Meeting tax compliance obligations can be a moving target. Managing complex rules and policies, rapid technology changes, and accurate reporting require a highly skilled team of professionals.
These Audit Technique Guides (ATGs) provide examiners insight into unique industry issues and accounting methods. They also help examiners determine whether a taxpayer has met their tax obligation.
Taxes
For dealerships, navigating the intricate world of dealership accounting is a constant challenge. Taxes represent a significant aspect of this challenge, demanding an in-depth understanding of obligations, accurate filing, and meticulous completion of paperwork. Failure to comply can lead to severe consequences, including penalties and legal repercussions from the IRS and local tax authorities.
Many dealers use the last-in, first-out (LIFO) inventory valuation method to reduce their annual taxable income by counting the most recent vehicles sold as the earliest ones purchased. While legislators may try to end LIFO at some point, it is still a great way to lower your taxes and improve your profitability. However, if you use LIFO, carefully examining your fixed assets and payables is essential. Significant overpayments can raise suspicion that there are unreported sales and should be corrected as soon as possible.
Also, consider taking advantage of the Section 179 expense limit for 2015. This allows you to deduct the cost of tangible property with a short depreciable life, including resurfacing the parking lot and installing new restroom fixtures. This option is perfect for dealerships completing construction or significant renovation projects this year. Consult your accountant if you need clarification on whether your dealership is eligible for Section 179.
Accounting
Businesses must adhere to many taxes and regulations at the state, local, and federal levels. If these regulations are broken, penalties, financial difficulties, and other legal repercussions may occur. Fortunately, tax compliance can be easily managed with comprehensive tax planning throughout the fiscal year and using tax software solutions.
Companies must have well-defined policies and procedures for accounting functions to ensure compliance. This includes maintaining detailed records and implementing consistent recording practices to minimize mistakes. Often, these standards are laid out in an accounting manual used as a reference for all employees.
Businesses must fulfill all other industry-specific regulatory obligations and adhere to tax legislation. This includes preparing reports and responding to requests from tax authorities. Some companies handle compliance monitoring and reporting in-house, while others hire a professional service provider to manage these tasks.
This audit technique guide (ATG) is intended to assist examiners in evaluating equity-based compensation paid to taxpayers, including stock options, restricted shares, and deferred compensation. The target audience is tax professionals and IRS examiners.
Inventory
Every business has inventory: files in a law firm, paper on which to print legal documents, and, at dealerships, vehicles, parts, and other assets held for sale. Tracking inventory as it is received, stored, managed, and withdrawn or consumed is known as the inventory lifecycle. Raw materials/components, work in progress (WIP), finished items, and maintenance, repair, and overhaul (MRO) are the four categories of inventory.
A high unsold inventory results in more enormous tax bills than expected. The amount of inventory tax payable is determined by comparing a dealer’s book inventory to its physical listing of vehicles, parts, and other assets. Taking advantage of timely tax moves can help dealers mitigate risk and save money.
For example, a dealer using the alternative LIFO method could expand it to include used vehicles and parts by filing Form 3115 to adopt the inventory price index computation (IPIC) method. This method uses consumer or producer price indices to determine inflation and could help mitigate LIFO recapture.
Another tax move to consider is reexamining floor plan schedules and how a dealership’s accounts receivable are classified. Performing a detailed comparison between the book details and the physical inventory can help identify discrepancies that should be written off before the year’s end.
Financial Reporting
Financial reporting is crucial for dealerships to adhere to industry-specific regulations and laws. Choosing the appropriate accounting method and ensuring consistent financial reporting enables dealerships to effectively manage their finances, make informed decisions, and build trust with stakeholders.
I embrace comprehensive accounting practices to position dealerships for long-term success in an ever-changing industry. Dealerships can improve operational performance and obtain a competitive edge in a changing sector by following fundamental accounting concepts, effectively managing inventory, navigating tax and compliance challenges, and utilizing automation technologies.
Dealerships must ensure their financial statements are accurate and consistent to avoid costly penalties or legal repercussions. This requires a detailed bookkeeping approach, including sales and cost of sales reconciliations, review of expense analysis, and comparisons to the previous month’s margins and expectations. Regular inventory audits and ABC analysis enable dealerships to minimize shrinkage and focus on high-value inventory.
It’s also essential for dealerships to stay current on new tax laws and other changes that could impact their business. This includes determining estimated taxes, tracking payroll and sales tax, and establishing an employer identification number (EIN). Additionally, implementing automotive dealership accounting software streamlines business processes and provides valuable insights to drive profitability and growth. The software prioritizes data security with robust measures, including encryption and role-based access control, to prevent unauthorized access to sensitive information.
