What Extended Tax Breaks Can Mean for Your Equipment Dealership
In January of 2014, President Barack Obama extended the “Bush tax cuts” when he signed the American Taxpayer Relief Act (ATRA). This bill not only extended tax cuts to those making over $400,000 as an individual and $450,000 as a couple, the ATRA raised Sec. 179 expensing limits and extended the 50 percent depreciation bonus until the end of 2013. What this means for your dealership is that it should encourage you to purchase construction equipment through the end of this year. If you waited until Jan of 2014 to purchase more equipment, you would be missing out on these extended tax breaks that will most likely expire at the end of the year.
In other words, the extension of the Bush tax cuts will continue to mean capital investment opportunities for your business. By lowering your dealership’s taxable income, the depreciation bonus and Sec. 179 can dramatically cut your 2013 tax bill thus leading to more free cash in the short term time frame. Because the depreciation bonus was extended, companies that buy new equipment can depreciate 50 percent of the cost in the first year. The more you depreciate now, the less you will be able to depreciate later, but the tax saving guaranteed this year can help you invest in your own dealership later on.
By opting to take advantage of the American Taxpayer Relief extensions, you can have the capital to invest it back into your company. On a $100,000 piece of equipment, your dealership could potentially save close to $16,000 on taxes this year. Now, if you buy a piece of equipment for $500,000 your potential tax savings will be just shy of $80,000. With this extra cash flow on hand at your dealership, you could reinvest it back by taking out extended warranty contracts on your construction equipment.
Extended warranty contracts are offered by both OEMs and 3rd party vendors such as Protect My Iron. What many people do not know is that there are a number of OEMs that, in fact, use 3rd party vendors to purchase extended warranty contracts on their own equipment. But, more often than not, 3rd party vendors such as ourselves can offer longer extended warranty coverage because our equipment portfolio is extremely diversified.
This year, many dealers have begun investing in their own dealerships and one of the reasons could be the extended tax breaks that are not impeding equipment buyers. Equipment costs a lot of money so it’s always a benefit when the government extends tax breaks that would directly affect equipment buyers. These tax breaks aren’t expected to last past Jan 1st. So, it’s a good idea to take advantage of them now. And when you do, you should also think about using your tax savings to invest in extended warranty contracts that will also help your dealership remain financially protected down the road.
Visit Protect My Iron today to see what else you can do with your Bush tax cut savings.