DEALERSHIP INSIDER Year End 2015

Transcription

1 DEALERSHIP INSIDER Year End 2015 CONTROLLER S YEAR-END TO DO LIST YEAR-END TAX PLANNING BLITZ LONGER LOAN AND LEASE TERMS HENDERSON HUTCHERSON & MCCULLOUGH, PLLC 1200 MARKET ST CHATTANOOGA, TN HHMCPAS.COM

2 Dealership Insider CONTROLLER S YEAR-END TO DO LIST By John Coker HHM Dealership Services Group MAKE YOUR LIST AND CHECK IT TWICE - BEST PRACTICES FOR A STRONG FINISH FOR THE YEAR. Year-end is always the busiest time for controllers. Often we are asked by controllers and dealers what best practices we recommend for finishing out the year and preparing for initial tax work preparation. Keeping clean schedules is only one way to ensure an accurate balance sheet. Here is a brief guide for other items that should be completed prior to your CPA s visit. Please note these are very general suggestions. For a more comprehensive plan tailored to the specific needs of your dealership, please contact HHM s Dealership Services Group at CASH-IN-BANK The cash position of the dealership should be accurately stated. The bank reconciliations should be performed. VEHICLE, PARTS, SERVICE, AND BODY SHOP RECEIVABLES Review aging accounts and determine collectability with management. Any items that are determined to not be collectable should be written off provided all reasonable collection efforts have been exhausted. FACTORY RECEIVABLE SCHEDULES Review aging items that have not been collected. If determined by management and the manufacturer that the customer does not qualify, the balance should be written off. FINANCE RESERVE SCHEDULES Reconciliation of each outstanding finance reserve receivable to the applicable December statement should be performed. NEW VEHICLE AND USED INVENTORY Ensure that new car and truck inventory is properly reflected on the dealership s books. Have all new factory invoices available for ending inventory for final LIFO calculation if applicable. PREPAID EXPENSES Have a detailed account (preferably a schedule) of what makes up the prepaid expenses balance. FIXED ASSETS A schedule detailing current year activity should be prepared. It is also helpful to have invoices available for any items purchased during the year. ACCOUNTS PAYABLE Review the schedule for any errors, debit balances, or aging items. Try to correct prior to year-end. Prepare reconciliation between the automated schedule and the monthly statement to better account for outstanding items. ACCRUED EXPENSES Properly accrue for current year items. Examples include: 4th Quarter Worker Compensation Legal and Accounting Services Payroll Floor Plan Interest FLOOR PLAN LIABILITY Reconciliation between floor plan schedule and the December statement

3 should be performed. Any unusual reconciling items should be researched and resolved. INTERCOMPANY ACCOUNTS All intercompany accounts should be reconciled as of December 31. This includes intercompany trade payables/ receivables, notes payable/receivables, and long term debt/receivables. MANUFACTURER PARTS STATEMENT Reconcile the general ledger to the December manufacturer s parts statement. PARTS INVENTORY AND ACCESSORIES Reconciliation of the December 31 general ledger and the parts pad should be performed. SERVICE/BODY SHOP WIP Reconcile the WIP GL balance against month-end open repair orders. RETAINED EARNINGS Reconcile the year-end balance to the prior year tax return. Make sure previous year CPA adjusting journal entries have been posted. UNSCHEDULED BALANCE SHEET ACCOUNTS Make sure you are able to support the balance of any balance sheet account that is not scheduled (Packs, Sales Tax, etc.). JOHN COKER, CPA John is a supervisor in the Firm s Dealership Services Group. John focuses on providing financial support and consulting services to HHM dealer clients. He enjoys helping dealers with strategies and solutions to navigate the challenges of the industry. After graduating from North Carolina State, John went directly into the car business. He spent the following eight years with a dealership group in North Carolina. John managed the group consolidated accounting office. During his time there, he was given exposure and experience in both fixed and variable operations and developed a deep understanding of the daily operational needs of a successful dealership. 2

4 Dealership Insider YEAR-END TAX PLANNING BLITZ By Branden Wilson HHM Dealership Services Group As we near year-end you may be enjoying family festivities and football bowl parties. December is also a wonderful time to plan and implement tax mitigation strategies to ensure you win the upcoming 2016 tax filing season. Here is a blitz of year-end tax planning strategies for you and your dealerships to consider: NEW VEHICLE INVENTORY MANAGEMENT If you use the last-in, first-out (LIFO) method of inventory accounting, keep a close eye on your new vehicle inventory stock at year end. While low inventory levels could save floor plan interest costs, they also could result in LIFO income recapture, which could increase your tax bill. If you anticipate significant LIFO income recapture this year, it might be worth considering discontinuing the use of LIFO. PREPAIDS & ACCRUED EXPENSES Review and reconcile all prepaid items. Additionally, certain qualified prepaids don t have to be capitalized, but can be expensed for 2015, if proper method election is made. Also, be sure to accrue in and recognize expenses that were incurred in 2015 but won t be paid PASS-THROUGH LOSSES & BASIS You may need to increase your tax basis in pass-through entities you own to ensure you can deduct any current year losses which can be used to offset other income. SELF-RENTALS & GROUPING ELECTIONS Grouping rules may allow you to avoid the self-rental trap by combining or grouping your self-rental activity with the operating dealership activity. NEW FACILITIES, IMAGE UPGRADES & REPAIRS Consider having a cost segregation study performed on any new facilities or upgrades and renovations on existing facilities. The study will separate the costs of building components from the cost of those with shorter depreciable lives. In addition, certain costs that dealerships used to be required to capitalize can be deducted in 2015, if they re devoted to incidental repairs and maintenance. SHAREHOLDER LOANS Pay interest on all shareholder loans to or from the company. Also, if prior years losses have been taken based on money loaned by the shareholder, review current year loan repayments, as repayments of such loans may create taxable income to the shareholder. DECEMBER IS ALSO A WONDERFUL TIME TO PLAN AND IMPLEMENT TAX MITIGATION STRATEGIES TO ENSURE YOU WIN THE UPCOMING 2016 TAX FILING SEASON. USED VEHICLE INVENTORY WRITE-DOWNS If your dealership is not on LIFO for used vehicles you may able to take a deduction to write-down your used vehicle inventory to market value, if the market value is less than your true costs and if the proper tax elections were made in prior year tax returns. PARTS & OBSOLETE INVENTORY ADJUSTMENTS Consider performing a physical year-end inventory count, and reconcile the parts inventory accounts with your parts counter pad. Also, write off obsolete inventories before year-end. UNCOLLECTIBLE RECEIVABLES WRITE-OFFS Review all customer, factory and finance receivables and write-off, as

5 bad debts expense, all those accounts in which you deem to be uncollectible. COMPENSATION OF CHILDREN AS EMPLOYEES Employing your eligible children and paying them for their services may reduce your overall family tax burden based on tax rate differences. These wages earned can also be contributed to a Roth IRA, up to applicable IRS limits, that allows for tax-free growth. CAPITAL GAINS & LOSSES HARVESTING Selling investments that have declined in value can be a useful tax-reduction strategy, especially this year in light of the late-summer stock market correction, by using the losses to offset 1) short-term capital gains, 2) long-term capital gains and finally 3) up to $3,000 of ordinary income. STATE TAXES Depending on the state(s) in which you live and work there may be additional strategies that can be implemented to maximize your state tax savings. Aside from the opportunities mentioned above, there are several other strategies that can be used to defer and/or reduce your taxes. Please contact the HHM Dealership Services Team to discuss which year-end tax planning strategies are best suited for you and your dealership(s). BRANDEN WILSON, CPA While much of Branden s time is dedicated to the HHM dealership group, there is hardly an industry he doesn t touch, including: medical and dental practices, nonprofits, and finance companies. Before joining HHM in 2008, he owned a residential construction company, making him a valuable asset to HHM s construction and real estate group. Branden talents are equally diverse ranging from QuickBooks consulting to assurance and tax work. He enjoys the unpredictability of his schedule, referring to it as controlled chaos. Despite the hectic pace, his greatest asset is reliability. 4

6 Dealership Insider LONGER LOAN AND LEASE TERMS By Chad Goodman HHM Dealership Services Group In the not so distant past, 60 months was about the longest period of time that most dealerships and finance companies were willing to finance a vehicle. However, as prices of vehicles continue to increase, the length of loan terms do, as well. In addition to pricier cars, another factor impacting loan term length is the quality of new cars being built these days. New cars produced now last much longer than those built in the past. A result of these durable, longlasting cars is that companies are gradually lengthening vehicle loan terms. And more and more customers are choosing to lease instead of buy in order to maintain affordable payments. In a payment amount driven economy, six out of every 10 vehicles financed today are financed for longer than 60 months, with 72 months having become the new standard vehicle financing term, according to the president of a major vehicle financing company. Vehicle loan terms up to 84 and even 96 months are available and are not all that uncommon. Through the second quarter of 2015, the average new-vehicle loan term length was 67 months. According to Experian Automotive s second-quarter State of the Automotive Finance Market Report, the average monthly payment for a new vehicle was $483 and the average used vehicle payment was $361. As customers continue to be conscious of their payment amount another common option is leasing. One in four customers leased a vehicle during the second quarter of Lease terms of 25 to 36 months represent 67 percent of leases, while lease terms of 37 to 48 months represent 22 percent of leases. Leasing is a popular option to keep vehicle payments at an affordable level for customers. Longer loan and lease terms do not preclude customers from buying vehicles as often. But some lenders say this isn t necessarily the case. In the same way that very few homeowners stay in a home for 30 years, a seven- or even eight-year vehicle loan doesn t necessarily prohibit customers from buying a new vehicle before the term is up. For more information about this and other industry trends, contact HHM s Dealership Services Group at CHAD GOODMAN, CPA Chad joined HHM in 2011 after graduating from Lee University Cum Laude with a Bachelor in Accounting. As part of the Accounting and Assurance Department, his time is divided between preparing tax returns and performing audits, primarily for dealership and construction clients. During his senior year of college, Chad gained important hands-on experience as an HHM intern during tax season. Today he enjoys the variety his position affords and is always willing to take on new tasks to broaden his expertise. 5

7 LET THE HHM DEALERSHIP TEAM HELP YOU TODAY We know that what sets apart a successful dealership from all of its competitors is its commitment to service excellence. The HHM Auto Group seeks to provide the same level of service excellence to your dealership that you provide to your customers. We pride ourselves on providing the following traditional and non-traditional services to our clients: NON-TRADITIONAL ACCOUNTING SERVICES Operational Reviews Expense Analysis & Control Floorplan Analysis Buy/Sell Structure & Negotiation Accounting Staff Training DMS Optimization Business Performance Analysis & Forecasting Financing Alternatives & Capital Analysis Reinsurance Company Alternatives Buy-Here/Pay-Here Consulting Related Finance Company Structuring Interim Controller/Office Manager Support TRADITIONAL ACCOUNTING SERVICES Tax Planning Projections Estate Planning Succession Planning LIFO Services Internal Control Reviews Audit and Attest Services Business Valuations Cost Segregation Studies 401(k) Plan Services/Investments Litigation Support Educational Seminars TRAVIS HORTON CPA, MBA LEAD PARTNER, DEALERSHIP THORTON@HHMCPAS.COM RANDALL HEBERT CPA, CVA, MBA PARTNER RHEBERT@HHMCPAS.COM DONNIE HUTCHERSON CPA, CGMA, MBA MANAGING PARTNER DHUTCHERSON@HHMCPAS.COM CHATTANOOGA OFFICE 1200 MARKET STREET CHATTANOOGA, TN HHMAUTOGROUP.COM MEMPHIS OFFICE 6363 POPLAR AVENUE, SUITE 405 MEMPHIS, TN