The late November days mean the start of a few reliable American traditions: Holiday shopping, Christmas music and a review of Section 179 in the tax code.
“Here’s what really happens,” Todd Olson said. “I just spoke to my first guy today who knows he has to spend some money. He knows he’s got to use it or lose it.”
Olson knows this inquiry all too well. The commercial salesman has been selling commercial vehicles for ten years, the last three at Knudtsen Chevrolet in Post Falls. He said the familiar push for businesses to take advantage of Section 179 — the section of the IRS code that was enacted to help small businesses by allowing them to take a depreciation deduction for capital expenditures in one year, rather than depreciating them over time — treats the Holiday season at commercial sales centers like…well, Christmas.
“This is the time of year,” Olson said, “where business owners all over are saying, ‘I gotta spend money, or my accountant will kill me.’”
That financial incentive to take advantage of the tax code is on the decline, according to Olson. He said he usually sees his first Section 179 customer by the beginning of November, not the end, and he’s not alone. Of the six dealerships contacted by the Coeur d’Alene Press, all six reported a drop in fleet vehicle traffic. All six reported a steady stream of customers and non-stop sales, but few reported customers shopping for rigs at the request of their accountants.
So why are businesses more reluctant to purchase assets this year and write off the depreciation? Becky Akker of BBC Bookkeeping and Taxes, who’s been in the bookkeeping business since 1986, said determining business spending trends through the tax code is no more helpful than predicting the April 15 weather before January.
“There are always changes,” Akker said. “For example, from 2017 to 2018, the amount of the deduction increased from $500,000 to $1 million. The phase-outs went from $2 million to $2.5 million…Itemization went out the door last year, so on the personal side, people will go for whatever deduction they can. The bottom line is, if there’s a deduction, an accountant worth her salt will try to take advantage of it for her client.”
She added that, as much as changes in the business world’s favorite tax code may impact clients, the nature of the tax deduction itself is what keeps bookkeepers on their toes.
“Remember: It’s never a permanent tax change,” Akker emphasized. “Sometimes they amend something, like they amended the definition for real property for improvements that run through a rental property management company. What matters is, good tax advisors will have to be in constant research mode.”
Olson agreed with Akker’s position, saying companies will always go for what makes the most financial sense. He doesn’t see the slowdown affiliated with any possible changes to the tax code in the new year.
“Honestly,” he said, “I think we haven’t seen as much foot traffic through here yet just because everybody’s been so busy. They’ve been so busy with their clients that they’re just hanging off right now. They’re not ready to look at it just yet.”
He cited Knudtsen’s hottest commercial sellers right now as evidence companies are still hard at work.
“Work trucks,” he declared. “We can’t keep them in stock. They’re out the door before we get them in. Any kind of work truck you can think of is selling like hotcakes. We’re always getting new stock in, butt if we could get more, we’d sell those, too.”
He said the never-ended growth in the area is all the proof he needs that Section 179 is taking a backseat to good old-fashioned front-end business.
“It’s solely due to the growth in our area,” Olson said. “I deal with some of the major contractors around here. It takes them every last ounce of daylight to get their work done; they’re just so busy.”
Olson added, however, he had no question in his mind as to whether he’d see a drop in business.
“They’ll come in,” he said confidently. “At the end of the day, you need to make sure you’re saving as much money as you can. That means taking advantage of every deduction on the books.”
He suggested that, when coming in to buy a commercial vehicle, bring a copy of your business license, bring in your EIN, and be prepared to do a commercial credit application, regardless of whether or not you’re paying cash or financing.
“Depending on the type of business you run,” Olson explained, “you need to have certain information on file to take certain advantages, like rebates. You never know when General Motors will say, ‘Hey, we need to make sure this company is who they say they are.’”
Akker, meanwhile, pointed out that newer businesses might not want to rely on or expect the Section 179 tax deduction.
“New businesses should likely not take the deduction,” she explained, “because they’re usually at a loss at this point. If you’re an established business, I would jump at the chance to take a 179. But newer businesses are still looking to get out of the loss column. They often don’t qualify.”
Akker added that exploring all your company’s possible deduction is always her go-to advice to any business, established or otherwise.
“The best thing a business owner can do is visit with an expert to make sure we’ve looked at every possible deduction,” she said. “That’s always the smartest course of action.”