2017 USA tax complication and unfairness act, effects on BEV industry

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edatoakrun

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Joined
Nov 11, 2010
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Location
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There was a lot of crap in the recent legislative monstrosity other than any changes in the FTC that will likely effect future BEV sales in the USA.

Top four on the list below, likely being the most important, IMO.

I do not have any particular expertise in the field, so please correct any mistakes I may make.

Top 10 tax changes for business owners

On Dec. 22, the Tax Cuts and Jobs Act (TCJA) was signed into law. This column briefly summarizes the most important of the many changes in the TCJA that will affect small and medium-size businesses and their owners. Here goes.

1. New flat 21% tax rate for corporations...
Profitable BEV manufactures (all but TSLA...no profits, no income tax) can either cut BEV prices or retain this windfall.

2. No more corporate alternative minimum tax...
See comment above...

3. New deduction for “pass-through” business income

...The deduction generally equals 20% of QBI, subject to restrictions that can apply at higher income levels. The QBI deduction is not allowed in calculating the noncorporate owner’s adjusted gross income (AGI), but it reduces taxable income. In effect, it is treated the same as an allowable itemized deduction...
It is widely believed that millions of employees will shift their status to contractors to walk through this massive loophole.

This in turn should open up a number of other company car benefits in the tax code.

4. Liberalized asset expensing and depreciation provisions

...More Generous Depreciation Deductions for Passenger Vehicles Used for Business: For new or used passenger vehicles that are placed in service after Dec. 31, 2017 and used over 50% for business, the maximum annual depreciation deductions allowed under the TCJA are as follows:

* $10,000 for Year 1.

* $16,000 for Year 2.

* $9,600 for Year 3.

* $5,760 for Year 4 and thereafter until the vehicle is fully depreciated.

Key point: For 2017, the old-law limits for passenger cars are $11,160 for Year 1 for a new car or $3,160 for a used car, $5,100 for Year 2, $3,050 for Year 3, and $1,875 for Year 4 and thereafter. Slightly higher limits apply to light trucks and light vans. So the new rules are much more beneficial...
Wow.

I would think this should benefit BEVS over ICEVs, as generally higher initial costs could be written off so much faster, while the higher fuel and maintenance costs of ICEVs will be still be incurred on the same schedule.

Expensive BEVs (other than Tesla X, and any other future heavyweight BEV which will also benefit from the Hummer loophole, excepted) should get the more significant sales boost.

Overall, it looks to me like an intentional effect effect of the tax bill was to favor the auto industry in general, and unintentionally (?) may favor BEV sales in particular.

https://www.marketwatch.com/story/top-10-tax-changes-for-business-owners-2017-12-29
 
Too bad I don’t run a small business anymore, could re arrange my finances and expenditures for a lower cost car.

Such is the silly world we live in
 
Employees cannot just change their status to Contractor. The IRS has many regulations and definitions to prevent employees from being classified as contractors. They have cracked down on this tactic, which was commonly attempted in the past to avoid paying benefits, overtime, and workmen's comp insurance, along with their share of Social Security and other taxes.
 
Here is an expanded Q&A for the pass-through
https://www.forbes.com/sites/anthonynitti/2017/12/26/tax-geek-tuesday-making-sense-of-the-new-20-qualified-business-income-deduction/#1ccaef8544fd

If the deduction has to be itemized, meaning that the standard deduction cannot be taken, it is difficult to guess how much, if any, of a final tax reduction eligible taxpayers will gain.

One thing is certain: taxes are more complicated now.

--
As for the car, I'll have to ask my CPA. In the past she has told me to pass on the idea even though the lion's share of my car use is driving to work. I think her judgement was based on workplace definitions.
I am the sole employee of my professional services small business registered as an LLC and taxed as an S-Corp
 
SageBrush said:
...
As for the car, I'll have to ask my CPA. In the past she has told me to pass on the idea even though the lion's share of my car use is driving to work. I think her judgement was based on workplace definitions.
I am the sole employee of my professional services small business registered as an LLC and taxed as an S-Corp

If you have one specific place you work out of, even in your situation, the daily drive can be considered commuting and difficult to justify a business expense for the vehicle. If you don't always work from the same location, have to regularly drive to client sites, or have other legitimate business use for a vehicle, then it is much easier to make a case for the expense of one. Then there are other issues to deal with, such as registering it in the business name and getting commercial insurance coverage. It is usually easier to track the business vs. personal mileage use and claim the expense that way.
 
baustin said:
SageBrush said:
...
As for the car, I'll have to ask my CPA. In the past she has told me to pass on the idea even though the lion's share of my car use is driving to work. I think her judgement was based on workplace definitions.
I am the sole employee of my professional services small business registered as an LLC and taxed as an S-Corp

If you have one specific place you work out of, even in your situation, the daily drive can be considered commuting and difficult to justify a business expense for the vehicle. If you don't always work from the same location, have to regularly drive to client sites, or have other legitimate business use for a vehicle, then it is much easier to make a case for the expense of one.

Yep, sounds familiar ;-)
This https://www.thebalance.com/can-i-deduct-commuting-expenses-397634 adds to your explanation.

Thanks for your post.
 
LTLFTcomposite said:
Cutting the corporate tax rate hurts companies that aren't profitable because they don't benefit from the cuts.

How does this hurt them? They may not benefit from the reduced tax rate, if they are not profitable. Otherwise, their situation is unchanged and the reduced rate has no effect on them.
 
baustin said:
LTLFTcomposite said:
Cutting the corporate tax rate hurts companies that aren't profitable because they don't benefit from the cuts.
How does this hurt them?...
The report below explains how most corporations with loss carryovers are adversely impacted.

TSLA however, has been losing so much money for so long, and since it expects to continue to lose money so far into the future, it had already largely written down the value of its deferred tax assets, so relatively little more damage was done to it by the new law.

Even with its losses, Tesla won’t take a big hit from lower tax rate

Tesla has racked up the losses as the electric vehicle maker has tried to scale up. But unlike some other companies with a history of losses, corporate tax reform won’t force them into a major write-down.

Tesla doesn’t have to worry about a big hit to its bottom line as a result of tax reform because the company has already written down the value of its large deferred tax assets, telling investors in its last annual report they don’t know when they will be profitable enough to ever use them.

Many companies that have a prior history of big losses like Citigroup, Fannie Mae and Freddie Mac face huge writedowns of their deferred tax assets based on a “remeasurement” of the potential for those assets to reduce future tax liabilities. The calculations are based on the tax reform bill’s proposed reduction of the corporate tax rate from 35% to 20%.

But when companies like Tesla have already determined that it is “more than likely” they will be unable to use the assets to reduce future tax liabilities in the near future—typically because of chronic losses—accounting standards require them to make a “valuation allowance”, which means they already took a hit to profits.

Tesla wrote that as of the end of 2016, it had recorded “a full valuation allowance on our net U.S. deferred tax assets because we expect that it is more likely than not that our U.S. deferred tax assets will not be realized in the foreseeable future.”

Tesla reported losses of $746.3 million in 2016, $875.6 million in 2015, and $284.6 million in 2014...
https://www.marketwatch.com/story/even-with-its-losses-tesla-wont-take-a-big-hit-from-lower-tax-rate-2017-12-15
 
baustin said:
LTLFTcomposite said:
Cutting the corporate tax rate hurts companies that aren't profitable because they don't benefit from the cuts.

How does this hurt them? They may not benefit from the reduced tax rate, if they are not profitable. Otherwise, their situation is unchanged and the reduced rate has no effect on them.
If GM pays less tax there is more money to develop new electric vehicles faster.
So more competition from profitable companies.
 
baustin said:
LTLFTcomposite said:
Cutting the corporate tax rate hurts companies that aren't profitable because they don't benefit from the cuts.

How does this hurt them? They may not benefit from the reduced tax rate, if they are not profitable. Otherwise, their situation is unchanged and the reduced rate has no effect on them.
That's not the correct way to look at it. If I buy you a pizza every day then skip a day that's the same as me stealing a pizza from you.
 
LTLFTcomposite said:
baustin said:
LTLFTcomposite said:
Cutting the corporate tax rate hurts companies that aren't profitable because they don't benefit from the cuts.

How does this hurt them? They may not benefit from the reduced tax rate, if they are not profitable. Otherwise, their situation is unchanged and the reduced rate has no effect on them.
That's not the correct way to look at it. If I buy you a pizza every day then skip a day that's the same as me stealing a pizza from you.

In my view, that is some twisted 'entitlement' thinking. Getting free lunch every day, and then having to buy my own one day, is not someone stealing from me, it's just the loss of an unexpected advantage previously received. However, if there was some type of an agreement that the lunch would be provided every day as part of my job, and one day it stopped, then I would consider that stealing from me.
 
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