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How the Latest Tax Law Overhaul Could Save Your Business Big Bucks (And Lead to a New Roof)

30 Apr 2018 | Under News, Roofing | Posted by | 0 Comments
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President Trump signed legislation creating the Tax Cuts and Jobs Act on December 22nd, 2017. This was the first time the American tax code had been overhauled in more than 30 years. Many of the changes to the tax law were made with the success of small business owners in mind.

The new legal language of the tax laws could potentially provide small business owners with major money-saving opportunities, which will allow them to reinvest in their business. Not only has the corporate tax rate been slashed significantly, the tax rate for pass-through organizations was dramatically reduced, as well. Special language has also been included to encourage business owners to invest in large assets. Buying assets could set the table for businesses to grow at a quicker pace.

These tax law changes could result in many small business owners having a healthier pocketbook. With more cash to go around, many business owners may realize it is the perfect time to invest in a new roof or take a look at recovering their current roof. If you are a business owner with a roof that could use a little TLC, you have a whole lot to be excited about. A million reasons to be exact. The Tax Cuts and Jobs Act allows business owners to deduct up to 1 million dollars in expenses related to commercial roofs or large assets.

The Basics of Section 179

The changes to Section 179 are perhaps some of the most advantageous changes for small business owners. Changes made to the tax code under Section 179 allow business owners to expense up to $1 million in nonresidential roofing expenses per asset. The language of the law gives business owners the opportunity to spend up to $2.5 million on multiple assets. Savvy entrepreneurs can apply these new stipulations to more than roofing. The definition of eligible property has been changed to include capital assets such as: HVAC equipment, fire protection systems, security systems, and many other nonresidential business items. The revamped legal lingo now includes used equipment. The tax code previously only allowed for new equipment to be deducted. These changes are clearly designed to motivate business owners to invest in assets and drive the economy upward.

The Basics of Pass-Through Taxation

The changes to pass-through taxation could give a big boost to many business owners. Of course, before we can tell you why it could be good for your business, we will need to tell you what it is. Pass-through taxation involves taxes that move through a business and are ultimately paid by an individual reporting their income to the IRS. It is very typical for many small businesses including roofing contractors to have their businesses legally configured as pass-through organizations.

Corporations often have to deal with the unfortunate circumstances of being taxed twice on their earnings. The corporation itself is responsible for paying a certain amount of income tax. In addition, the owners of the corporation are also taxed on their personal earnings.

Pass-through taxation avoids the first round of taxes. The owners of the organization are only taxed on the personal income they have earned. The business itself is not responsible for paying taxes on the revenue it has earned.

It is very common for many small businesses to be set up as pass-through entities or entities which are eligible to benefit from pass-through advantages.

Sole Proprietorship-A sole proprietorship is owned by one person.

Partnership-A partnership is a business owned by two or more people. The amount of taxes a particular partner is responsible for is typically correlated to how much of the business they own.

LLCs-An LLC can be formed by one person or many different partners.

S Corporations-Up to 100 individuals are allowed to take ownership in an S corporation. The tax liability of each shareholder in the Corporation depends upon their involvement in the business.

Pass-Through organizations also receive the benefit of the Section 199A Deduction. This piece of tax law provides owners of pass-through organizations with a 20% deduction. As is often the case with taxes, there are a few loopholes you need to be in the know about before you can be sure if this deduction is right for you.

If you are not filing jointly and you have reported under $157,500 in income, you are eligible. If you are filing jointly your taxable income must be under $315,000. If your income goes beyond these income brackets there are special parameters that will be applied to your specific situation.

Section 179 and Depreciation.

Changes to the legalese in Section 179 have also changed the way depreciation is handled on the balance sheet. Business owners can now deduct the cost of a new roof as soon as it is put into place. The old language required business owners to depreciate the cost of the roof over the span of 39 years. This approach to depreciation was anything but practical. Many business owners will not stay in the same building for 39 years, let alone, have the same roof.  

Depreciation will now be handled in more small business-friendly manner than it was in previous years. The percentage of depreciation is the amount the asset is theoretically expected to decline in value year after year. Depreciation is not an expense that requires a business owner to fork over any cash, but in accounting terms, as soon as an item is purchased it begins to lose its value. Think about a car losing value when you drive it out of the showroom. Business owners are able to deduct the theoretical lost value or depreciation of an item over a lifespan that is predetermined based on industry standards for each item.

There have been previous efforts to adjust the useful lifespan of a roof in the eyes of the tax code to better coincide with the practical lifespan of a roof. Bills were introduced in three previous congressional sessions. Ultimately, until now, no new legislation was created.

Bonus Depreciation and Spending Caps

Being able to deduct 100% of an expense in the year it was incurred is a great deal for small business owners. The recent overhaul of Section 179 gives small businesses two more huge boosts. The spending cap has been increased and financially savvy small business owners will be able to take advantage of bonus depreciation.

Bonus depreciation only comes into the mix after Section 179 deductions have been applied. Bonus depreciation is exactly as it sounds. It is a deduction that can be used after businesses surpassed the $2.5 million spending limit of Section 179.

Bonus deductions are not always available. Some years they are offered while other years they are not. 2018’s bonus deduction will have one more caveat designed to lend a hand to small business owners. You will be able to apply the deduction to used equipment. In years past small business owners who purchased used equipment were simply out of luck. Used equipment was not eligible even if the bonus deduction was being offered.

In previous years businesses were only allowed to deduct up to $2 million in total assets under Section 179. This year, the spending cap for the deduction has been increased. Business owners will now be able to deduct up to $2.5 million of expenses. If a business invests in tremendously expensive assets or they purchase more than $2.5 million of assets for the year, their total deduction will be reduced on a dollar by dollar basis.

Other Notable Changes

In addition to being able to deduct up to $1 million for the purchase of a capital asset in the year the particular asset began functioning in the business, there are also many smaller benefits that could help to fatten the coffers for business owners.

  • The tax rate for a C Corporation is being slashed from 34% to a much more revenue friendly 21%
  • The new laws are also helpful for sole proprietorships, partnerships, S corporations, and trusts. These entities will have opportunities to reduce their taxable income by 20%.
  • Employees will also be able to enjoy a healthier paycheck thanks to a few provisions designed to move the needle on their net income.
  • The cutoff amount for each of the taxable bracket were nudged up a bit. It will take more income to move an individual or family into the next higher tax bracket.
  • Individuals taxpayers will be able to enjoy healthy rewards. The rate on each of the brackets has decreased by 2 to 4%.

If You’re Thinking about a New Roof, Give Us a Call!

If these changes in tax law walkway for me free up some cash for your company, and you would like to get a new roof for repair your current roof, give us a call. Your roof is one of your company’s biggest investments. We are here to make sure you have the safest and most efficient roof possible.

Please note, the contents of this blog are for educational purposes only. Please consult a licensed financial professional before making any financial decisions.

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Jim Lowry - Bissinger's Handcrafted Chocolatier

Eric and crew were really nice to have around. They were courteous, careful and caused little if any disruption. Their work looks good too! To be honest… a good experience with a product that I initially had misgivings about. I’m a convert because of Bubba, Sam and Eric. Thank you.

Jim Lowry - Bissinger's Handcrafted Chocolatier

“I want to thank the crew at R&A for a job well done on our very leaky roof at the shop. It is certainly nice to have the drips and rivers gone from the shop when it is raining. I also wanted you to know how much we appreciated that the guys were able to stay out of our way and allowed us to do business as usual without any problems or interruptions. The roof looks great and the clean-up after the job made it so we couldn’t even tell you’d been here. Thanks for doing what you do so well!”

Jay Moore, President of Safe Way Tire and Auto Center

“My wife and I were on vacation when water pipes burst in our house. We got a hold of Craig and the R&A crew was able to start evacuating the water immediately. The best part was that they were able to start work before we even returned home. It was a very fast turnaround considering the extensive amount of water damage.”

Will from Dardenne Prairie, MO

“Craig and Mike came out in a timely fashion when we needed the work done. They did a reliable and quality job.”

Jerry from SLR Properties

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Lindell from Greater Missouri Builders (GMB)

“We purchased a house and there was some damage to the roof. Very impressed with the thoroughness of Mike’s inspection. Very comfortable with their explanation of what needed to be fixed. Most impressive was the way they protected our landscaping. Really liked the way they treated me as a valued customer, even though it was only a small project.”

Ross from Troy, MO

“I use R&A Contracting when my commercial roofs receive storm damage. They work on our behalf through every step of the insurance claim process. They perform all of the work and complete the insurance process, making our roofs better than they were before the storm.”

Director of Facilities for a large Property Management Company

“The team at R & A Contracting responded immediately when notified of our water disaster. They removed water-damaged materials and property quickly and restored our home even before the final settlement from our insurance company. They minimized how long our family had to live in a hotel and got us back to normal as fast as possible.”

Will from O'Fallon, MO