Corporations from various industries throughout the United States are ordering new equipment at a faster pace heading into 2018. Business investment overall has been increasing largely because of the American economy, which has continued to remain healthy over the last several years. The economy grew at its fastest pace in more than two years during the third quarter of 2017, expanding at a rate of 3.2%, according to the Commerce Department.
The healthy economy, combined with the recent changes approved to corporate taxes, means that investments in various type of equipment are expected to grow. In the transportation industry, companies with private fleets such as the Sygma Network, Costco and Air Products and dedicated carriers are ordering trucks at an increased pace. The latest figures from ACT Research show that orders for Class-8 trucks surged 62% in October compared with activity from the previous month, and up 167% compared to a year ago.
According to the Equipment Leasing & Finance Association, investments in equipment and software are expected to increase 9.1% in 2018, nearly double that of 2017. Looking ahead, the 2018 Equipment Leasing & Finance U.S. Economic Outlook report expects the economy to grow at a clip of 2.7% in 2018, fueled by the acquisition of equipment such as construction machinery, railroad parts and medical equipment.
Recently approved changes to the corporate tax rate will help to further fuel this activity. Manufacturers alone are expected to save roughly $261 billion during the next decade from the Tax Cuts and Jobs Act of 2017. These savings are poised to spur additional new investments in equipment and workforce particularly.
That being said, finance professionals within these organizations involved in equipment acquisition, specifically for equipment that is advantageous to lease like tractor-trailers, must be cognizant of the new tax cuts and jobs act. The way the financial experts decide to procure this equipment can have a significant impact to their company’s overall business, bottom line and financial performance.
What are the Impending Tax Changes?
The new tax plan contains several provisions that will impact equipment procurement – lower tax rates for businesses, non-deductibility of interest expense for C corporations, limiting like-kind exchanges to real property, and expensing of depreciable assets instead of writing them off over years. The key is to know how these changes may impact a company’s balance sheet, financial plan, and tax strategy, and to adjust accordingly to help improve the company’s financial performance.
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