Here are six tips and thoughts for contractors as they take stock of their equipment fleet going into 2016.
Work may slow down this time of year for contractors in northern climates, while others transition to seasonal work that keeps them busy throughout the winter. And if the ground isn’t frozen and the weather holds out, construction season is a year-round event.
Regardless of climate, the end of the year and the holidays bring on a time of reflection and opportunity. Here are six tips and thoughts for contractors as they take stock of their equipment fleet going into 2016.
1. Buy/Upgrade Now:
It’s easier for contractors to incorporate new equipment into their fleets and fleet management plans when they’ve got some downtime. There are also end-of-year tax incentives that require action now if contractors want to take advantage of them for their Year 2015 taxes (see the sidebar below on Section 179 and Bonus Depreciation).
2. Add Premium Features and Attachments:
The greatest argument against adding features to existing equipment is the downtime that will result from taking it out of the field. Or, an equipment owner will add a piece of technology without properly vetting it because their sole focus is to “get it done.” Contractors should take advantage of the downtime afforded by the winter months to properly research and add features such as auxiliary hydraulics, Ride Control, or more advanced precision construction technologies such as machine control or telematics.
3. Make a Plan for Growth:
Each piece of construction equipment in a fleet is a platform – an opportunity for its owner to be more competitive and profitable. Contractors should take the time to investigate natural expansions of their business that leverage the equipment and labor they already have as they look to the next year.
4. Get Creative with Financing:
Equipment payment cash flow concerns? Contractors can talk with those who finance their equipment about deferred payments, skip payments or rent-to-own plans that best optimize new equipment purchases with peak cash flow.
5. Get Ahead of Maintenance:
Contractors who shut down for winter shouldn’t wait until spring to give their machines a complete inspection. In addition to whatever winterizing is required based on geography, equipment owners should thoroughly inspect equipment now to identify any and all problems that need to be addressed by the start of the next season. Owners should take advantage of planned maintenance contracts, or other inspection services offered by their dealer, to ensure equipment is operating at optimal productivity when the thaw comes.
6. Talk to Your People:
Employees – whether operators, laborers or office staff – take greater pride in their work if they feel engaged and valued. In the blur of the workday, it’s hard to convey more than operational orders and instructions required to do the work. Equipment owners should take advantage of a quieter time to sit down with operators and fleet managers to discuss what’s working in the fleet and what’s not. New insights may be gained and relationships with critical staff will be strengthened.
SIDEBAR: Taking Advantage of Section 179 and Bonus Depreciation
The end of the year brings deadlines – and deadlines drive action. That relates both to Congress AND fleet managers looking to deploy new assets into their heavy equipment fleet.
The current debate in Congress is whether to extend 2014 Section 179 limits and allow Bonus Depreciation for 2015: if so, both may apply to equipment purchased and put into service in the current year. Meaning: if a contractor qualifies for either deduction (or both) and wants to apply them to their 2015 taxes, for most equipment purchases, they must take delivery of that piece of equipment and place it into service by December 31, 2015.
Here’s what you need to know:
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Section 179 is an Internal Revenue Code section that allows qualifying businesses to elect to deduct up to $25,000 of the price of their equipment purchases from its gross income. Qualifying businesses must purchase, finance or lease less than $225,000 in new or used equipment during the 2015 tax year to qualify for a full or partial deduction.
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Congress is now debating whether to extend 2014 legislation to 2015. If extended, equipment owners may be able to deduct as much as $500,000 with a phase out beginning at $2 million. Regardless, for most purchases to qualify for the 2015 Section 179 election, they must be made by midnight on Dec. 31, 2015, so there’s still time to take advantage of this useful deduction before the end of the year.
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Bonus depreciation provisions, if extended, allow business owners that purchase large amounts of new equipment (cannot be old or used equipment) to write off an additional amount of deductible depreciation in the first year. This is useful for larger contractors that are purchasing new equipment at more than the Section 179 spending cap ($225,000). The allowable bonus depreciation in 2014 was 50 percent.
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Bonus depreciation is currently unavailable in 2015. However, the Senate Finance Committee recently voted in July to extend bonus depreciation and a proposed new $500,000 limit for Section 179 deductions through 2016, and it is hoped that Congress will pass these provisions before the end of the year and possibly make these incentives permanent.
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If the extensions are passed and signed into law, it will be great news for business owners in our industry, so keep an eye out for the good news. These programs may save contractors of all sizes tens of thousands of dollars when making a capital equipment investment. As always, contractors should first speak with their tax adviser to see how they may qualify.