Note: We offer this information from experience: we currently manage a fleet of over 275 trucks and a staff of over 200 employees. However, we are not certified public accountants (CPAs) or experts in the tax laws of every state. Please consult your CPA for more specific tax information.
FedEx Routes for Sale Have Many Upsides: Including Tax Benefits!
One of the biggest pieces of news this tax week is how Fortune 500 companies such as Amazon, Netflix, General Motors, and Delta paid no federal taxes. There are many ways these mega-companies reduce their tax burden to this extreme, but one significant way is by strategically accounting for asset depreciation and accelerated depreciation.
To understand this more, let’s back up:
The Internal Revenue Services (IRS) looks at both profit and loss to calculate your business’s tax burden. The more income/revenue for the business, the higher the tax liability.
However, the business can also demonstrate financial losses. Losses reduce the overall business income and corresponding tax liability.
The more you reduce your overall income via losses, the less your business pays in taxes.
Vehicle Depreciation Reduces Tax Burden
You will often hear us (and others) note that FedEx route businesses are tax-friendly investments. What do we mean by that?
These businesses include substantial numbers of vehicles that you are able to depreciate over time. The vehicle depreciation in FedEx route businesses allows you to offset the revenue stream from the business.
IRS depreciation tables depreciate automobiles/vehicles over five years. This means that the value of each vehicle in your fleet reduces by 20% each year. If the truck cost $100,000 to purchase new then you can record a loss of $20,000 for five years after its purchase.
You should know that you can also elect to use an accelerated depreciation schedule. For example, you can say that your truck depreciates 50% over two years rather than 20% over five years. Accelerated depreciation allows you to claim higher losses in a year where you had higher than expected revenue, keeping your tax burden low.
Once you choose an accelerated depreciation schedule you must stick with the new schedule. Adjusting the tax schedule for an asset more than once puts your business at risk for an audit.
We advise working closely with a CPA to plan your depreciation schedule and vehicle purchase strategy. If you time your purchases well, you refresh your pool of assets to depreciate.
Other Tax Benefits of FedEx Ground Route Businesses
Many FedEx Ground route businesses take advantage of the rolling stock exemption. The availability and rules of this exemption vary by state.
In general, the exemption says that if you purchase a business vehicle with the intention of leasing it (to FedEx Ground in our case), you do not have to pay sales tax on that purchase. Likewise repairs and repair parts for leased vehicles are not subject to sales tax.
The rolling stock exemption may save your business from incurring large expenses.
FedEx Ground route businesses operate as 1099 contractors to FedEx Ground. There are plentiful tax write-offs available to 1099 contractors that you should discuss with your CPA. These write-offs include mortgages, leases, cell phones, computers, travel, fuel, and more. All or a portion of these expenses can flow through the business as expenses.
Be careful here, though, your write-off claims need to hold up under an audit.
Have questions about the financials of FedEx routes for sale? We are not CPAs, but we can consult on operational and logistical aspects of a FedEx route business. Our team can guide you through your investment from start to finish.