How the New Tax Law Affects Auto Transport
Recently, as you certainly know by now, the Federal government passed a sweeping new tax overhaul, which consisted of the largest changes made since the Tax Reform Act of 1986. Known as the "Tax Cuts and Jobs Act (or TCJA)," it was signed into legislation by President Donald Trump on December 22, 2017.
Regardless of how you feel about its merits, it's important to know how it affects the auto transport industry, as the reality is that this tax reform is here to stay for the foreseeable future.
While it would be too much to go over every little detail of the changes that have been put in place, here's an overview of some of the main changes that affect the auto transport industry:
2% Itemized Deductions Are No Longer
Up until now, truck drivers, such as auto transport drivers working for a company, could claim their un-reimbursed expenses as itemized deductions. However, as of January 1, 2018, they can no longer do so. This means that it's up to the employer to provide a per diem to each auto transport driver or to reimburse them for their expenses internally.
Trade-Ins Aren't Tax Free
Yet another change is that, starting this year, when tractor or trailers are traded in for a new tractor or trailer from a dealer, it's no longer tax-free. This is because Section 1031 explicitly states that personal tangible property that is exchanged will not be considered as having tax-free eligibility. (See: https://www.ipx1031.com/1031-tax-reform-updates/)
Pass-Through Businesses Are Eligible For A New Deduction
Up until the passing of the Tax Cuts and Jobs Act, pass-through businesses entities had their net taxable income taxed based on the owners's normal tax rates. Pass-through business entities in the auto transport industry can consist of:
- S Corporations;
- Sole Proprietorships;
An owner-operator, such as an family-operated auto transport carrier, is considered a pass-through business entity. Under the new tax law, they are now eligible for a new deduction based upon the qualified business income, also known as QBI, of the owner. The amount of the deduction is around 20% of the owner's qualified business income.
A Flat Corporate Tax Rate
For auto transport owners that have structured their company as a C corporation, the new tax law is a major positive. That's because the TCJA has created a flat corporate tax rate for C corporations at just 21%. Prior to this tax reform, the corporate tax rate was 15% for income between $0-$50,000, 25% for income between $50,001-$75,000; 34% for income between $75,001-$10 million; and, finally, 35% for income that's greater than $10 million.
Bonus Depreciation is Improved
Even yet another thing to note is that bonus depreciation has also been made better for businesses under the TCJA. Now, any qualified purchases made after September 27, 2017 will see their bonus depreciation for the first year increase from 50% to 100%. Furthermore, while this was not the case pre-TCJA, tractors and trailers that are used are also eligible for the bonus depreciation.
Given how complicated tax law can be, there are numerous other changes in the Tax Cuts and Jobs Act that can affect the auto transport industry as a whole and those who operate within it. It will all depend on your own particular circumstances. If you need more information on the TCJA, you can visit the IRS's website at https://www.irs.gov/newsroom/tax-reform.
Written By:Joe Webster
Joe Webster began his journey in the auto transport field by attending the University of Southern California (USC), where he graduated with a Bachelor of Business Marketing.
After college, he started his career in the auto transport industry from the bottom up and has done virtually every job there is to do at A-1 Auto Transport, including but not limited to: Truck Driver, Dispatch, Sales, PR, Bookkeeping, Transport Planner, Transport Manager, International Transport Manager, Brokering, Customer Service, and Marketing. Working with his mentor Tony Taylor, Joe Webster has learned the ins and outs of this industry which is largely misunderstood.
With over 30 years experience in the industry, we've been helping people ship their vehicles, motorcycles, RV's, heavy equipment, household goods and more across the country or overseas without a hitch. Ask us anything.