Tax Cuts and Jobs Act: Effects on the trucking and logistics industry

February 8, 2018|Paul Westberg

The newly signed tax bill, known as the Tax Cuts and Jobs Act, contains many provisions which could directly impact companies operating in the trucking and logistics industry. From expanded equipment write-offs to potentially favorable tax planning scenarios, along with the repeal of a popular deduction for many company employee drivers, this bill truly was a tax overhaul. Below are a few of the tax bill highlights.

1. Cash method of accounting expanded – $25 million gross receipt test

  • The cash method of accounting for tax purposes has been expanded from numerous three-year gross receipt average tests ranging from $1 million to $25 million, depending on a taxpayer’s business activities, to a one $25 million average gross receipt test starting with tax years beginning after December 31, 2017. Exceptions to the cash method still apply for personal service corps along with other business activities deemed to be tax shelters. The $25 million limit has been set up to change with inflationary measures.
  • Benefit: C corporations or partnerships with C-corp owners in the transportation industry who were forced to file under the accrual method for tax purposes due to the $5 million gross receipt limit are now allowed to make this accounting method change to file under the cash method using Form 3115.
  • Pass-through entities in the transportation industry still have the $50 million gross receipt test exception to file under the cash method for tax purposes.

2. Enhanced bonus depreciation and section 179 expensing

  • Bonus depreciation has been expanded to include a 100% direct write-off of a taxpayer’s first use of new and used tangible personal property placed into service after September 27, 2017, and before January 1, 2023.
  • Section 179 expensing of new and/or used assets has been increased to $1 million with an investment limitation of $2.5 million of placed in service assets for years starting after December 31, 2017.

3. Limitation on excess business losses

  • Beginning for years starting after December 31, 2017, all trade or business losses reported to noncorporate taxpayers will be limited to trade or business income plus a $250,000 or $500,000 limitation for single or married taxpayers, respectively.

4. Like-kind exchange no longer applicable for tangible personal property

  • After 2017 deferral of taxable gain on like-kind property exchanges, trade-ins, will only apply to real property. The result on tangible personal property (equipment) will be any gain on the like-kind exchange or trade-in will be taxable, determined by value received in trade-in. However, by this gain being taxable the depreciable basis in the new property will not be reduced by past gain deferral resulting in the full cost of the property being available for the enhanced 100% bonus depreciation and/or the section 179 expensing on the net purchase price after trade.

5. Company drivers per diem expense – Schedule A miscellaneous 2% deduction repealed

  • Long haul company drivers (W-2 wage employees) who are out on the road for an extended period and were not reimbursed by their employer for meals and lodging expenses in prior years could receive a miscellaneous itemized tax deduction on Form 1040 Schedule A, limited to 2% of their adjusted gross income and Department of Transportation per diem rates. Beginning for tax years 2018, Form 1040 Schedule A 2% miscellaneous itemized deductions have been repealed, thus fully eliminating this deduction for company drivers. How this repeal of the 2% miscellaneous itemized deduction affects a specific driver for tax purposes is based fully on other facts and circumstances reported on their individual tax return.
  • A company who has a per diem program and/or reimburses drivers for meals and lodging will continue to be able to deduct these costs as business deductions.

The above tax bill provisions highlight only a few of the changes which could have a direct impact on companies operating in the trucking and logistics industry. Facts and circumstances do vary by company. Please contact your Schenck representative to discuss how these and other tax changes directly affect your business.

Paul Westberg, CPA, is a manager and member of Schenck’s Trucking & Logistics team. He has nearly 10 years of experience providing tax planning, consulting and compliance services to privately held businesses and individuals, including pass-through entities, multi-state returns and consolidated filings.