For most companies in the highway construction and maintenance industry, a majority of their yearly operations happen in the second and third quarters of the year (between April 1st and September 30th) due to the improved weather conditions. In the off-season, companies have the opportunity to assess the state of their fleet and make the decision on whether they need to make additions or improvements to prepare for the upcoming year. Beginning your fleet planning process as early in your company’s off-season as possible has several key benefits, including saving you money through the Section 179 deduction. Let’s learn about why it is so important to not delay your fleet planning process into the new year.
The first step of the fleet planning process is evaluating the state of your current fleet. In this time, you need to ask yourself several questions in order to properly evaluate whether your fleet needs improvement for the upcoming season. Some of these questions include:
Once assessing the current status of your fleet, you can begin to firmly understand your fleet needs for the upcoming year and can begin your fleet planning. Ideally, fleet planning should begin immediately after your current season ends. Why? There are several key benefits to not waiting until the new year to begin upgrading your fleet. Some benefits include:
By beginning your fleet planning process as soon as possible, you can be assured that the trucks you need will be ready by the time you need them (end of Quarter 1). Because many companies are also looking to upgrade their fleets at the same time, the production schedule is often incredibly full. If you only begin your fleet planning and place your order for trucks sometime in Quarter 1, you are automatically slotted behind many trucks that are further in the production schedule than yours are, thus delaying when you would receive your trucks. Starting your fleet planning now allows for sufficient time to build your truck and deliver it to you by the time your first major operations of the new year begin.
By purchasing a truck before year end, your company can actually use the purchase price of the truck as a tax deduction. Read on to learn more about how your company can utilize this deduction in the upcoming year.
While this might seem counter-intuitive that buying a truck before the end of the year would put money back in your pocket, that is exactly what happens!
Section 179 of the IRS tax code allows you to deduct the full purchase price of qualifying equipment from your company’s gross income. This deduction was created in order to benefit small businesses and encourage investments into the company
Fortunately for you, TMA trucks and vocational trucks, such as forestry trucks and dump trucks, qualify for this deduction. Many of these vehicles qualify for full deduction as they are classified as “heavy construction equipment."
While the Section 179 Deduction can be utilized with a purchase of a new or used vehicle, its benefits can be maximized through leasing or financing equipment. According to expert analysis of the deduction, “The obvious advantage to leasing or financing equipment and/or software and then taking the Section 179 Deduction is the fact that you can deduct the full amount of the equipment and/or software, without paying the full amount this year.”
If you are looking to add to your fleet, leasing/financing equipment will give you the most value by pairing it with using the Section 179 Deduction. Ultimately this program will help your company’s cash flow and bottom line profits increase.
Of course, Section 179 Deductions do have limits. For 2020, this deduction limit is $1,040,000. The other major stipulation with this deduction is that for it to be applied in the 2020 tax year, the equipment that is “purchased or financed must be placed into service between January 1, 2020 and December 31, 2020.”
There is also a spending cap set at $2,590,000 for equipment purchases this year. If your company spends more than that cap, “the Section 179 Deduction available to your company begins to be reduced on a dollar for dollar basis.”
Electing to use the Section 179 Deduction is as simple as filling out IRS form 4562 and attaching it to your company’s tax return. To note though, you need to have complete details of the equipment purchase transaction in order to properly fill out the form. This includes where you purchased the equipment from, the date it was purchased, and the date it was first put into service.
To make it as simple as possible, waiting too long to begin your fleet planning for the upcoming year can only be detrimental to your company. Not only will waiting too late to order your trucks jeopardize the timing of their manufacturing and delivery, but you will also miss out on significant tax savings!
Do you still have questions about fleet planning? We understand! By sending us an email at firstname.lastname@example.org, a member of Royal’s team will be in contact with you to answer any questions you may have or to get the process started.
*All Section 179 Deduction information was sourced from Section179.org. Please consult your tax professional for how this may apply specifically to your equipment needs.