Tax season is a challenge for any business. But for car dealerships, with state-to-state variations and an auto industry that’s always in gear with new tax laws, the pressure can feel like it’s redlining. Thankfully, there are tips that can guide you through it all, and I’m here to share it. I’m Michael Mader, CPA and partner at Baker Tilly. I previously worked in accounting at a dealership for over eight years and now specialize in dealership taxation leading a practice with more than 750 clients in the industry. With my thirty-one years of dealership tax experience, I’ve honed a set of tips specifically designed to help car dealerships tame the tax beast. Here are my top suggestions for tax season survival.
Why Dealerships Need to Be in the Driver’s Seat
Tax season is not merely an annual affair—it’s a year-round consideration. For dealerships, the varied taxes—sales tax, income tax, property tax, payroll tax, and more—constitute a significant part of operational costs. Additionally, the labyrinth of tax laws governing vehicle sales can snare the unwary operator. This intricacy demands meticulous planning, sharp bookkeeping practices, and a proactive approach in order to optimize your tax position.
Leveraging CPA Guidance in the Dealership Context
Your initial line of defense in tax season are professionals. A seasoned CPA or a tax firm with a specialty in dealership operations is non-negotiable. They can steer you clear of pitfalls and into tax savings with industry insights and advanced tax strategies tailored to the unique challenges of the automotive sector.
Managing Inventory and Depreciation
An efficient inventory management system is not just good business—it’s good for taxes as well. The tax implications of inventory write-downs and the choice of depreciation method for assets can significantly affect your dealership’s bottom line and potential tax deductions.
Tax Planning and Staff Training
Effective tax planning doesn’t occur in isolation; it’s a collaborative effort requiring the engagement of your entire team. Regular staff training equips your employees to identify and capitalize on potential tax-saving and audit mitigating opportunities and to put best practices into place to ensure you have the proper support and documentation to support your tax positions.
Audits—The Red Flag Warning Light
An IRS audit is a dealer’s version of a car breakdown—costly, time-consuming, and frustrating. Implementing stringent financial review processes and procedures, such as standardized documentation and compliance auditing, may not only reduce the risk of an audit but also prepare you for the eventuality with records that stand up to scrutiny.
Managing Sales and Use Tax
The complexities of sales and use tax present a prime opportunity for errors that can lead to hefty fines. Implementing a robust use tax strategy, tracking taxable goods or services used in a dealership’s operations, and understanding the varying laws across different states are critical aspects of staying compliant and not overpaying on tax liabilities. Proper training in this area can significantly reduce the negative outcomes of a compliance audit.
Cruise Control—Maintaining a Steady Tax Course
Maintaining tax compliance in a dealership is about staying the course and not getting sidetracked by the changes in tax laws or regulations. Consistent, routine tax reviews and adjustments are like regular tune-ups for your business—they can uncover issues before they become expensive problems.
Holistic Tax Compliance Perspectives
An effective tax strategy for a car dealership is one that sees the road ahead and plans for it. Establish a tax compliance calendar, looking at upcoming tax law changes, and integrating these into your regular business activities. By doing so, tax compliance becomes an everyday priority, not just a seasonal headache.
Regular Assessment of Tax Positions
Just as cars need to be rotated and balanced, your tax positions need continual assessment. Regular communication with your tax advisors can identify opportunities for tax savings, preventing last-minute scrambling for documents and ensuring that you benefit from deductions and credits you’re legally entitled to claim.
Capitalizing on Tax Incentives
Dealerships are eligible for various tax incentives designed to promote growth and investment. Staying informed about these incentives and recognizing how they apply to your business can put extra cash in your pocket.
Passing the Checkered Flag—Post-Tax Season Reflection and Rev-Up
The end of tax season is not the finish line; it’s an opportunity for reflection, learning, and acceleration. What lessons did you learn this tax season that can be applied to next year? What changes can you make now to streamline next season’s tax processes?
Learning from This Year’s Taxes
After the dust settles, sit down with your tax advisor to review your tax experiences. Discuss what went well, what didn’t, and how you can improve. This candid post-race analysis will lay the groundwork for a stronger performance next season.
Building Your Tax Best Practices
Each tax season brings with it new knowledge. Create a maintenance manual that details your dealership’s tax best practices. This living document can evolve as your business does, capturing the essence of what works best for you.
Staying Engaged with Tax Professionals
Don’t make the mistake of only engaging with your tax advisors during tax season. Build a year-round relationship with them, so you’re always ahead of the curve regarding changes and opportunities in tax law. They’ll become your valuable pit crew, keeping your dealership tax strategies race-ready.
Tax season for car dealerships doesn’t have to be a white-knuckled drive. By working with qualified tax professionals, managing your assets and staff, staying ahead of audits, and preparing for the future, you can transform tax season into an opportunity for growth and success. With the right techniques, not only will you cross the finish line, but you’ll come out ahead. Gear up—tax season always awaits.
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About Michael:
Mike is Baker Tilly‘s dealership industry practice leader. He specializes in retail automobile, truck, implement and equipment, boat, motorcycle, recreational dealerships and related industries. Before joining Baker Tilly, he spent eight years working in the dealership industry with both single-point and mega-dealer operations. He has more than 30 years of experience with extensive consulting experience in dealership operations, internal control, accounting processes and computer utilization, as well as tax and consulting services for businesses, shareholders and owners.
