Another exciting year is almost under your belt — probably a little more exciting than you like it to be, depending which side of the street you’re on. Some of you are plugging along, while others are busy to very busy without enough qualified help to do the work.
Construction stats remain kind of flat, with governments still holding back on projects. While some areas of construction are positive (residential building), there is still not much to write home about when it comes to non-residential and non-building (which are down). And if I had to guess, we are in for more of the same.
Assuming we maintain status quo on the revenue side, the expense side just keeps bobbing and weaving along, causing a lot of confusion and hesitation when it comes to investing in your business. Here is a list of some of the items that will be on your plate going into 2014:
- Tax laws
- Interest rates
- Hiring decisions
- Equipment replacement decisions
Seek Help With Obamacare
I recently received quotes at the Associated Equipment Distributors (AED) for 2014 and they were really crazy. For some personnel, the rates went down; for others, they went up. But there was one thing that happened for all plan participants: the deductibles doubled. If an individual had a $1,500 deductible before, it is now $3,000. I guess a higher deductible encourages better management of medical expenses, but if there are costs beyond your control, you have much higher potential out-of-pocket costs.
The agent that paid us a visit had another stop before ours where most of the employees were much younger than our group at the AED. So I was surprised to learn that group received a 60% increase. That is quite a jump along with the higher deductibles, which may encourage some of those folks to explore the exchanges.
Obamacare is a very complex issue. If you don’t know what you are doing, it will wind up taking up a lot of your time to straighten out. (See It's Time to Play or Pay – Part 1 and Part 2). On the bright side, you have time in 2014 to get what you need in place. To keep you from going nuts, I strongly suggest you seek information and advice from your local or national associations, which will have service providers available to service your needs. This is not the time to work with an agent who cannot supply expertise in this area.
As a matter of fact, I would talk to two or three agents and see which one has a handle on what you need and the knowledge to implement the program with minimum fuss.
Get the Bonus Before It’s Gone
“Everything is on the table” is what the folks in D.C. are telling me in terms of tax deductions. One thing I’m pretty sure about is Bonus Depreciation is going away, with Sec 179 scheduled to be reduced to $25,000. In other words, if there is new or used equipment you just must have, and you could use the tax benefits this year, you have until the end of 2013 to acquire it.
Bonus is still at 50% for 2013 with Sec 179 at $500,000 for the remainder of the year. Bonus requires new equipment to be delivered and placed in the dirt by the end of the year to qualify. Sec 179 applies to both new and used equipment.
If you think acquiring equipment is a good idea, make sure you’re getting what you think you are because these tax laws are not as simple as they sound. Check with your tax person before making any commitments.
Lock in Rates
I have locked in my current rates to avoid spikes in interest rates should the Fed do something silly. The rates are being held down artificially and when they move back to market rates, you do not want to be sitting on any variable interest loans.
There is not much more to say here except get your house in order and find out how to protect your cash flow.
Ensure Compliance with Independent Contractors
Keeping Obamacare in mind, it may be wise to outsource as much work as you can until we figure out what is happening. This can include bringing in independent contractors to do certain work.
While it’s easy to call workers independent contractors, keep in mind this issue is an IRS hot button and they just love to make these workers your employees.
If you use independent contractors, I encourage you to follow the complex compliance rules surrounding them. Seek help if you’re having trouble deciding if and when people can be considered independent contractors. As I said before, this is not an area to mess around with.
Consider Equipment Replacement
Rental equipment currently represents 50% of the total construction fleet population and I expect it to increase going forward. In previous articles, we discussed the time utilization required to justify ownership compared to rental. My conclusion was it’s a push when you consider total cost of ownership, which includes the manpower and equipment required to move and maintain the equipment.
That said, if you need equipment not readily available from a rental store, the tax laws set to expire at the end of the year make it really attractive to buy before December 31st. What also helps is the current value of used equipment, which may be sold or traded in. Still, let’s keep in mind what goes with the purchase — the debt service that comes out of your cash flow.
Now you have some items for your next planning meeting agenda. Do your homework and make smart decisions considering the market we are in.