Discover benefits that may greatly impact logistics companies and show the importance of planning before making quarterly tax estimates.
With the passage of the One Big Beautiful Bill Act, logistics companies may want to start tax planning discussions now. The new tax law contains many beneficial tax provisions to potentially help lower taxes for 2025 and beyond — it’s critical to understand your own situation and adjust your plan accordingly.
While the freight market has seen better days, each logistics company is different. Regardless of your company’s circumstances, there is one thing nearly all taxpayers need to deal with and that is quarterly estimated tax payments. These are normally set up with the completion of the prior year tax return on a protective safe harbor basis.
Given the new tax law, paying estimates on a safe harbor basis should be revisited. Discover provisions in the bill that may greatly impact logistics companies and illustrate the importance of planning before making quarterly tax estimates.
Bonus depreciation
Many logistics companies have a lot of equipment and other assets, and the reinstatement of full bonus deprecation can help reduce costs. For property acquired and placed in service after January 19, 2025, 100% bonus depreciation is back. This essentially allows you to write off the entire cost of eligible assets in the year of purchase.
Many states do not conform to bonus depreciation. Also, if you had a contract to purchase the eligible assets on or before January 19, 2025, the allowable bonus depreciation percentage is 40% as it was originally scheduled to be for 2025.
Section 179 depreciation
Section 179 is another option to accelerate expensing eligible assets. for tax years beginning after December 31, 2024, the dollar amount has increased from $1 million to $2.5 million (both adjusted for inflation). The phase out for Section 179 now begins at $4 million instead of $2.5 million (both adjusted for inflation). Many states conform to some amount of Section 179.
Bonus depreciation and Section 179 have similar impacts, but it’s important to note key differences:
- Bonus depreciation can create a tax loss while Section 179 cannot.
- Bonus depreciation is automatic and you must make an election out if it is not wanted or Section 179 wasn’t taken on the bonus eligible assets. The election out of bonus depreciation goes by asset classes (see example below).
- There are instances where assets may be eligible for bonus depreciation but not Section 179 or vice versa. For example, land improvements are only eligible for bonus. Certain real property assets such as roofs are only eligible for Section 179.
How logistics companies can use bonus and Section 179 depreciation
Explore some examples of how logistics companies might use bonus and Section 179 depreciation:
- Tractors have a three-year asset class life while trailers have a five-year asset class life for tax purposes. You can elect out of bonus for three-year class life assets, five-year class life assets, or both. However, if you put two tractors into service, you cannot take bonus depreciation on one of them and not the other.
- Section 179 provides much greater flexibility as it’s not class life dependent. You can take Section 179 on one tractor but not another or take it on the partial cost of an asset.
- Bonus depreciation is based on calendar year while Section 179 is based on tax year. For example, a fiscal year filer may have a tax year from July 1, 2024-June 30, 2025, which for tax purposes their 2024 filing requirement. Their Section 179 limits are based on the limits in place for the 2024 tax year.
- Take that same fiscal year filer and if they take bonus depreciation on their additions, those additions could be subject to 40%, 60% or 100% bonus depending on the date the asset was acquired and placed in service.
Business interest expense limitation
If your gross receipts don’t meet the small business exception, you are likely very familiar with the business interest expense limitation rules. For tax years beginning after December 31, 2024, depreciation, amortization, and depletion will be added back into the calculation of adjusted taxable income for purposes of calculating the allowable interest expense deduction.
For asset-based logistics companies, depreciation is usually a significant number. By including depreciation, amortization, and depletion in the adjusted taxable income calculation, the allowable interest expense will likely be higher, thereby reducing taxable income.
Domestic research and development expense deductions
While it’s not incredibly common for logistics companies to have research and development (R&D), for those that do, the ability to again expense Section 174A costs is welcome news. Small business taxpayers (those who meet the gross receipts test) with previously capitalized Section 174A costs can amend their 2022-2024 tax returns to deduct the costs or deduct the unamortized costs in 2025 or split between 2025 and 2026.
Taxpayers who don’t meet the small business exception have the same options except for the ability to amend their 2022-2024 tax returns. Amending returns requires taxpayers to take the reduced R&D credit or reduce the 174A expenses by the amount of the R&D credit.
How CLA can help logistics companies plan for new tax benefits
While the new tax bill contains even more tax benefits, taxable income could be significantly reduced just by implementing some of the strategies discussed above.
Now is the time to start planning to help modify estimated tax payments for the remainder of the year along with beginning to form a tax plan beyond this year. Our logistics team can help you with tax planning opportunities.