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Equipment Loan and New Tax Plan

What Accountants are Saying You Should Do with Trump's New Tax Plan

We sat down with Randy Howard, CPA and co-owner of the Bellevue accounting firm, Rekdal Hopkins Howard, PS, for his take on President Trump’s tax plan. Howard gave us a piece of advice he plans to tell his business owners to do right away: Invest.

The proposed tax plan, announced by the Trump administration on April 27, drops the business tax rate to 15% from the max rate of 40%. It potentially benefits businesses by encouraging companies to remain in the U.S., hire more people, and of course, make more money than it is spending. The short-term advantage, according to Randy Howard, is happening this year: “If you're going to make any large purchases –equipment or investing in certain types of real estate – you should look to do that now rather than the future, because of the lower, preferential tax rate for businesses,” says Howard, cautioning, “We're just playing a rate game, but that rate game could be substantial.”


So what, exactly, does Howard mean by “playing a rate game”?


“If you buy equipment, you're getting a better deduction,” explains Howard. Say your business is taxed at the highest rate, 40%. “If you get a deduction at 40%, then you're saving 40 cents on the dollar,” says Howard. “But, if you take that deduction next year when that deduction is 15%, then you're only saving only 15 cents on the dollar.” 


Just how much you save in deductions depends on your current tax rate and the items you purchase. So as to wrap our heads fully around the tax savings, Howard broke down the numbers using a fictional printing press:

THE TAX DEDUCTION COMPARISON
PURCHASE PRINTING PRESS

COST

$200,000

2017 TAX RATE

40%

2017 TAX DEDUCTION

$80,000 (40% of $200,00)

2018 TAX RATE

15%

2018 TAX DEDUCTION

$30,000 (15% of $200,00)

“If you currently pay the 40% rate, just by waiting a year to purchase that press, you're leaving 50 grand on the table,” says Howard. Of course, advice coming from an accountant – and a credit union! – members are cautioned to only shop if you need it. Plus, in order to legally be eligible for a deduction, the equipment must be “placed in service,” not, as Howard describes, “just sitting in the corner unplugged.”

 

So – next steps. First, consider if you plan to make a large purchase in the near future. Take inventory of upcoming needs – is it better, considering the savings, to go ahead with that purchase sooner than later? While this isn't a mandate to go shopping for your business, it is a potential one-time opportunity to save a nice chunk of change. Second, consider if you want to pay in cash or finance the equipment. Borrowing, rather than paying for equipment in its entirety, not only comes with tax benefits but also allows you to use that cash for other business needs. BECU offers Business Equipment & Vehicle Loans, and we're letting you newsletter readers in on our upcoming offer: Beginning July 1, 2017, for a limited time, take an additional 0.50% off competitive rates. Check back July 1 for more details! Finally, be sure to consult with your tax advisor, as every tax situation is different, and different rules apply to different business equipment types.


“This is kind of a one-shot deal,” summarizes Howard. “You get a big deduction this year, save a bunch of money, and next year your tax rates are low.” Saving a bunch of money? What every business wants to hear.