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PalletCentral • September-October 2020
palletcentral.com
exceeds a set dollar amount ($50,000 in 2020).
Inclusion amounts for vehicles first leased in 2020
is found at www.irs.gov/pub/irs-drop/rp-20-37.pdf.
Caution: Trade-ins trigger taxable income. In the
past, if you traded in a used vehicle when you bought
a new one, you could avoid immediate taxation.
Now, however, a trade-in is treated as a sale of the
old vehicle, resulting in reportable gain to the extent
the credit that the car dealer gives you for the trade-
in exceeds the vehicle's basis (which could be zero if
it's been fully depreciated).
Financing Your Purchases
If you borrow money, keep in mind the tax break
you get for the interest paid. If you're a small business,
which is one with average annual gross receipts in
the three prior years not exceeding a set amount ($26
million in 2020), then all paid interest is tax deductible.
If you don't qualify as a small business, there's a
limit on deducting your interest expense. For 2020,
interest is deductible only to the extent of 50 percent
of earnings before interest, tax, depreciation, and
amortization (EBITDA). In 2021, it's only 30 percent
of EBITDA, and starting in 2022, the cap is further
limited to earnings before interest and tax (EBIT).
Be sure to factor in these changes in the rules for
deducting interest expense in your budgeting for
years to come. The IRS has guidance
5
on deducting
business interest expense.
Final Thought
Now is a great time to review where your business
stands so you can make plans for acquisitions before
year's end. Given the pandemic, be sure to keep your
plans flexible so you can adapt to changing needs.
Barbara Weltman is
founder of Big Ideas for
Small Business, Inc.,
which publishes the
e-newsletter Big Ideas for
Small Business®. She is an
attorney, author and a trusted
professional advocate
for small businesses and
entrepreneurs. She has been
named one of the 100 Small
Business Influencers in the
nation and serves on the
advisory board for the Small
Business & Entrepreneurship
Council. Find her on www.
BigIdeasForSmallBusiness.
com and @BigIdeas4SB.
REFERENCES:
1 Rules for rotable spare, temporary, and standby emergency parts: https://
www.irs.gov/pub/irs-utl/tangiblepropertyatg9142016.pdf.
2 De minimis rule: https://www.irs.gov/pub/irs-drop/n-15-82.pdf.
3 Dollar limits are found at https://www.irs.gov/pub/irs-drop/rp-20-37.pdf).
4 Electric drive motor guidance: https://www.irs.gov/businesses/irc-30d-
new-qualified-plug-in-electric-drive-motor-vehicle-credit.
5 Deducting business interest expense: https://www.irs.gov/newsroom/
irs-issues-final-regulations-and-other-guidance-on-business-interest-
expense-deduction-limitation.
