As such, consider traditional planning opportunities and make realistic, sound business decisions to reduce your taxes. But avoid taking steps that hurt the overall ability of your company to do business in the marketplace. You still need to appease your business partners if you plan to use them in the future. Bankers, vendors and bonding companies all like to see reasonable profits and cash flow. Overly aggressive tax planning can sometimes harm these relationships.
Use Equipment As A Tax Tool
Equipment purchases still provide tax benefits relative to 2005 and 2006. MACRS without the bonus allows significant deductions the first two years. Even if you can’t get delivery in 2004, you still get reasonable write-offs in ’05 and ’06. If you have the need and it makes sense, equipment purchases may be one of your tax planning tools.
Contractors with heavy tax exposure may want to avoid selling used equipment with a low tax basis in ’05 or ’06. You are only adding to your tax burden. A “like-kind” exchange or trade-in would be preferable. If you have tax issues along with fleet management issues, talk to your dealers to see what solutions they may offer.
To sum up, there is NO excuse to wind up with an unexpected tax bill calculated in the highest bracket. You may wind up with the tax bill, but it should not be unexpected. The use of bonus depreciation in combination with Section 179 deductions has deferred significant tax dollars for contractors. The key word here is “deferred”!
You need to get a handle on where you stand by projecting revenues and taxable income, and do what is required from a planning standpoint. If you wind up with great years in 2005 and 2006 and have to give back some of the deferral, at least you have a good year to plan for it. If you wind up in that position, you should be happy, your spouse should be happy, your banker will be happy and your other partners should be happy. Just don’t pay more than you need to employing reasonable tax planning ideas. Garry Bartecki is director of dealer/distributor services at BDO Seidman, LLP of Chicago, as well as a consultant to the AED. He has also worked as an independent CPA and consultant to equipment dealers. He can be reached at (312) 616-4677 or email@example.com.