Dealer Insights - March/April 2014 - Dealer Digest

Published: Feb 25, 2014
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IRS to zero in on pass-through entities

If your dealership is organized as a pass-through entity, take note: The IRS plans to devote more resources to auditing these types of businesses. The head of the IRS Small Business / Self Employed Division recently told participants at a national tax conference that, though the IRS previously focused most of its attention on businesses organized as C corporations, it will make auditing more pass-through entities a priority.

Many U.S. businesses are organized as pass-through entities, which include S corporations, partnerships and limited liability companies (LLCs). Such businesses don’t pay income taxes directly to the federal government. Instead, income is passed through to partners or shareholders who report and pay taxes on it via their personal tax returns.

Organizing your dealership as a pass-through entity can offer legitimate tax advantages. But the IRS suspects that some large partnerships are designed mainly to shield transactions from taxes, so the agency will be paying closer attention to these businesses.

The IRS executive said that the agency doesn’t believe every pass-through entity is designed to intentionally avoid paying taxes. But, when preparing its tax returns this year, any dealership organized as a pass-through entity should be aware of the IRS’s stated shift in emphasis.

Don’t count on ACA tax credits

The Affordable Care Act (ACA) includes tax credits designed to encourage small businesses, including many dealerships, to offer health insurance to their employees. But the devil, as they say, is in the details — and the reality is that most dealerships won’t qualify for these credits or be able to reap their maximum benefits.

For starters, coverage must be purchased from the Small Business Health Options Program (SHOP) marketplace to qualify. If you already offer coverage, you may not want to bother switching. Second, only very small dealerships (those with 10 or fewer full-time equivalent employees) will qualify for the maximum credit. And, third, premiums paid to dealership owners with a 2% interest or more and their family members are excluded from the credit.

Could auto sales hit 17 million again?

Annual U.S. auto sales haven’t topped 17 million since 2001, but some industry analysts believe consumer demand could soon reach this level again. The big question is whether manufacturers will be able to ramp up their production capacity to meet the anticipated demand.

This could be a challenge because of all the factories that were shut by manufacturers during the recessionary sales slowdown. Forward-thinking dealers should start planning now for this potential imbalance in supply and demand later in the year.

Dealer Insights - March/April 2014