Written By: Thomas L. Broderick, C. P. A.,Treasurer of Pickens-Kane, Chicago, Illinois
Capital Expenditure Write-Off/First-year Expensing
Some capital expenses can be written off in the year they were incurred (enhanced Internal Revenue Service section 179 capital expense or first-year expensing), rather than over time through depreciation. The property (such as trucks, trailers & other vehicles, moving equipment and computers used more than 50% for business) usually must be purchased and placed in service by year end. “Placed in service” does not necessarily require that the taxpayer start using the property in the business. Property has been placed in service as long as it is ready and available for use. First-year expensing is limited to the taxpayer’s taxable income for the year and cannot be used to generate or increase a net operating loss for the current year. Thus, a taxpayer operating at a loss should not claim first-year expensing.
Under old rules, small business taxpayers were allowed to write off up to $ 125,000.00 (indexed for inflation) of capital expenditures, subject to a phase-out when total capital expenditures exceed $ 500,000.00(indexed for inflation). In 2008 Congress temporarily increased the amount of write-offs for capital expenditures incurred in that year to $ 250,000.00 and increased the phase-out threshold to $ 800,000.00. Those temporary increases were extended thru 2009. First-year expensing can be claimed on used as well as new property.
Unless this limit is extended, the ceiling will drop to $134,000.00 for 2010 and the deduction threshold will be $ 530,000.00.
Accept credit cards (or debit cards) for cash on delivery (COD) shipments and monthly storage charges. Some customers prefer to use their credit cards and earn certain rewards from their credit card company. This technology has been improved over the years where you can see quick deposits direct to your bank account from the credit card company. Please note there are fees charged by the credit card company and/or your bank for this service so you should obtain completive bids from credit card providers to help manage those fees. Also note that your customer’s credit card information is sensitive and you must train your employees to protect that information.
Some projects are set up by extending credit to the customer (not COD). When you have proposed a large relocation or are about to secure a significant project request a down payment from your customer. This will help your cash flow to meet your payroll and ensure that you have the correct billing information and payment authorizations from the customer. Deposits up to one third of the estimated cost are reasonable.
Salary versus Bonus
Many of your best employees may be paid a salary for the year. Instead of increasing their salary the next time they due for a review, implement a bonus plan. That way, your payroll costs are not automatically increased and you can pay the bonus to that employee as your cash flow permits. Depending on how the bonus is calculated your employee may be more motivated than ever before. Consider adopting a bonus plan that incorporates some of their specific performance and the overall company performance on a short term and long term basis.
There are many vendors that allow you to spread out your payments to them at little or no extra cost. You may be familiar with aging your accounts receivables list. You can also “age” your payables which will improve your cash flow. Set up these vendors with a payment date closer to 40 or 50 days instead of 20 or 30 days from the invoice date.
As an example, insurance is always a significant cost for movers. The insurance companies may allow you to finance your payments to them at little or no extra cost.
Rolling Stock Purchases
When you purchase trucks, trailers, and other equipment consider making this purchase via capital lease, operating lease or a bank loan. This will spread out your payments for the rolling stock over the estimated useful life of the equipment. You will also be better matching the cash outflow for the purchase with the anticipated cash inflow from the revenue related to that equipment.
Investing in business assets or employees is never just a matter of taxes. A company must consider whether the investment makes economic sense for them. Please consult with your tax advisor before acting on any of these topics. Your tax advisor can ensure you receive the maximum tax benefits considering your company structure, income tax rates, etc.
Thomas L. Broderick, C. P. A. is the Treasurer of Pickens-Kane Moving & Storage Co. in Chicago, Illinois. He has served as Chairman of the Board of Trustees of the Illinois Movers’ and Warehousemen’s Risk Management Trust since 1996. Many individuals, small businesses and non-profit organizations consult him for various accounting, investment, insurance and tax issues.
Revised: March 9, 2010