“I have worked with Smith Schafer directly and indirectly since 1979. I’ve always felt comfortable and confident in the work they do. Smith Schafer knows the law, the regulations and the rules that support our business.” Bruce Dischinger, Former VP & COO of Minnesota Coaches Group
a hiring shortage, rising fuel costs and increased competition challenging the
transportation industry, the knowledge and experience of your CPA makes a difference.
businesses, including trucking, school bus, motor coach and aircraft, often
face complex challenges not encountered in other industries. Managing the
demands of a large fleet including drivers, safety and compliance, and the
maintenance of new trucks and other equipment can be quite complicated. To stay
competitive, transportation companies need look for every advantage possible to
win new business, reduce expenses and increase service levels.
industry experts stay on top of changing trends and leverage years of
experience, relationships, and continuing education. Smith Schafer’s transportation
specialization allows us to stay on the leading edge of industry developments,
regulations and opportunities, and permits us to efficiently and effectively
provide services tailored to our client’s needs. A CPA who understands your
business and the industry can act as a valuable consultant on items such as
succession planning, business valuations, bookkeeping and much more. This level
of specialization makes us uniquely qualified to provide the high-quality
services that our transportation industry clients expect and deserve to
Why a CPA?
are trusted professionals offering high-level analysis and long-view
recommendations encompassing every detail of a financial picture. CPAs have
passed a rigorous examination and have met high standards of education. The
American Institute of CPAs works to protect the public interest and the
organization certifies these individuals are able to perform their duties in a professional
manner. The CPA designation is extremely difficult to acquire and is a way for
the financial industry to identify the right people to handle important
A CPA professional working with the transportation industry should be fully immersed in the arena. There is no substitute for industry-specific knowledge and understanding. Whether it’s negotiating fuel surcharges or dealing with leasing sales tax and fleet maintenance, Smith Schafer has the experience and understanding of the transportation industry to make a lasting positive difference in your future success. Our Transportation Group, comprised of numerous professionals, is committed to serving over 100 Minnesota transportation entities. Partner with an experienced team of CPAs to help you create saving opportunities both now and in the future.
Whether your transportation company has one or dozens of vehicles on the road, smart management can save you money. Familiarity with tax laws, simple maintenance steps, and high-tech solutions can reduce the costs of operating your fleet and keep it safer.
START WITH TAXES
One of the best ways to save money is to spend some time with financial and accounting professionals. Deductions make a major difference in the cost of operating a fleet. Smith Schafer has the experience and understanding of the transportation industry to make a positive difference in your future success. Our Transportation Group, comprised of numerous professionals, is committed to serving over 100 Minnesota transportation entities.
- Depreciation deductions are allowed on vehicles used for business purposes, including passenger cars, light trucks, and vans.
- The various rules surrounding depreciation can be complex, but Smith Schafer professionals are here to help you simplify your options.
operating costs deductible to the extent of their business-use percentage.
costs typically include:
and License fees
lease payments are deductible to the extent of their business-use percentage.
apply to certain passenger cars, light trucks, and vans.
costs of leased vehicles are also deductible to the extent of their
you buy or lease, it is important to keep good records of business miles driven
for tax purposes.
Beyond tax savings, simple maintenance can keep your costs down and your safety record up. Here are five tips to managing your fleet:
- Check the air pressure of your tires daily when they are cold and fill if necessary. Low air pressure causes stress and irregular wear that can result in loss of control.
- Inspect tires every 30 days for wear and evidence that the suspension isn’t aligned properly.
- Rotate tires regularly to help achieve more uniform wear. The guideline for tire rotation is approximately every 6,000 miles.
- Avoid premium gasoline unless necessary. If your vehicles do not specifically require an upgraded fuel, buy regular unleaded.
- Shop around when you hire out routine maintenance. Costs can vary as much as 50% depending on which shop you use. Consider doing in-house maintenance. Your business can be more productive if your vehicles continue to run during normal hours and are serviced by staff mechanics after hours.
- Keep your fleet in a garage or parked under a carport. As a result, it will help keep them in better condition and if garaged, may lower your insurance cost.
- Shop for insurance. Re-bid your insurance policy to make sure you’re getting the best deal.
- Encourage safety. Run a motor vehicle report on every driver in the company. Revoke driving privileges for those with multiple infractions. Consider rewarding those with good records.
What’s driving your business? You should have an advisor on your side to take a tax efficient, customer-centric approach to managing the top and bottom line and everything in between. Transportation has been a key practice area of ours since 1971. Contact us today to learn more about how we can help while providing accurate, timely and professional financial advice.
Over the past 45 years, we have dealt with several IRS audits involving the fuel tax credit claimed by our school bus company clients.
BELOW ARE FREQUENTLY ASKED QUESTIONS WE HEAR FROM SCHOOL BUS COMPANY OWNERS:
Q: What fuel and what vehicles qualify for the fuel tax credit?
A: Gasoline and diesel fuel used in school buses and qualified local buses qualify.
Q: What is the definition of a school bus and a qualified local bus for fuel tax credit purposes?
A: Many states have their own definition for what is a school bus. For example, Minnesota’s definition of a school bus is published under Minnesota statute 169.011 subdivision 71. However, the federal fuel tax credit does not use a state statute for their definition.
The Federal statute does not give a specific definition as to what a school bus is. However, over the years, it has become apparent that the bus looking vehicle with accordion doors is the starting point. The fuel tax credit is available for vehicles registered as a school bus with the state where the vehicle is licensed.
The school bus fuel tax credit is not available for traditional passenger vehicles, such as mini vans or other automobiles registered as a van or private automobile. The smaller vehicles must be modified by installing the accordion doors and other safety modifications, in order to qualify for the fuel tax credit. For example, a standard Dodge Grand Caravan painted yellow is not a school bus for federal fuel tax purposes.
Note: the publications do not define the fuel credit as available for fuel used in any vehicle used to transport school students; it specifically says bus (school bus). “In a school bus means fuel used in a bus engaged in the transportation of students or employees of schools.”
In a qualified local bus means fuel used in a bus meeting all the following requirements:
- It is engaged in furnishing (for compensation) intracity passenger land transportation available to the general public.
- It operates along scheduled, regular routes.
- It has a seating capacity of at least 20 adults (excluding the driver).
- It is under contract with (or is receiving more than a nominal subsidy from) any state or local government to furnish the transportation.
We have several clients using traditional automobiles for the services to transport students. We have not taken fuel tax credit for school transportation on traditional automobiles, but do for school buses and qualified local buses.
Q: What is the difference between a qualified local bus and a school bus?
A: A qualified local bus is eligible for the fuel tax credit when it is a vehicle other than a traditional school bus and is used to transport people. A school bus is generally the traditional “yellow bus” which has the distinctive accordion doors and school bus safety features you would recognize such as a 65 or 77 passenger school bus. A qualified local bus is a bus which does not qualify as a school bus, but has a seating capacity of at least 20 adults excluding the driver.
Q: What information is needed?
A: We begin each year by asking our clients about the gasoline gallons and then the diesel gallons used during the prior year in their school buses, what we call a “yellow bus.” Then we ask the same question for their qualified local bus fuel usage.
Q: Why do the gallons and type of fuel matter?
A: There are different rates of fuel tax credit available based upon if the vehicle is a school bus or a qualified local bus and the type of fuel used.
Q: Do you need a vehicle fueling log and/or receipts to obtain credit?
A: As we have gone through the audits over the years, the IRS has asked for a listing of the company vehicles, the fuel type and the seating capacity of each. If there are vehicles other than school buses or if qualified local buses that may have used fuel out of the tanks at the terminal, fuel cards or logs by vehicle have been asked for. The process typically includes providing fuel invoices from bulk deliveries plus fuel receipts for fuel purchased at the pump to prove that federal fuel taxes have been paid and reconciling the gallons claimed as a fuel tax credit against the total gallons purchased.
Q: How do I claim the fuel tax credit? What is the deadline for filing a claim?
A: Generally, the filing is done annually along with your company’s business income taxes using Form 4136 (for tax credits), but you may also file annually on fuel and any other applicable excise taxes (for rebate payments) using Form 8849 along with the appropriate attachment (schedule 1 in your case). If you want to file quarterly you can use Form 720.
Transportation has been a key practice area of Smith Schafer’s for more than 45 years. We have qualified professionals to assist you with identifying and claiming these credits. For more information on tax strategies that may benefit your business contact the Smith Schafer Transportation Team.We look forward to speaking with you soon.
The new lease accounting rules will have a significant impact on the financial statements of transportation companies leasing real property, equipment, vehicles and other fixed assets. The new lease rules apply to all leases with a term of more than one year and go into effect for nonpublic companies with fiscal years beginning after December 15, 2019. Below are five ways the new lease rules may affect transportation companies:
1. Existing leases will present differently.
Under the current rules, many leases are recorded only as rent expense on a transportation company’s income statement. However, under the new rules, lessees will be required to record an asset and corresponding liability for substantially all leased property.
2. Existing leases will be incorporated in the change.
The terms of current leases are more than likely going to continue into 2019 and beyond, meaning every lease entered into is going to be presented differently on future financial statements.
3. Current loan agreements will be affected by the change.
Banking relationships are important to transportation companies. Agreeing to loan covenants now, without understanding how this standard is going to affect a transportation company’s financial statements, may put a strain on this relationship that could be avoided.
4. Buy versus lease decisions on equipment could change.
Many factors are involved when deciding between leasing a piece of equipment or purchasing the equipment out right. If showing debt on the balance sheet is a consideration, this will need to be re-evaluated to verify how the lease will be presented in the future.
5. Comparative statements need to be calculated.
The standard needs to be implemented for the earliest period presented, which will require calculations and new presentation for all years presented. Transportation companies should determine if the bank requires comparative statements. Single year presentation will remove a year of lease liability calculations and restatement, which may save time and money, but may reduce the usefulness of the statements.
The best way for your transportation company to prepare for the new lease accounting rules is to plan ahead. Below are three things your transportation company should be doing now to prepare:
1. Identify and classify leases.
Review all existing lease and rental contracts and create an inventory list, including rent, interest rates and security deposits. Lease documents will become a necessary item for accounting professionals, so start collecting and retaining these documents now.
2. Educate transportation company’s banker.
Educate investors about the new lease accounting rules and how they impact financial statements. Ensure they know what to expect in future financial statements.
3. Consider purchasing equipment before the end of the year.
If there are plans to enter into a new lease for equipment, consider purchasing it instead. For 2018, the section 179 depreciation deduction is generally $1,000,000 and the bonus depreciation rate is 100 percent.
Implementation of new lease accounting rules may be a relatively simple process with the help of a CPA with an expertise in your industry. Smith Schafer is a recognized leader in providing accounting, auditing and consulting services to the transportation industry since 1971. Our Transportation Group is committed to serving over 80 Minnesota transportation entities and stays on top of industry issues, trends, tools and technologies to ensure we give you the best possible advice.
For additional details on the new lease accounting rules or to learn more about how we can help, please contact a Smith Schafer professional.
Many growing transportation companies struggle to create well-tuned accounting processes, especially as systems need to change to support increased activity. We have provided the guide below to help transportation companies better understand some basic accounting procedures:
1. ACCOUNTING METHOD
There are two principal options for accounting for revenue and expenses:
- the cash method
- the accrual method
The cash method of accounting is exactly as it sounds – revenue is recorded when cash is received, and expenses are recorded when cash is spent. This is the simplest accounting method. However, it does not always give a complete and accurate picture of a company’s operations.
Example: A large job is completed in December 2018, but payment is not received until January 2019; expenses related to the job were paid in 2018. Using the cash method of accounting, the revenue will be recorded when payment is received in January 2019 and expenses recorded in 2018 when paid.
Under the accrual method of accounting, revenue is recognized when it is earned, regardless of when the cash is received and expenses are accrued even if not yet paid. The accrual method of accounting provides a more complete and accurate picture of a company’s operations and matches the expenses to the same period as the revenue.
Tip: If a third party, such as a bank or bonding company, is requiring a transportation company to have CPA-prepared financial statements, inquire about the method of accounting they prefer.
2. FUEL AND PARTS INVENTORY
Inventory is often associated with retail businesses and is generally a product to be sold to customers. However, transportation companies may also have inventory but it’s in the form of products consumed in the production of services. These may include fuel, parts and other supplies. Under the accrual method of accounting described above, inventory is an asset to the company and is not recorded as an expense until it is used.
3. LEASING ASSETS VS. BUYING
Many factors are involved when deciding between leasing a piece of equipment or purchasing the equipment. Leasing equipment has predictable payments that are typically 100 percent deductible as an operating expense. Generally, companies do not pay for maintenance on leased equipment. However, companies are charged interest as a component of the lease payment. This interest results in an overall higher cost than an outright purchase.
When purchasing an asset the overall cost may be lower but this transaction generally requires a higher initial cash outlay at the time of purchase. In a purchase situation, the transportation companies have complete control over the asset.
4. TAX CONSIDERATIONS
There are two major tax considerations specific to transportation companies.
- Meals provided to employees. The general rule is a company may deduct 50 percent of business-related meal expenses. However, transportation companies receive a higher deduction. Employers can deduct 80 percent of the cost of meals provided to employees whose work is subject to U.S. Department of Transportation hours-of-service limitations.
- Credit for taxes paid on fuel. The government essentially taxes all fuel purchases, but then allows a credit for nontaxable uses of this fuel. Nontaxable uses include, but are not limited to, farming, off-highway business, such as refer fuel, use and transporting students. In order to claim the credit, a Form 4136 must be completed with the tax return. A tax credit reduces income tax dollar for dollar. Whereas a tax deduction reduces your income subject to tax. For example, a Form 4136 is completed and calculated at a $1,000 credit, income tax is reduced $1,000.
Need help managing the daily routine?
Transportation company owners manage and balance many duties including the accounting department. One strategy to reduce the burden is to hire additional staff. This strategy can be ineffective without the proper expertise, oversight and guidance. Smith Schafer offers customizable accounting services. Whether you need help managing the daily routine or assistance with more strategic decisions, such as software analysis and selection, our accounting professionals can give you back valuable time and resources so you can focus on growing your transportation company.
Contact us today to learn more about how we can help while providing accurate, timely and professional financial advice.
Businesses in the transportation industry often face complex challenges not encountered by other companies. Managing the demands of a large fleet including; drivers, safety and compliance, and the maintenance of new trucks and other equipment can be quite complicated. To stay competitive, transportation companies look for every advantage possible to win new business, reduce expenses and increase service levels. The good news is the Tax Cut and Jobs Act of 2017, more commonly known as tax reform, ushered in several changes which will benefit transportation companies.
Prime examples include a reduction in business tax rates, changes to pass through entity taxes and expanded Section 179d expensing. There are several additional changes will can benefit transportation industry businesses in 2018 and beyond. To help clients, prospects and others understand the changes and corresponding benefits, we have provided a summary of key points below.
Key Tax Reform Changes
- Pass-Through Entity Taxation – Under prior laws, pass through entity owners had to pay tax on company earnings at their individual tax rate – often 39.6%. The new law allows qualifying pass through entities to receive a 20% deduction on pass-through income for tax years beginning after 12/31/17 and ending in 2025.
- Enhanced Section 179d Expensing – Tax reform has changed Section 179d expensing limits to allow companies to deduct up to $1M of the cost of qualifying property placed into service during the year. Beyond this, a business owner may purchase up to $2.5M (increased from $2.0M) in qualifying business property before the benefits are phased out.
- Luxury Auto Depreciation Limits – Under the new tax law, vehicles placed into service after December 31, 2017, weighing 6,000 pounds or less, have a new maximum deprecation limit of $10,000 in year one. If a company can claim bonus depreciation, then the possible limit is increased by $8,000 to $18,000. The limits also change in year two to $16,000, year 3 to $9,600 and in year 4 and beyond to $5,760. Vehicles that are over 6,000 pounds are not subject to these limits and are eligible for bonus depreciation if acquired and place into service after September 27, 2017. For Section 179, the limitation of $25,000 is still in place for SUVs.
- Immediate 100% Expensing – Companies will now be able to fully expense certain capital expenditures instead of depreciating them over several years, starting with business assets placed in service after September 27, 2017. There is no limit to the amount that can be expensed, but the percentage of allowable expensing will be phased out at a rate of 20% per year from 2023 (80%) to 2026 (20%). This immediate tax benefit is likely to encourage more capital spending, potentially enabling fleet upgrades and expansion for trucking and bus companies as well as others in the industry.
- Entertainment Deduction Repealed – Under previous rules, companies could deduct 50% for a variety of expenses, such as client meals, event tickets, charitable event tickets and membership fees. The new law eliminates deductions for entertainment, amusement, recreation, and club membership dues. This applies even for expenses directly related to the active conduct of a taxpayer’s trade or business.
- Limited Business Interest Expense Deduction – The deduction for net interest expenses incurred by a business will now be limited to 30% of its adjusted taxable income – or earnings before interest, taxes, depreciation and amortization. Businesses with average annual gross receipts of $25 million or less are exempt from the limit. This new rule will have the greatest impact on companies that carry a higher amount of debt
- Excess Business Loss – Starting in 2018 excess business loss of a taxpayer other than a C corporation is limited. Net business loss of $250,000 (or $500,000 in the case of a joint return) will not be deductible in the current year. However, an excess business loss is treated as part of the taxpayer’s net operating loss and can be carried forward to subsequent years.
The new tax reform offers many changes that will benefit transportation companies. Since there have been significant changes over the past year, it’s important to work with a qualified advisor to help you leverage these opportunities. If you have questions about the changes or need assistance with a tax, accounting or audit issue, Smith Schafer & Associates can help.