Dealer Insights - July/August 2013 - Dealer Digest
TAX BREAK STILL IN PLAY FOR IMPROVEMENTS
It’s not too late to take advantage of the American Taxpayer Relief Act (ATRA). One tax break that may particularly interest dealers extends accelerated depreciation for qualified leasehold retail-improvement property (including ceilings, doors, floor tiles, nonstructural internal walls and security systems) through 2013. More specifically, the provision allows a shortened recovery period of 15 years — rather than 39 years — for such property.
Talk to your tax advisor before year end if you’re considering making such investments. Even if you haven’t thought about making some physical improvements to your dealership, you may want to while the getting is good. There could be some real tax advantages to sprucing up your surroundings this year in case accelerated depreciation isn’t extended to 2014.
SAME NUMBER OF STORES, BUT GROWTH IN UNIT SALES BY 2025?
In a “Dealership of the Future” presentation, auto industry consultant Glenn Mercer recently forecast that the number of U.S. auto dealerships will remain relatively flat in the next 12 years but stores, as a whole, will sell more cars. “By 2025, we’ll see more of an evolution than a revolution,” he said, predicting that future “throughputs” (or deliveries) will average “well over 1,000 vehicles” per dealership per year. Current per-store throughputs average about 800 units annually, according to industry estimates.
Mercer made the forecast at a March conference sponsored by J.D. Power and Associates and the National Automobile Dealers Association. The conference was held in tandem with the New York International Auto Show.
The consultant also said that dealership showrooms will remain important places to feature and sell vehicles, though consumers will be doing even more car shopping online than they are now. Also, dealerships will build satellite service centers to try to gain more customers, Mercer predicted.
C CORPORATIONS LOOK ROSIER
Because their income flows through to the owners’ tax returns, entities such as partnerships, limited liability companies (LLCs) and S corporations will be indirectly affected by ATRA’s changes to ordinary-income tax rates for individuals. For example, if your dealership is an S corporation (the corporate type for many dealerships), you may face the highest rate (39.6%) as an owner. Traditional income and deduction timing strategies may help you minimize the impact or at least defer taxes to 2014.
You also may want to consider converting your business to a C corporation, because the top corporate rate remains at 35%. But there are many other tax and nontax consequences of a conversion, so discuss the impact with your tax advisor and attorney when contemplating such a change.
Dealer Insights - July/August 2013 Issue