles in inventory, make sure your accountant knows how and when you are recording the pack so tax adjustments can be made accordingly, otherwise you may be paying taxes on income not earned yet.
  9. “De minimis” election. Many businesses have accounting procedures for lower cost assets to be expensed instead of capitalized. For tax purposes, you can elect the same treatment for asset purchases that cost up to $2,500 per item ($5,000 if your business has an “applicable audited financial statement”). Items expensed using this election don't count against the annual Section 179 expensing limit.
  10. Treat Medical Insurance Premiums as Wages. Health and accident insurance premiums paid on behalf of a greater than 2-percent S corporation shareholder-employees are deductible by the S corporation and reportable as wages on the shareholder-employee's Form W-2.
  11. If you have spent considerable money on a new facility or remodeling your current one, check to see if completing a cost segregation study will save you money by accelerating the depreciation deductions over five, seven and 15 years rather than 39.6 years.
  12. Before year-end, prepay certain expenses. As long as the economic benefit from the prepayment does not extend beyond the earlier of:
(1) 12 months after the first date on which your business realizes the benefit or
(2) the end of the next tax year. For example, paying the premium for 2018 property insurance coverage in 2017.

You should consult your tax advisor as soon as you have your October 2017 financial statements completed and discuss what tax planning you should accomplish before December 31, 2017. Starting now should leave you enough time to make whatever changes you need before the end of the year and also be ready for the anticipated tax law changes.

Dave Wiggins, CPA is a principal with CliftonLarsonAllen's dealership team. He has extensive knowledge of the inner workings of retail dealership operations, including new developments regarding regulatory compliance issues. Dave specializes in federal and state taxation with the unique perspective of those specific strategies that apply to dealerships and their owners. He can be reached at david.wiggins@CLAconnect.com or 314-925-4300.

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