Page 21 - MetalForming-January-2019-issue
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Tax Reform and Equipment Acquisition:
What You Need to Know
The Tax Cuts and Jobs Act of 2018 positions metalformers and fabricators for growth and profitability, but also requires fresh analysis of equipment-acquisition strategies.
Tax reform via the Tax Cuts and Jobs Act of 2018 (TCJA) is bring- ing many changes, but the tried- and-true benefits of leasing equipment remain unchanged. Equipment financ- ing continues to provide:
• Enhanced cash flow, allowing you to avoid large out-of-pocket costs and effectively manage cash from operations;
• Unparalleled flexibility and asset- management features, including options to keep equipment in place for the long haul or upgrade to new technology; and,
• Preservation of credit lines to sup- port day-to-day business operations rather than long-term capital needs.
While the benefits of equipment financing continue, it’s important to consider how tax reform is changing the playing field.
Toni Larson is senior vice president of industrial equipment for Key Equipment Finance,; e-mail
Continued Tax Savings
Most equipment offers depreciation benefits. Historically, the most com- mon equipment financing options— loans, nontax leases and tax leases— allowed equipment owners to deduct equipment-depreciation expenses from taxable income, which signifi- cantly lowered their tax liabilities. For- tunately, the TCJA doesn’t eliminate this benefit. However, selecting the option that optimizes your business’ tax strategy is key.
The centerpiece of the TCJA—a reduction in the maximum corporate tax rate from 35 to 21 percent—dra- matically reduces tax liability for many manufacturers. Additionally, the range and size of available corporate-tax deductions has expanded. The com- bination of these two changes begs an
important question for most business- es: How many deductions realistically can be absorbed going forward?
Consider These Tax Deductions and Credits
Determining the tax deductions and credits that will best benefit your busi- ness will be time well spent. Here are some areas to consider:
100-Percent Expensing—For equip- ment placed in service after Sept. 27, 2017, and before Jan. 1, 2023, the tax- reform bill has eliminated the bonus- depreciation feature. Instead, those who invest in qualified equipment dur- ing that time simply can expense 100 percent of the equipment cost in the first year of ownership.
This unprecedented benefit offers a huge windfall for businesses with sufficient taxable income to claim it. That said, the benefit of such a write- off has less impact in a 21-percent corporate-tax environment than in a 35-percent tax environment. Therefore,
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