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CATA Bulletin
November 8, 2004

 

2004 year-end Income tax/ Accounting checklist for dealers

November 23, 2010

BY MICHAEL SILVER AND CO., WOODWARD & ASSOCIATES, P.C., CPAS

1. Keep accounting records open at the end of December in order to: • Record December finance chargebacks. • Maximize LIFO deductions. Record all new vehicles that were in-transit at the end of 2004 as vehicle purchases in 2004 by keeping the new vehicle purchase journal open the first few days of 2005. • Record all 2004 expenses including advertising, interest, utilities, telephone, gasoline, data processing, insurance, property taxes, etc. • Account for all missing documents. • Obtain a proper cutoff for vehicle sales. If any vehicle deal is not 100 percent completed in 2004, then treat it as a 2005 vehicle sale. • Make sure all miscellaneous inventories are adjusted to actual including labor inventory, sublet, gasoil- grease, body shop materials, etc. • Reconcile, when possible, all balance sheet accounts before closing the year. 2. Review bank reconciliations for checks that are not expected to clear. Those checks should be voided and reissued. Funds owed to payees who cannot be located may be considered unclaimed property, and you may be required to remit the funds to the state. Before reissuing a check to a vendor, be sure it has not been paid with a subsequent billing. 3. Make sure that a reasonable estimate of your LIFO adjustment for the year is on all versions of your December financial statement. There are no exceptions. The best place to charge the LIFO estimate is to cost of sales in a cost account that has no other activity if there is not a separate LIFO cost of sales account. 4. If you are not on LIFO for used vehicles, adjust all of your used vehicles to the lower of cost or current wholesale market value at year-end. You may want to consider adopting USED VEHICLE LIFO since there have been modest increases in the value of used vehicles during the year. Consult your tax advisor to determine the benefit of adopting used vehicle LIFO and required procedures for the election. 5. Compare your actual parts inventory to the accounting parts inventory and make any adjustments where appropriate. Review the parts inventory summary with year-end balances along with an aging of the inventory. Have your parts manager determine which parts should be considered worthless. Subject to your review, dispose of these parts by year-end and make the appropriate entry in your accounting parts inventory. 6. If you have any building repair or maintenance items such as painting, etc. that needs to be done in the next few months, try to have these performed by the end of 2004. 7. Review current year fixed asset additions to determine if the costs should be capitalized or expensed. Generally, assets with significant value and a useful life beyond a year should be capitalized and depreciated. Consider accelerating your purchase of capital assets to take advantage of the additional 50 percent bonus depreciation. This bonus is available for assets purchased on or before Dec. 31, 2004, with a depreciable life of 20 years or less. In addition, the 2004 Sec. 179 expensing election is $102,000. 8. Carefully review prepaid assets. Expense all items in these accounts that are not prepaid balances at year- end. 9. Review all past due accounts receivable and write off those receivables that are uncollectible. 10. Make sure all payroll tax and sales tax payable accounts equal the actual amount of the applicable taxes paid during 2005 for the 2004 fourth quarter and year-end filings. 11. Make sure you have records of your 2004 meal and entertainment expenses on file. Travel expenses and the cost of the employee holiday party should not be included in this amount because these expenses are not subject to the 50 percent deduction limit. 12. Form 8300 must be filed if you receive cash in excess of $10,000 from a customer. Cash includes certain cashier's checks, money orders and traveler's checks. Make sure you have properly filed the form for each transaction and notified the customer of the filing. 13. A Form 1099-MISC must be issued to all individuals (not corporations) who received $600 or more during 2004 for the payment of services, awards, commissions, rent, or other fees. Review all of the non-employees to see if they would be considered employees for payroll tax purposes. 14. The IRS has automatic change procedures related to the method of accounting for trade discounts such as interest assistance that could provide a tax deferral if adopted. Consult you tax advisor for feasibility and procedures. 15. Make sure that all wages and commissions paid in 2005 for 2004 services have been accrued in 2004. However, since the wages related to these services will be included in the first 2005 payroll , they will not be included in the 2004 W-2s. 16. If you are taxed as a "C" corporation, make sure you pay any salaries, commissions or bonuses to stockholders (generally greater than 50 percent owners) and related parties before year end otherwise the amounts will not be deductible. 17. Accrued interest on loans to or from shareholders and other parties should be paid before year-end. Unpaid interest on these loans is not deductible until paid. Also, an IRS Form 1099 must be issued for interest paid. 18. Review procedures for the use of demonstrators to insure you comply with the current IRS regulations. • All individuals who are provided a demo to drive should sign a written demonstrator policy agreement. • There are two IRS approved methods that can be used for full-time salespeople. The first provides them with tax-free use of the demos. 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 a vehicle valued at $25,000, the daily inclusion is $6. Under this method, employees are not required to maintain logs. • For non full-time salespeople and other individuals, the annual lease value method is used. An income inclusion is based on personal use mileage and the IRS annual lease table. The IRS requires that logs be maintained in order to verify business vs. personal use of the vehicle. • The income inclusion is to be added to each employee's W-2. Non-employee family member inclusion amounts must be also be included in the employee's W-2. Shareholders not on the payroll and non-employees must be issued a Form 1099 MISC for the income. 19. If you or the dealership own stocks that have unrealized losses, consider discussing with your tax or investment professional the benefit of selling them by the end of the year. 20. If you make gifts to relatives each year for estate tax purposes, make the payment by the end of the year. 21. Make sure all required personal and corporate income tax deposits for 2004 have been paid. Review your personal income tax withholding to insure adequate amounts are withheld. 22. New for 2004 personal returns, you will be allowed to deduct the greater of sales tax paid during year or state income taxes paid. Under the old law, only income tax was deductible and you would have paid your projected state tax liability before year end in order to benefit from the deduction. However, under the new law, if you made significant purchases that are subject to sales tax, you will want to compare which tax gives you the greatest benefit. 23. If you plan to make any charitable contributions, consider making them in 2004 to receive a current year 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 in excess of $250. 24. If the dealership has a section 125 plan (cafeteria plan), make sure 2005 election forms are completed by the employees before the first 2005 payroll. Remember, stockholders owning more than 2 percent in "S" corporations (LLCs, etc.) are not eligible to participate. 25. W-2s for "S" Corporation shareholders should include income for health insurance premiums paid by the corporation. This amount is not subject to Federal FICA tax. 26. Maximize your retirement plan contributions. The limit for 2004 is $41,000 to profit sharing plans, net of any regular 401(k) plan contributions. The regular contribution limit for 401(k) plans is $13,000. If you are age 50 or older, there also is a $3,000 "catch up" contribution that can be made to a 401(k) plan, in addition to these limits.

 

Wisconsin rolls out new auction buyer's license

November 23, 2010

Persons employed by a licensed dealer or wholesaler who want to bid on and buy vehicles at auctions in Wisconsin must obtain a license from the state's transportation department. The licenses cost $6 to $12. The license requirement took effect Nov. 1. Under the Motor Vehicle Buyer's License legislation, only licensed dealers or wholesalers or licensed vehicle buyers can buy ve- hicles at wholesale auctions or from other dealers. A license application is included with this newsletter. Licenses issued to Illinois dealerships cost $12, and it expires the second July 31 after it is issued. All auctions across the country are restricted to sell only to dealers, dealership employees and dealership buyers. Wisconsin officials said the new buyer's license prevents unauthorized buying at auction. State officials said buyers who wait until attending an auction to apply for a buyer's license could face delays entering the auction Persons who buy vehicles on behalf of more than one dealership must have a license for each employing dealership. Such buyers can bid on behalf of only one dealer at a time. Dealer principals are not required to hold a Buyer's License to bid at auctions. The new license concerns non-salvage vehicles. Salvage vehicle buyers and bidders at salvage pools still must have a WisDOT Salvage Identification (BID) Card. Detailed questions can be directed to the Dealer Section of the Wisconsin Department of Transportation at (608) 266-1425 or at dealers.dmv@dot.state.wi.us
 

Most area dealerships to pause for holidays; benefits for non-union workers in line with union employees

November 23, 2010

The Silent Night on Dec. 24 will be pre-  ceded by a silent day at about three-fourths of CATA dealership showrooms and all service departments, a poll shows. The majority of dealers who responded to a query on what holiday hours they would keep said they would close their stores entirely on Dec. 24, 25 and 31 and Jan. 1. Those employees working Dec. 24 and 31 would keep abbreviated hours, the responses indicated. The percentages are: Sales open Dec. 24 24% Dec. 25 0% Dec. 31 50% Jan. 1 5% Service open Dec. 24 0% Dec. 25 0% Dec. 31 10% Jan. 1 0%
Dealers must remember their unionized employees' rights related to holiday pay. As a general matter, the vast majority of area dealers recognize the same holidays and adhere to highly similar terms regarding holiday compensation. Holiday pay procedures largely depend on the policies and/or practices in place at individual dealers. At unionized dealerships, some specific rules and restrictions are imposed on union workers. In all cases, unionized employees must work on their regularly scheduled days both immediately before and after a holiday to qualify for holiday pay, unless the employee is off-work or on an employer-approved vacation or leave. All unions with a presence at CATA dealerships-IAM Local 701, Teamsters Local 731, Teamsters Local 179, and IAM District Lodge Nos. 377 and 1749-share similar holiday rules. Those union contracts all recognize Dec. 24, 25 and 31 and Jan. 1 as holidays. Holiday pay eligibility for probationary employees varies among the unions. Employers should consult their union agreements to confirm employee eligibility. Also, dealers may agree with members of IAM Local 701-technicians, apprentices, semi-skilled employees and lube rack technicians-to substitute either or both Dec. 24 and Dec. 31 for a different day off during the year. Summarized, the holiday pay for unionized employees is: IAM Local No. 701 Pay equal to one day's regular pay at hourly (not booked) rate. Teamsters Local No. 731 Pay equal to one regular day. Mechanics Local No. 1749 Pay equal to 8 hours pay at hourly minimum rate or flat minimum rate. Teamsters Local No. 179 Pay equal to 8 hours at minimum hourly rate. Machinists Local No. 377
Pay equal to 8 hours at straight-time hourly minimum rate. Employees who work 10-hour days receive 10-hours pay at that rate, unless the holiday is the employee's normally scheduled day off, in which case 8 hours of pay at the straight-time minimum rate is due. Dealers with union questions should call the CATA's labor relations counsel, Franczek Sullivan, at 312-986-0300.
 

Shelf life: Renew FCC do-not-call lists monthly

November 23, 2010

Telemarketers must download an updated Do- Not-Call list within one month of the date of any telemarketing call, beginning Jan. 1. The previous rule ordered sellers to download a list every three months. The amendment to the Telemarketing Sales Rule came as a provision of a bill signed by President Bush last January. The Federal Trade Commission amended the rule in March, but allowed until the new year for the amendment to take effect. Businesses that conduct telemarketing must register as a telemarketer with the National Do-Not-Call Registry. That is accomplished on-line at https:// telemarketing.donotcall.gov/ Afterwards, a business can gain access to the various phone numbers. The lists of telephone numbers in five area codes are free to registered telemarketers. The annual fee to obtain additional area codes is $40 each, up to a maximum of $11,000 for all listed area codes. A telephone number that appears on the National Donot- call Registry still may be called if (a) the consumer has made a purchase from the dealership in the past 18 months, (b) the consumer has contacted the dealership with an inquiry in the past 90 days, or (c) the consumer has provided written consent-in advance of any call-to permit such calling. The consent form, according to the FCC, must be clear and conspicuous as to its intent. Under Illinois law, telemarketers are permitted for just 30 days to call a consumer after that consumer contacts a business with an inquiry.
 

What the Nov. 2 election results mean to the automobile industry

November 23, 2010

The president wore coattails. Besides President Bush capturing a second term Nov. 2, he saw the Republican majorities increase in the Senate and House. For dealers asking themselves "What does this mean for me and my business?" the American International Automobile Dealers Association presents an analysis. Tax Reform Taxes, particularly tax reform, will be a major focus in the 109th Congress with a GOP majority. The AIADA predicts Bush's series of tax cuts will not be rolled back on upper middle class Americans. Republicans have called this year for an overhaul of the U.S. tax system, and momentum is gaining on both sides of the aisle. Talk is centering on scrapping the income tax and replacing it with either a national sales tax or a flat tax. With GOP majorities in both houses, the federal estate tax could be eliminated. Congressmen favor it by a wide margin, but it could prove challenging to find the 60 Senate votes necessary for repeal. CAFÉ Fuel economy standards is an issue that both parties are examining. Because of the country's heavy dependence on foreign sources of oil, raising CAFE is politically popular in some states. Even Bush suggests changes. The NHTSA, with approval from the White House, recently proposed the largest CAFE increase in 20 years by ruling that light trucks set standards for light trucks that rise from 21.0 mpg in model year 2005 to 22.2 mpg in '07. With Republican majorities in both houses, CAFE is unlikely to be on the front burner, and any increase would likely be gradual. A GOP majority suggests that any decisions on CAFE would be made by experts at the NHTSA and not Congress. CAFE is not strictly a partisan issue, however. Sens. Carl Levin (D-Mich.) and Kit Bond (R-Mo.) attached an amendment to last year's energy bill that would leave decisions to increase CAFE standards to the NHTSA. But Sen. John McCain (R-Ariz.) called for a 35 mpg across-the-board increase. The Republican stronghold likely will hold the line on the CAFE increases. Healthcare The GOP majority, led by Senate Majority Leader and doctor Bill Frist (R-Tenn.), will try to pass healthcare reform, specifically medical liability and associated healthcare plan (AHP) legislation. House Bill 4281, which would allow small businesses to take advantage of AHPs, has been passed in the chamber six times. The bill's Senate version, S. 545, has not been called for a vote. With three four more GOP senators, AHPs likely will be called for a vote.
 

Auto theft ring could be operating in area

November 23, 2010

Dealers in Chicago's west and northwest suburbs this week reported that new performance cars were stolen in manners that suggest a theft ring might be operating in the area. One dealer said thieves stole a Chevy Corvette off the showroom floor after breaking into the dealership's service department and locating the keyboard. He said it was the first vehicle lost to theft by his dealership in more than five years. Another dealer has been victimized twice in the past six months, most recently last week, when thieves broke a showroom window to take the keys to a Ford Mustang parked outdoors. Dealers who have been victimized by similar thefts or attempted thefts, or who are aware of other such incidents, should contact the CATA's Erik Higgins at 630-495-2282. Higgins will consolidate all information for investigators.
 

10 ways to reduce workers' compensation costs

November 23, 2010

Insurance premiums for workers' compensation are escalating in most states at double-digit rates. Still, insurance companies are losing money and even going out of business with alarming frequency. Injured employees often receive inadequate benefits, while attorneys, doctors and other service providers are apt to profit. An employer's unemployment tax rate can vary between .06 percent and 6.8 percent of each employee's first $9,000 of earnings. The average unemployment tax rate among Illinois employers is 3.1 percent, or $249 annually. Dealers can follow 10 steps to keep workers' compensation costs under control. See it as a variable cost, and address what are the real high costs. Many dealers wrongly consider workers' comp to be a fixed cost; it is not. A dealer can greatly affect workers' comp expenditures by managing the variables involved. Two primary factors drive workers' comp costs: the number and frequency of claims, and the costs of those claims when they are filed. Focus on those key leverage points. Set the right tone. Adopt a companywide "we care" attitude. Foster a culture that treats people with dignity and respect, ensures employees get proper medical care when injured, and helps them to get healthy and back to work as quickly as possible. At the same time, make it clear that system abuses will not be tolerated. Hire smart. Every new employee represents a potential liability. Minimize exposure by using the hiring process to confirm employees can physically perform the job. Filter out potential abusers of the system. Commit to safety. Make safety a core value, not just a slogan on the wall. Create a comprehensive safety program built around employee involvement and hold people accountable for meeting all dealership safety standards. Train supervisors and workers to perform safely in the work environment, and hold managers and supervisors accountable for enforcing all safety procedures. Use qualified workers' comp medical specialists. Establish policies and procedures so injured workers go only to pre-qualified medical specialists, not to the emergency room. Handle claims quickly and properly. Report all injuries within 24 hours. Make sure medical providers and third party administrators follow up in a timely manner. Implement a quick return-towork program. The surest way to reduce long-term payouts is to get workers back on the job as soon as possible. If necessary, use a transitional work program until the injured employee can return to his regular job. Review claims regularly. Meet with a broker or third party administrator- monthly, quarterly or every six months, depending on the number of claims-to review the claims, analyze loss history and devise strategies to minimize costs. Demand more from the broker or third party administrator. Cutting workers' comp costs involves more than getting the lowest premium. Find a broker and administrator who will participate at every step to set up and manage a complete workers' comp system.
 

Kentucky dealer is next NADA chairman

November 23, 2010

Kentucky dealer Jack Kain has been elected chairman of the National Automobile Dealers Association for 2005. He will be installed at the NADA's convention and exposition in New Orleans in January. Kain, a new-car dealer since 1952, currently is the NADA's vice chairman. He owns Jack Kain Ford in Versailles, Ky., and Kain Family Ford-Lincoln- Mercury in London, Ky. William Bradshaw, president of Bradshaw Automotive Group in Greer, S.C., was elected as the NADA's '05 vice chairman. The NADA's board of directors elected the 2004 officers at an Oct. 19 meeting in Half Moon Bay, Calif. "I look forward to working with dealers across the country to build on NADA's strong record of accomplishment," said Kain. This year, NADA has undertaken major initiatives, including national campaigns to increase public understanding of auto financing and to raise awareness of child passenger safety seats.
 

Scam alerts

November 23, 2010

Yellow Pages Inc. has issued checks to area dealers for a small amount, $3.47. By depositing the check, a dealer stipulates with small print on the check to spend $197 with Yellow Pages on advertising. The company's parent firm is Independent Yellow Pages Publishers, in Anneheim, Calif. • A Boston-based Internet company, NetCarSalesman.com, has sent several dealers $299 invoices for appearing on the Web site of the same name. One dealer who received the invoice said he never engaged in business with the company. NetCarSalesman bills itself as "the #1 site on the Internet for bringing (consumers) the best and most trusted Internet Sales Departments in America." In all of Illinois, one new-car dealership appears on the site.
 
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