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Powersports Business • June 2024 • 13

BY BRAD STANEK AND PAULINA MATEL CONTRIBUTING WRITERS

As the tax filing deadline fades into memory , powersports dealer principals across the board find themselves mentally in various states . Regardless of where you stand in this spectrum , now is an opportune moment to shift focus from the immediate rush of the tax season to a more proactive approach : year-round tax and financial planning . By revisiting key planning tips and strategies , you can fortify your financial position , minimize surprises and set a solid foundation for the year ahead . So , let ’ s journey ‘ beyond the deadline ’ and explore the power of continuous financial and tax foresight as we sit down with Steve Blake , CPA and managing director with the CBIZ Dealership Team .

SAFE HARBOR & ESTIMATED TAX PAYMENTS

CPAs often rely on prior-year books and records to establish a baseline for estimating tax payments , a practice aimed at meeting IRS safe harbor regulations and avoiding penalties for underpayment .

However , this approach becomes problematic when economic shifts or projected dealership revenue render the established baseline irrelevant . Blake suggests that powersports dealers proactively share with their CPAs not only prior-year records , but also projected budgets to determine the lowest possible safe harbor tax payment . It ’ s also recommended that the current year financials are reviewed with your CPA on a quarterly basis to account for any significant changes and to ensure accurate tax planning throughout the year – helping you avoid underpayment fees in the process .

ADJUSTMENTS , WRITE-OFFS AND BONUS DEPRECIATION

Powersports dealers often sit-down with their CPAs during the final quarter of the year to discuss dealership write-offs and adjustments , a common practice in the industry . However , why not address these questions throughout the year ?

As you may know , bonus depreciation serves as a tax incentive enabling powersports dealerships to deduct a substantial portion of the purchase price for eligible business assets . Previously , businesses could deduct 100 % of the cost of the qualifying property . However , bonus depreciation is slated for a gradual reduction , with the rate diminishing to 60 % in 2024 and decreasing by 20 % annually thereafter until its full elimination in 2027 ( unless Congress intervenes to extend it ) .

Blake highlights a crucial aspect of planning here : at a high level , if your floor plan interest surpasses your regular business interest expense , you may lose eligibility for bonus depreciation costing you significant tax savings . Blake recommends that dealers schedule quarterly meetings with their CPAs to address key questions , such as :

When is the last time you compared floor rate expenses and your regular business interest expenses ?

When managing inventory , what are the write downs going to be ?

Will you be writing off units mid-year as part of your tax-planning and realize that loss sooner ?

How will those moves impact your ability to take bonus depreciation ?

COST SEGREGATION For powersports dealers aiming to undertake significant building improvements while maintaining profitability , Blake suggests considering a cost segregation study . This tax strategy involves frontloading depreciation deductions for real estate assets in the early years . For instance , when investing $ 3 million for a new dealership building , opting for a cost segregation accelerates the depreciation resulting in higher deductions early on , potentially placing you in a lower tax bracket . Consequently , your building is then depreciated over a shorter timeframe , typically five to 15 years , instead of the standard 39 years for nonresidential real estate .

If you recently completed a major improvement without a cost segregation study , there ’ s no need for concern . The IRS permits a one-year catch-up deduction to bridge the gap , according to Blake .

SPECIFIC CIRCUMSTANCES Blake emphasized the remarkable pace of change in the tax landscape over the past few years . While from 1986 to 2017 there was relatively little alteration in tax policies , the period since 2017 has seen the enactment of eight significant tax laws . As you navigate through the process of developing your tax and financial plan , don ’ t forget to take into account your unique individual circumstances . Strategies below can help you ensure that you can fully capitalize on tax benefits tailored to your powersports dealership , your family and your goals :

529 College Accounts – If you have children or grandchildren going to college , certain 529 plans offer state-level deductions in addition to the tax-free earnings if funds are used for qualified college expenses .

Retirement Plans – Your dealership and your employees may benefit from retirement plans , like the 401 ( K ). Certain plans also offer tax credits .

Other Tax Advantaged Accounts – Accounts such as Roth IRAs and Discretionary Profit Sharing can serve as additional planning tools .

As highlighted earlier , powersports dealers are encouraged to adopt a year-round tax and financial planning approach that extends beyond the tax filing deadline . Should you like to learn more on how we help dealer principles , contact The Stanek-Kaack Group .

Brad Stanek , CFP is an executive director and financial advisor with of The Stanek-Haack Group at Morgan Stanley in Chicago . His email is brad . stanek @ ms . com . Paulina Matel , CFP is a financial advisor with The Stanek-Haack Group . Her email is Paulina . matel @ ms . com .

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