CED

February 2013

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On the Numbers The Stock Market is Not the Economy! How to be wary while watching your key tax issues this year. By Garry bartecki The stock market is not the economy. Remember that. They are two different things, and if you listen to the talking heads discussing the market you will run out and make risky investments and also be inclined to make risky business decisions. The FC (I can't stand to say fiscal cliff any longer) results are a nonissue. We raised taxes on the folks who now pay most of the taxes but did nothing to reduce spending. I was shocked to see the number of tax provisions that expired in 2011 that become reinstated for 2013. The most important provisions as far as AED dealers are concerned are the $500,000 Sec. 179 limit (with $2 million investment limit) applicable to both new and used equipment and the 50 percent bonus depreciation applicable for new purchases placed in service by Jan. 1, 2014. Some of the other tax provisions are of benefit to dealers, but unfortunately many work against you. We will carefully go through the new provisions and let you know how to make them work for you. The big issue remaining is the new tax on investment income, which includes earnings from rental – including the sale of rental equipment. AED is working to get our rental activities removed from "passive" status because it should be. The key to managing your rental tax risk is to properly account for these transactions for book and tax purposes. Based on my conversations with dealers many of you are at risk and need to do something about it. If you really don't understand these tax issues you need to contact AED and let our tax team explain them to you and identify your potential exposure (if they can review your tax returns). This is a big issue, one you don't want to find out about after an IRS agent shows up at your door. We are planning for the annual CFO Conferences and this year will include a program to help you understand Obamacare and how it will affect your business and cash flow. We will also spend time on rental again and pay special attention to the tax issues resulting from the recent changes as well as this passive income issue. Sales compensation also has come up at the CFO events. So this year we will conduct a survey to see how dealers are paying for the various products and services we sell and use the results for discussion purposes at the conference. Other topics under consideration are: n Flow-through versus C-Corp tax entity n Current life insurance strategies n Health care alternatives n Captive health insurance plans n Performance Group results n Nonfinancial dealer risks n Current business valuation considerations n Rent-to-rent and rent-to-sell operating issues Any other topics you would like us to cover will be considered. Just give me a call or contact me by e-mail and we will add the topic to our list. All things considered I believe you have to keep your cash reserves close to the vest in case the economy blows up once the Feds stop printing dollars out of thin air. To help you with planning decisions I want to relate that participants in the 20 Group/Performance Group programs have found them very helpful. Imagine being able to discuss operating issues with noncompetitive peers using actual financial data to compare results. I tell you – there is nothing like it! We are also considering additional ways to help you address rental issues, including all forms of rental risk from a cash flow, operating and tax standpoint. There is no doubt that rental has to add to the overall dealer ROI, and dealers have to be prepared to manage rental to achieve those goals. Being in the rental business myself, I can tell you it is not as easy as it sounds. So let's be careful out there – and while you're at it send me your CEO/ CFO topics and/or your request for a tax team consultation. Garry bartecki (gbartecki@ aednet.org) is AED's vice president of Finance. February 2013 | Construction Equipment Distribution | www.cedmag.com | 45 45_On_the_Numbers_KP.indd 45 1/30/13 3:53 PM

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