YEAR END PLANNING PROCEDURES AND TAX TIPS CITRIN COOPERMAN AUTO DEALERSHIPS PRACTICE

Transcription

1 YEAR END PLANNING PROCEDURES AND TAX TIPS CITRIN COOPERMAN AUTO DEALERSHIPS PRACTICE

2 YOUR BUSINESS NEEDS It s not easy running a dealership long hours, tough decisions, and increasingly complex challenges fill your days. The last thing you want to worry about is your year-end financials. We understand your priorities. WE CAN HELP YOU FOCUS ON WHAT COUNTS We welcome the opportunity to help with your year-end planning.

3 YEAR END PLANNING PROCEDURES AND TAX TIPS

4 TRANSACTIONS CASH AND INVESTMENT ACCOUNTS Prepare all bank reconciliations. Review and investigate old outstanding items for potential year-end adjustments. Review the cash clearing accounts to ascertain that there are no unusual transactions in the account. RECEIVABLES Review the aging of all receivable schedules including contracts in transit and employee receivables. Determine why old outstanding receivables are not being collected. Is it a customer credit issue or is the lack of collection due to poor dealership operations? Make sure one pays or other forms of promissory notes to new and used vehicle customers are not being abused by the sales department. Parts and Service Receivables - Revisit customers available credit. Consider reducing credit limits. Manufacturer receivables (i.e. holdback, incentives, rebates, floor plan assistance and warranty) - Determine why receivables are outstanding beyond normal payment terms. Typically, problems are a result of dealership issues and not the manufacturer. Write off any uncollectible balances, after proper authorization. Review credit balances on the schedules for potential year-end adjustments

5 INVENTORIES VEHICLES If LIFO (Last In First Out) inventory method is used, make sure that the required 12th period LIFO adjustment is made. A What If analysis is needed in order to estimate the LIFO reserve. If Lower of Cost or Market (LCM) inventory method is used for new vehicles consider writing down older model year vehicles. Identify the floor plan assistance for each new vehicle and include it as inventory cost reduction on new vehicle inventory. Note this adjustment is only allowed if the dealership has adopted the accounting method of capitalizing floor plan assistance rather than offsetting floor plan assistance against floor plan interest expense. Used vehicles - If LCM inventory method is used, write down used vehicles to valuations listed in official used car guides (Galves, NADA) as the average wholesale price for a comparable vehicle. Each used car vehicle must be written down individually. You cannot write down used vehicles by using an overall reserve method. PARTS Take a physical parts inventory. It is preferred to use an outside service to conduct the parts inventory. Reconcile parts inventory to the pad and general ledger. Review the parts inventory for any slow moving or damaged inventory. Return parts to the manufacturer. Make sure the parts manager is aware of manufacturers parts return policy. The parts manager should be taking advantage of parts returns throughout the year Write off any obsolete inventory that is not allowed to be returned, after proper authorization. If inventory values include hard pack, the balance of pack accounts should be review and adjusted to account for the actual number of vehicles in inventory at year-end WORK IN PROCESS (WIP) Review the open repair order (RO) report and reconcile WIP to the general ledger (GL). Make sure that differences between WIP and GL are analyzed. UNIFORM CAPITALIZATION ADJUSTMENT Prepare the annual IRS Section 263A inventory adjustment.

6 PREPAIDS CALCULATIONS Review the prepaid schedules and re-calculate the actual pre-payments and adjust for year-end if necessary. Property taxes Calculate and adjust the accrual. Compare the expense to the tax bill. This amount should be approximately the total tax. FIXED ASSETS Review the fixed asset depreciation schedule. Consider taking an inventory of the fixed assets especially computers and specialized tools. Be familiar with the company s capitalization policy. Review all additions for the year and reclassify disbursements that do not conform to the policy. Consider some items as repairs, maintenance, office and shop supplies, etc. All expenses related to the addition of assets should be included with the respective assets (i.e. freight, tax, delivery and installation). If eligible, take advantage of the IRS Section 179 deduction that allows for the immediate write off of up to $500,000 (still $25,000 for New Jersey) of qualified assets placed into service by year end. 50% bonus depreciation is allowed for qualifying new assets placed in service by year end. Have a cost segregation study prepared if the dealership constructed/acquired a building or made significant leasehold improvements. Cost segregation studies typically result in greater current depreciation expense. Review listing of demos, company vehicles and service units. Demos and company vehicles (ex: loaners) should be written down monthly. Review the valuation for demos and company vehicles at year-end and adjust the book value accordingly. Service units, such as parts van and plow truck, are depreciable assets. These should not be written down monthly. Review all additions to fixed assets and make sure that sales tax is charged on the items purchased. Some vendors will not charge sales tax or will charge a different rate; in this case, the use tax or differences should be included on your next sales and use tax return filing and remit the use tax then.

7 ACCOUNTING FINANCE RESERVES Reconcile all receivable from financial institutions per general ledger to the financing source statement. Record all charge backs at year end. RENTAL UNITS If the dealership has leased rental units, the value of the rental units should be included on the balance sheet along with the liability (pay-off) amount. Review the valuation for rental units at year-end and adjust the book value accordingly. FLOOR PLAN Reconcile the floor plan statement to the general ledger. Investigate any unusual or old reconciling items. Accrue all floor plan interest and charges related to year end. NOTES PAYABLE AND LEASES Review statement and agree principal balance to the trial balance. Review the amortization of the loan, and reclassify the current and long-term portion of the note. Accrue loan interest expense

8 ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accrue all year end expenses. Any accrued expenses must be paid within 2 ½ months after year end. Year-end bonuses (Note: year end salary accruals to owners of a dealership are not deductible for tax purposes.) Normal Salaries and Pay Plans Employee benefits (medical, 401K etc.) Advertising Rent (Note: rents paid to related cash basis parties must be paid by year-end in order for the dealership to deduct the expense during the year.) Utilities Manufacturer Audit Chargebacks Litigation settlements that have not been paid Keep accounts payable open as long as possible to capture all expenses. Reconcile the manufacturer open parts statement to the general ledger. Investigate any unusual or old reconciling items. EXPENSES Taxes Corporate maintain a schedule of when the estimated State and Corporate taxes were paid. Include the payee, amount and date of payment. REINSURANCE COMPANIES Reconcile all payments made to the reinsurance company to the documents provided by the administrator. Make sure all payments and deals are recorded by the administrator. Have all payments made to the reinsurance company by year end. Accrue the December transactions at year end. Obtain the IRS warranty adjustment (SWIM) from the reinsurance administrator. OWNERS OF THE DEALERSHIP EXPENSES Determine the interest on loans with the owners of the dealership or any other related entity. Make sure the calculated interest is received or paid by year end. If the dealership operates as an S corporation, ascertain that all shareholder distributions were made in proportion to their ownership interest, if not, make a distribution to equalize based on year end percentage. If the dealership operates as an LLC (limited liability company) it is recommended that member distributions and contributions be made in proportion to each member s ownership interest. Shareholder W-2 wages need to include health insurance add backs. Review shareholder or member basis to determine if there is sufficient tax basis to for the shareholder to take tax losses on their individual return. Owners may be able to carryback losses to prior years to recover taxes previously paid. Create and maintain a schedule of taxes paid on behalf of the owner. Include tax type paid, payee, date and amount paid.

9 DEMOS The value of the personal use of vehicle should be added to the employee s Form W (k) Contributions and loan repayments withheld from employees must be paid into the plan on or shortly after the payroll issued date. W-4 Have employees update form W-4 s for the new tax year. THIRDPARTY SICK PAY Include the reportable amount of sick pay paid to the employees by the insurance company on the employee s Form W-2 as well as amount withheld for income taxes. HEALTH INSURANCE PREMIUMS Paid on behalf of a shareholder who owns more than 2% of the corporation are taxable as wages and are reported on Form W-2. For limited liability company (LLC) members, the premiums are considered guaranteed payments. AFFORDABLECARE ACT Confirm with your health insurance provide that the coverage provided to the employees meet the new requirements under the Affordable Care Act. Service provider should complete Form 1095 Employer-Provided Health Insurance Offer and Coverage Insurance. TRAVEL EXPENSES Travel expenses are deductible in full. Certain meals and entertainment expenses are limited. Expenses incurred for holiday parties, office snacks, promotions and on-site employee meals are not limited and should be posted to separate accounts. FORM 1099 TAX TIPS Review all payments made to unincorporated entities and certain service providers during the year and determine those to whom $600 or more was paid. Verify that a W-9 is on file for ALL vendors. Consider sending a copy of a blank W-9 to all vendors paid in the last quarter of the year. Recipients must generally receive Form 1099 by February 1st and have to be filed with the IRS by January 31st, if it is non-employee compensation. All other types are due by the end of February. FORM 8300 The dealership must provide a written notice on an annual basis to each person whom the dealership received over $10,000 in cash payments. FOR NEW YORK DEALERSHIPS If your dealership is located in Manhattan, Bronx, Brooklyn, Queens, Staten Island, Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess and Westchester county, all employees in the dealerships are subject to the Metropolitan Commuter Transportation Mobility Tax (MCTMT) regardless of where they reside. All NYC employers with more than 20 employees must provide pretax transit fringe benefits. For dealerships that are located in the borough of Manhattan, south of the center line of 96th Street and annualized gross rent paid is at least $250,000, a commercial rent tax and return may be required to be paid and filed.

10 TAX TIPS and TAX PLANNING We provide new perspectives on the strategies that help improve your bottom line, so you can focus on what counts. We welcome the opportunity to help with your tax planning.

11 HAVE QUESTIONS? WE ARE HERE TO CONTACT WILFREDO FERNANDEZ, CPA PRACTICE CO-LEADER wfernandez@citrincooperman.com ELLEN KERA, CPA PRACTICE CO-LEADER ekera@citrincooperman.com

12 HE LPING YOU FOCUS ON WHAT