Annual Year-End Planning for 2021

The end of the year is right around the corner. Amid a lot of chaos in the industry, hopefully you’ve been on top of your financials all year long.  It’s always worth the time to take one last look at a few things before you officially close out the year. Let’s double-check some items to ensure compliance and minimize the tax burden on your dealership.

First, let’s cover the things you know by heart. Have you done the following?

• Prepared all bank reconciliations
• Reviewed and researched outstanding items for potential year-end adjustments
• Reported unclaimed property to state agencies
• Written off any uncollectible balances
• Recorded finance chargebacks in December
• Recorded the December LIFO estimate.  Probably a significant recapture with low inventory.  Make sure to include any floorplan units in transit to help mitigate what will likely be a significant LIFO recapture
• Write down used vehicles.  You probably have very little water in used inventory, but still do the analysis

These items would benefit from being checked one more time.

Essentials for Tax Planning

Now, on to the things you might not know inside and out. These items are essential for tax planning purposes.

• 2022 is likely to bring about tax law changes and generally higher tax rates.  Continuing to maximize the 20% Qualified Business Income deduction is key to minimizing your taxes in 2021, but it will likely be limited in 2022.
• Take advantage of all Bonus and Section 179 depreciation.  Make sure you have a capitalization policy in order to expense minimal purchases to repairs and maintenance.
• With the increase in the standard deduction, your more common itemized deductions have lost value. So, consider bunching deductions like charitable contributions. We’ve seen taxpayers doubling their donations to their favorite charities this year, so they get above the standard exemption- and forgoing next year’s gift.

Reporting and Compliance

We have just a few items of note on your reporting and compliance measures.

• All individuals who are given a demo vehicle should sign a written demonstrator policy agreement. At this point, not all of you are doing this. Brady Ware can help you identify the best method because the IRS has approved four different methods.
• Travel expenses are deductible in full, but certain meal expenses are limited. Costs related to holiday parties, office snacks, promotions, and on-site employee meals are not limited but should be posted to a separate account.  In 2021, all restaurant meal expenses are 100% deductible.
• Make sure to include shareholder health insurance premiums paid and HSA contributions on W-2 for shareholders greater than 2%
• Review W-9s for 1099 reporting

And one final note, remember entertainment expenses are not deductible. This includes expenditures for amusement, recreation and membership dues.

Connect with your Brady Ware advisor to help you with the full scope of year-end planning and start the new year in the right direction.