As we enter the early part of 2015, our thoughts drift to the phenomenon known as tax return time. Here are some actions that can be taken to help minimize the tax burden on your dealership(s) for 2014:
- Accounts receivable: Review all your trade and factory receivables, including warranties and incentive If you know that some of these amount will not be collectible, consider writing them off. Coordinate with your tax professional to leave them on the books at the end of the year and expense them for tax purposes only, instead of booking the expense on the thirteenth statement. That way you can write them off on your books in 2015 and affect pay plans for the responsible personnel.
- Inventories: If you are on new-vehicle LIFO (last in, first out), coordinate with your tax professional to ensure that you are taking advantage of all trade discounts, such as interest assistance and advertising co-op monie All in-transit units should be recorded in the LIFO calculations to increase the LIFO deduction, especially in time sof rising prices. If you aren’t on used-vehicle LIFO, do a used-vehicle valuation at the end of the year, and take the write-down as a tax adjustment. Used-vehicle prices generally decline close to year-end, and if you have any “water” in your inventory mix, you should take the tax deduction no. If you have excess or obsolete parts, make sure they are physically segregated, removed from your main counter pads and written off your books to take the tax deduction.
- Fixed assets and repair expenses: Take advantage of the new IRS repair regulations that generally went into effect on January 1, 2014. There are new de minimis rules for expensing tangible property (e.g., computers and furniture) as well as materials and supplies. There are also new rules for disposing of real property and the recording of repairs and maintenance, which can be coordinated with any facility upgrades and renovations currently occurring. It is extremely important to discuss and coordinate this area with your tax adviser, because almost all businesses will be required to file Change in Accounting Method tax forms with the IRS for 2014 tax year.
- Interest income: Ensure that all cash management accounts and other floor plan interest offset credits are properly recorded as expense reductions—not interest income—if applicable. Investment income such as interest is subject to the recently passed net investment income tax of 3.8%, which is an additional tax on top of the regular income t Generally, if the floor plan offset account is owned by the dealership, the interest earned on that account is not subject to the 3.8% tax.
- Uniform capitalization (Unicap 263A): This tax law requires retailers and producers to capitalize certain direct and indirect costs related to inventory. New IRS revenue procedures issued in 2012 that simplify the methodology usually result in deferring some costs to the subsequent year and minimizing this amount in most cases. The new procedures also allow a portion of internal repair order profits on new and used vehicles still in stock at year-end to be excluded from taxable income. Make sure that you discuss this with your tax adviser and that all applicable federal elections of these methods have been adopted.
These are some of the ways 2014 taxable income from your dealership can be reduced. As always, please consult your tax adviser on these or any other issues. If you have any questions regarding your dealership, contact one of the qualified tax advisers at Rosenfield & CO by calling (407) 849-6400.
By: Scott Lewis, CPA – Rosenfield & Company