Pub. 1 2018-2019 |Issue 2

11 • Entertainment expenses: It used to be you could deduct as much as 50 percent of expenses for entertainment and meals. Entertainment deductions were disallowed after December 31, 2017. Business meals can still be deducted. Holiday parties are 100 percent deductible, so plan for a good one. • Exemptions for Estate and Gift Taxes: Between December 31, 2017 and January 1, 2026, estates of decedents have an estate and gift tax exemption that has been increased to $11.2million for someone who was single, and $22.4 million for amarried couple. If your family dealership has a succession plan and you want to transfer ownership interest to the next generation, or you are thinking of setting up such a plan, nowwould be a good idea to either write or review those plans. Should you convert your partnership or S corporation to a C corporation in order to take advantage of the lower tax rate mentioned above? Everything depends on your particular situation. For example, it may depend on how much of your remaining earnings as a C corporation are to be distributed as a dividend, because then you have to tax them again. Add the tax rates together and you end up paying almost 40 percent in taxes, which is higher than the 37-percent maximum individual rate, and which is also higher than the effective rate on a qualified flow-through business. That rate is only 29.6 percent. The second level of taxes also kicks in if a corporation is sold or liquidated, which means you should stay with the same structure if you plan to sell your dealership anytime soon. Before deciding tomake a switch, look at factors such as ownership of appreciating assets such as real estate, the effect of state taxes on cash flow, and the timeline for a business exit strategy. To decide what makes sense, model the after-tax cash flow on a present-value basis. Doing this should help you evaluate the options more clearly. NADA’s Influence As originally written, the TCJA created a tax penalty for business that were trading and upgrading vehicles. Joseph Magyar, a CPA who is a partner at Crowe, LLP, testified on behalf of NADA in Washington D.C. at a public hearing for proposed regulations for bonus depreciation. The hearing was held in December 2018. Magyar testified that taxpayers who deducted floor plan interest were not allowed the bonus depreciation deduction, but the IRS was taxing the gain and disposable of the relinquished property because the deferral from the like-kind exchange had been removed. Magyar asked the IRS to create a carve- out exception so that dealerships would qualify for bonus depreciation if they replaced at least 10 rental- fleet vehicles. Eligible transactions were those that would have been considered like-kind exchanges under the old rules. As Magyar pointed out, not having that carve- out exception meant a significant tax increase that would be particularly hard on dealerships between the 2018 through 2020 tax years if they traded in vehicles and upgraded their fleets. This exception would treat the sales and leasing of vehicles as events When it comes to tax topics that affect the nation’s dealerships, grassroots effort truly does make a difference as dealerships make a team effort. that are separate from each other, and that separation could minimize the consequences of losing like-kind exchanges. The choice of 10 vehicles was arbitrary, but it was suggested because if only one or two vehicles that are involved, then it may not represent a separate activity. When it comes to tax topics that affect the nation’s dealerships, grassroots effort truly does make a difference as dealerships make a team effort. Lobbying on Capitol Hill is undoubtedly important, which is why NADA had almost 500 dealers and dealer association executives from every state involved in making 300 visits during a two-day period to members of Congress during its annual Washington Conference and Congressional fly-in. But internet platforms make it possible to extend that influence and to reach the people who write policies in real time, not just once a year, which makes them an increasingly important way to extend NADA’s influence throughout the entire year. About Tariffs NADA is deeply concerned about tariffs because of the impact that would have on dealerships throughout the U.S. if the tariffs are allowed to stand. Tariffs that are up to 25 percent on auto parts and imported automobiles are bad news for all dealerships, whether they sell domestic cars or imported ones. The tariffs would raise the average cost of a car in the U.S. by $4,400. As a result of that increase, sales would fall annually by 2 million cars and would also mean the loss of 117,500 jobs at dealerships. NADA has been very successful so far in making sure that the U.S. continues to have a profitable marketplace for car sales. But now is the time to do what you can to stop tariffs so that U.S. dealerships can continue to succeed throughout the coming years. 3