In December 2017, President Donald Trump signed the Tax Cuts and Jobs Act into law, marking sweeping changes for businesses and individual taxpayers alike. Though passed quickly, experts agree it’s the most significant piece of tax legislation in the past 30 years. The law, and all of its components, is poised to have significant impact on businesses, including automotive dealers.

But, what kind of impact? The extent remains to be seen. Because the legislation was drafted, debated and passed in just 18 weeks, many aspects are still being fleshed out and may not be fully realized until the end of this year, or even later. But the law is already in effect and will have an important bearing on 2018 tax returns. For dealerships, it’s crucial to be as prepared as possible leading up to tax season to not miss out on any lucrative savings. With the complicated nature of the new legislation, dealerships are encouraged to work with trusted tax and banking advisors to ensure they’re ahead of probable ramifications.

Some parts of the new law are already of significant importance, and tax experts point to several specific areas dealers and their advisors should consider ahead of 2018 tax filings:

1. Corporate Structure

The vast majority of U.S. dealerships are set up as S corporations, or limited liability companies. With this structure, the dealership income flows not to a corporation but to the individual owners, who report the income and pay taxes on individual tax returns.

Under the old tax code, this was an effective choice for most dealerships. The new legislation, however, has changed the rules for C corporations — the structure where income is reported and taxes are paid at the corporate level. The corporate rate has been cut significantly, from a top rate of 35% to a flat rate of 21%, possibly making a C corporation more appealing.

2. Pass-Through Income

For certain companies, remaining an S corporation or LLC is still the best option. Not only has the top tax rate for individuals been cut to 37%, with higher income thresholds, but also up to 20% of pass-through income can now be deducted from taxable income, with some limitations. Experts say the changes are expected to result in an effective top marginal rate for most pass-through dealership income of 29.6%.

You will want to maximize your ability to utilize the pass-through deduction, including consideration of real estate and other ancillary entities where this will be more complex.

3. Interest Expense

The NADA fought so that dealers can still deduct 100% of their floorplan interest. This is critical, since floorplan interest is typically one of a dealer’s top expenses.

Another stipulation, however, is that other business interest expense deductions are limited to only 30% of adjusted taxable income. Dealers should consult with their advisors to determine how to handle this aspect. For example, it may prove helpful to set up a separate entity to purchase and improve real estate, as real estate businesses are treated distinctly under the new law.

4. Depreciation and Fixed Assets

With floorplan interest, there’s a trade-off for dealerships. Dealers who deduct floorplan interest expense are no longer able to use bonus depreciation.

Bonus depreciation, which was increased from 50% to 100% under the new tax law, allows businesses to immediately deduct the cost of large assets, rather than depreciate them over time. You may still be able to expense property and large capital expenses in various ways. The Section 179 provision, which allows a dealership to forgo depreciation in favor of expensing a large purchase in the first year, has been broadened. Under the new Section 179, the total amount that can be expensed has been increased to $1 million of fixed assets.

Qualifying property now includes things like roofs, HVAC systems, fire protection and security systems. Using the revised Section 179, these items can be expensed in one year’s tax deduction rather than being depreciated over five years or longer.

Although many dealers won’t be able to use the law’s 100% bonus depreciation rule moving forward, even dealers with floorplan financing can still use that new 100% bonus depreciation specifically for items purchased between Sept. 27, 2017 and Jan. 1, 2018.

5. Estate Tax and Individual Tax Rates

With the new tax law, the top rate is now 37% (down from 39.6%) for married taxpayers filing jointly with income of $600,000 or more. Other annual personal tax deductions have been eliminated or changed in favor of an increased standard deduction, and some of the deductions that remain have been modified — most notably, the new limits on deducting state and local taxes, including property taxes.

The new law also doubles the amount of wealth that is not subject to the gift and estate tax from $5.6 million to $11.2 million for an individual, or $22.4 million for a married couple interested in gifting or passing their estate onto family members. This creates an attractive incentive for dealers to look at their estate and succession plans, as they have increased ability to transfer wealth to family members.

Experts agree that this reform will be a highly impactful development for dealers this year. In addition to resulting in a significant reduction in tax burdens, it will improve after-tax cash flow and free up funds to reinvest into major growth initiatives. Armed with the right information and advisors, dealerships will be best prepared to understand the new legislation and save more money this tax season.

Brian Gruber is the Central regional market manager for Dealer Financial Services at Bank of America Merrill Lynch, where he leads client teams responsible for providing financial solutions to automotive and recreational vehicle dealers.