By Jeff Brooks, CPA, CGMA | Principal | Car Wash Leader
Ongoing staffing, market changes, traffic studies, equipment maintenance, technology upgrades, and customer relationships – these are just some of the many topics top-of-mind for car wash owners. Adding tax planning and preparation to the mix, including navigating the changes brought on by Tax Reform, may cause even more headaches for business owners. Partnering with an accounting firm that is experienced with car washes nationwide will alleviate the stress of understanding and applying Tax Reform to your business, and ensuring you’re not paying more tax than your competitors.
Resulting in the most extensive overhaul of the tax code in the last 30 years, the tax reform changes signed by President Trump in 2017 are still causing questions and creating opportunities for business owners two years since implementation. Based on our work with car wash owners, below are our Top Five considerations to review.
- Tax Rate Reductions
- C-Corp is reduced to a flat 21%.
- Individual top rate is reduced to 37%.
- Qualified Business Income (QBI) under Section 199A is eligible for a 20% deduction, which equates to a 29.6% top rate for flow-thru business income.
- Consider the optimal entity structure.
- Accelerated Depreciation (Sec. 179 & Sec. 168k)
- Immediate depreciation deduction (up to 100% of the cost) under “Bonus Deprecation” for personal property acquisitions (including equipment and some car wash building structures) with useful lives under 20 years.
- Bonus depreciation is phased out after 2022 (over a 5-year period).
- Allows enhanced benefit of a Cost Segregation study for tax depreciation deductions for real property (i.e., buildings).
- Work Opportunity Tax Credit (WOTC)
- A valuable source of support to businesses that hire employees from the defined targeted group.
- Remains unchanged and available until December 31, 2019.
- Research & Development (R&D) Credit
- Valuable source of support to businesses that conduct qualified research and development.
- The current Federal credit was previously made permanent, and beginning in 2016, it can offset Alternative Minimum Tax (AMT) or payroll taxes for certain taxpayers.
- Many states offer similar credits, as well.
- Tax-free exchange (Sec. 1031)
- Opportunity to defer the taxable gain on the sale of appreciated real property, using a qualified exchange.
- It is allowed only for real property starting on January 1, 2018.
So, what does this mean for your car wash? Contact me today to discuss how these five considerations can be applied to your corporate structure and identify tax saving opportunities for the upcoming tax year.