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CPA firm offers 2012 year-end planning checklist for dealers

December 7, 2012
 Year-End Planning
1. Building repair or maintenance items such as painting should be performed before year-end. However, due to the current anticipated income tax rate increases for 2013, you may want to delay these repairs until 2013.
 
2. If you plan to make any charitable contributions, consider making them in 2012 to receive a tax deduction. Payments by credit card are deductible on the day they are made even if the payment to the credit card company occurs on a later date. The IRS requires written acknowledgment for each contribution of $250 or more.
 
3. Confirm you have made all required personal and corporate income tax deposits for 2012, and see that your personal income tax withholding is adequate. Consider paying all of your personal state income tax by the end of the year in order to take a federal income tax deduction for the state tax; however, you should consult with your tax advisor if you think you may be affected by the Alternative Minimum Tax.
 
4. Consider maximizing your retirement contributions, $17,000 for a 401(k) plan and ($22,500 if over age 50), and $50,000 to profit sharing plans (net of any 401(k) contributions).     
 
5. Consider adopting a change in accounting method for "trade discounts" to expense factory "interest and advertising credits." This change could reduce dealership taxable income and should be considered if you have a large enough new vehicle inventory. 
 
6. If you or the dealership owns stock that has unrealized losses, consider discussing with your tax or investment professional the benefit of selling them by year-end.
 
7. Confirm you have substantiation for your 2012 meal and entertainment expenses.  Travel expenses and the cost of a holiday party for employees or food ordered into the dealership should not be included in this amount.
 
8. Accrued interest on loans from shareholders and other related parties, as well as rents, must be paid in order for the dealership to deduct these amounts in the current year.  
 
Keep the accounting records open at the end of December
1. Record December finance chargebacks in December. 
 
2. Maximize LIFO deductions. Record all new vehicles that were built and invoiced in 2012 as vehicle purchases in 2012 by keeping the new-vehicle purchase journal open the first few days of 2013. 
 
3. Keep your accounts payable journal open to record all 2012 expenses in 2012, including advertising, interest, utilities, telephone, gasoline, data processing, insurance, etc. 
 
4. Adjust your property tax payable account to equal at least the total you actually paid in 2012. 
 
5. If any vehicle deal is not a 100 percent completed deal in 2012 (all paperwork and funding in 2012), then treat it as a 2013 vehicle sale. 
 
6. Make sure all miscellaneous inventories are adjusted to actual, including labor inventory, sublet, gas-oil-grease, body shop materials, etc.
 
7. Distributions paid to S corporation shareholders should be equalized in accordance to their ownership percentage before year- end. 
 
8. You must include a reasonable estimate of your LIFO adjustment for the year on all versions of your December financial statements.  There are no exceptions. If there is not a separate LIFO cost of sales account, charge the LIFO estimate to cost of sales in a cost account that has no other activity.
 
9. Compare your actual parts inventory to the accounting parts inventory and make adjustments where appropriate. Have your parts manager determine which parts should be considered worthless. Subject to your review, dispose of these parts by year-end. Be sure that your parts manager advises the office manager of the cost of the disposed parts and that the appropriate entry is made to remove the costs from inventory. Your parts manager should provide you with a final parts inventory summary showing the dollar amount of parts in inventory at the end of the year along with an aging of that inventory.
 
10. All wages and commissions paid in 2013 for 2012 services should be accrued in 2012. Make sure the first payroll in 2013 (even though some portion of the payroll was for 2012 services) is not included on your W-2s for 2011, but will instead be on the W-2s for 2013.    
 
a. All accrued payroll for non-shareholders must be paid no later than 3/15/13 for it to be deductible in 2012.  
 
b. If you are a C corporation, make sure you pay any salaries, commissions, or bonuses to stockholders and related parties in December (if their ownership exceeds 50 percent) in order to take a 2012 tax deduction.  
 
c. If you are an S corporation, wages to a shareholder cannot be accrued.  You must pay them in 2012 and include the wages on the 2012 W-2.
 
11. Reconcile, where possible, all balance sheet accounts before closing the year. 
 
Additional Year-End TO DOs
1. If you are not on LIFO for used vehicles, adjust all of your used vehicles to current wholesale market value at year-end. On an annual basis, used-vehicle LIFO should be discussed with your tax advisor. The IRS has developed an acceptable "alternative used vehicle LIFO" method similar to the new-vehicle method.  
 
2. Review current year fixed asset additions to determine if the costs should be capitalized or expensed. Generally, assets with a useful life beyond a year should be capitalized and depreciated.     
 
3. Review all past due accounts receivables, including employee receivables. Write off those receivables that are not collectible. If any of these are from employees or former employees, issue them a Form 1099-MISC for the amount written off.
 
4. Review prepaid assets and expense all items in this account that are not valid as prepaid at year-end.
 
5. All payroll tax and sales tax payable accounts must equal the actual amount of the applicable taxes paid in 2013 for the 2012 fourth quarter and year-end filings. The year-end payroll tax accrual can only include taxes owed on wages actually paid in 2012. 
 
6. Compute the Dec. 31, 2012, accrued vacation wages payable and adjust the books accordingly. Vacation wages paid Jan. 1-March 15, 2013, are deductible for tax purposes. No vacation accrual is allowed for any shareholders.
 
7. Review bank reconciliations for checks (including payroll checks more than 60 days old) that are not expected to clear. These checks should be voided and reissued. Funds owed to payees who cannot be located may be considered unclaimed property, which would require you to remit the funds to the appropriate state agency. Before reissuing a check to a vendor, be sure it has not been paid with a subsequent billing. 
 
Year-End Tax Reporting                                    
1. IRS Form 1099-MISC must be issued to all businesses that are not incorporated (including LLCs) and received $600 or more during 2012 for payment of services, awards, commissions, or fees for services. A Form 1099-MISC must be issued for payments to an attorney even if they are incorporated. When preparing the 1099, for those vendors from whom you purchased parts in conjunction with a service, you must report the total payment made to them on the 1099. Review all of the non-employee activity and determine if they should really be considered employees for payroll tax purposes for 2013. Also, Form 1099-MISC must be issued for all rents paid to non-corporate taxpayers, including shareholders, and Form 1099-INT must be issued for interest paid to shareholders and any other individuals.
 
2. W-2s for S corporation shareholders must include in wages premiums paid by the corporation for health insurance. This amount is not subject to Social Security or Medicare tax. If the dealership pays the insurance premiums of behalf of the shareholders’ children who are employees of the dealership, the children’s W-2 must include the insurance premiums.
 
3. Be sure you are in compliance with IRS rules and regulations regarding electronic backup of each month’s accounting records. We suggest you keep 60 months of electronic backup of your accounting data.
 
4. Determine if you are receiving services from individuals who should be considered employees. The IRS is providing a voluntary program that will allow you to convert these individuals from independent contractors to employees with partial relief from federal employment taxes and penalties. Consult your tax advisor for details. 
 
Review procedures for the use of demonstrators to ensure you comply with the current IRS regulations
1. All individuals who are provided a demo to drive should sign a written demonstrator policy agreement.
 
2. There are two IRS-approved methods that can be used for full-time salespersons. The first method provides them with tax-free use of the demo.  This method is fairly complicated and restrictive. The second method, used by most dealers, is the partial exclusion method. Under this method, an amount is added to wages on a monthly basis. The IRS has provided daily income amounts based on the value of the vehicle. For example, the daily inclusion is $6 for a vehicle valued at $25,000. Under this method, employees are not required to maintain logs.
 
3. For employees who are not full-time salespersons and any other individuals who drive demos, the annual lease value method is used. The amount included in income is based on personal-use mileage and the IRS annual lease table. The IRS requires that logs be maintained in order to verify business versus personal use of the vehicle.
 
4. The amount included in income is to be added to each employee’s W-2. Non-employee family member income amounts must also be included in the employee’s W-2. This income is subject to Social Security and Medicare tax. Shareholders not on the payroll who provide services to the company and any other non-employees must be issued a Form 1099-MISC for the income.  
 
Other
1. Form 8300 must be filed if you receive cash in excess of $10,000 from a customer. Cash includes cashier checks, money orders and traveler checks. Make sure you have properly filed the form for each transaction and notified the customer of the filing. Ask your office staff to provide you with copies of the forms filed for 2012 to confirm that this function is being performed.
 
2. If the dealership has a section 125 plan (cafeteria plan), make sure eligible employees complete the 2013 election forms before the first 2013 payroll. Remember that stockholders owning more than 2 percent in S corporations (LLCs, etc.) are not eligible to participate.
 
3. If you offer a health care Flexible Spending Arrangement  as part of your cafeteria plan, in order for it to be a qualified benefit under a cafeteria plan, the maximum salary reduction contribution to the health care FSA for 2012 must be limited to $2,500. If a plan allows in excess of $2,500 in salary reductions from an employee, the employee will be taxed on all of the distributions from the health FSA, therefore losing the tax benefit of the FSA contribution. FSAs for other eligible covered expenses have various other limits. Stockholders owning more than 2% in an S corporation or an LLC are not eligible to participate.
 
4. Beginning in 2013, you will be required on your Federal income tax return to report your sales paid to you by credit or debit cards and from online payments as a separate line item. The credit card companies will be required to send you a Form 1099K with the gross sales data. You should consider how to adjust your accounting systems and/or practices in order to separately track this data and reconcile sales amounts reported on the Form 1099Ks you receive. 
 
5. Beginning in 2013, if you issued more than 250 W-2s in 2012, you will be required to report the cost of each employee's health insurance on their 2013 W-2.
 
6. If you make gifts to individuals each year for estate tax purposes, the payments must be made by year-end.
 
Michael Silver & Co. can be reached at the firm’s Skokie office at (847) 982-0333.
 
 

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