With all that is going on in the economy, it comes with no surprise that employee fraud is on the incline.  For auto dealers, one area of high fraud can be found within your own parts department.  Yes, that is correct.  Your parts department can easily be infiltrated with fraud due to the vast quantity of inventory you hold.  While stealing tires may be hard, smaller, less expensive items can be an area of prime interest for someone looking to steal. 

Do not think your dealership is immune.  Employees across the board have devised plans that allow them to sell inventory while pocketing the change.  There are some simple ways you as a dealer can look to decrease the fraud potential in your dealership:

• Increase internal control through the use of periodic audits.  Sampling certain inventory areas of high interest/sales volumes could help detect fraud. 
• Ensure that deposits are made daily to prevent an employee from stealing cash.  This person should be separate of the person who counts the cash. 
• Dealers can also set up a system that has the employee print an invoice to a separate person who is in charge of handling cash. 
• You can also set up a way to track discounts separately of regular sales.  Taking discounts is an easy way to commit fraud, and management should monitor these discounts closely. 
• Require approval of any returned items before issuing a refund.

These minor internal control modifications along with your system in place can help reduce the chance of thousands of dollars walking out the front door.  Even though it may not prevent all fraud, it can help reduce fraud and hopefully keep your employees honest.

On a side note, a simple way to improve inventory is to hold off from ordering special parts that may sit on your shelf and hurt your overall financials.  Look to send back inventory in a timely manner if you find that there is no potential to sell the inventory in the foreseeable future. 

Please contact one of our dealership specialists if you have specific questions or would like more information.

Before you pull a bucket loader up to the back door and cart everything off to the nearest landfill, please check our record retention guideline. 

It’s the time of year for clearing out last year’s files to make room for the new year, and many of you already have a back room full.  It may be a good idea to destroy some documents, but please be careful which items you remove, and consider whether those documents should be shredded before they leave your custody. 

Any documents with confidential company or personnel information, particularly social security numbers, should be destroyed with care.  If you don’t have the capacity to shred all the documents yourself, consider hiring a specialty company to perform this function.  Do a little research to make sure the document destruction company has a good reputation before you hire them.

Remember, you may want to get out from under all that paper, but it pays to be careful with your company’s historical records. 

Photo courtesy of office.microsoft.com/en-us/images/

Congress and the President have teamed up to increase opportunities for our military veterans to obtain employment.  Now, more than ever, people are looking for employment.  The Vow to Hire Heroes Act was passed to expand job credits to employers who hire out-of-work veterans. 

The law, which was signed on November 21, 2011, allows employers to take a credit of $2,400 when hiring a veteran who has been unemployed for at least a month.  Employers who hire a veteran who has been unemployed for at least six months can take a $5,600 credit.  Finally, the credit per worker jumps to $9,600 when hiring an unemployed veteran with a service-connected disability.  This credit is expected to expire at the end of 2012.

The credit is available for those who begin work for an employer after November 21, 2011.  Furthermore, the credit is also available to tax-exempt employers.

To qualify for the credit, employers must complete IRS Form 8850 and submit it to the state unemployment agency for certification no later than 28 days after the date the new hire begins employment.

While the credit is appealing, one should not hire based solely on the credit.  The credit is merely an incentive to hire an unemployed veteran who is qualified for the position. 

Contractors can also breathe easier because new legislation eliminates a controversial rule that required federal, state, and local governments to withhold three percent of certain payments to contractors for goods and services.  This law, which was scheduled to take effect in 2013, has now been repealed. 

Have you ever considered an Employee Stock Ownership Plan (ESOP)?  While there is much to learn about them, they may be the solution to any cash woes that you may be facing.  This article will detail some of the benefits of an ESOP and could help boost your bottom line.

An ESOP is one of several qualified employee retirement plans that is available to employees.  The key difference is that they are set up to invest in the company versus in someone else.  The hopes of it are that if your employees are invested into the company, they will want to boost revenues for their own benefit as well.  It’s a win-win situation!

You may be wondering, how do they work?  It is simple.  The dealership must first establish a trust fund that makes annual contributions to the fund allowing the company to purchase stock.  Second, the ESOP will allocate shares to individual employees who are invested in the ESOP plan. 

The main advantage of an ESOP is that it allows an owner to sell company shares to employees; in return, it is reinvested in a portfolio, which allows you as an owner to retain control of the business.  Most importantly, it can allow you to avoid taxes indefinitely!

Through the ESOP, there is the option to provide a tax-saving exit for you as an owner.  ESOPs are designed to invest mainly in the stock of the sponsoring employer.  A newly formed ESOP can borrow money from the corporation or a commercial lender.  For tax purposes, the ESOP must retain at least 30 percent of the company stock. 

Over time, the contributions made to the plan will pay both the principal and interest on the loans.  Since the contributions are deductible, the company is able to deduct both principal and interest.  This is an advantage to the company.  More importantly, the owner can elect to defer the federal income tax bill on the profit selling shares.  In order to qualify, you must reinvest the sale proceeds from the stock in “qualified replacement securities.”  The deferred gain from this sale will help reduce the tax basis you have in it. 

Indirectly, employees are stockholders through the ESOP. If an employee leaves, they are allowed to cash in their shares and have them repurchased by the ESOP. 

As an owner, you may be wondering, will I lose control of my business?  No, you have control over the amount of shares that are sold so it is still in your best interest.  Simply put, it allows business owners to trade their company stock for investment securities while potentially eliminating your federal income tax bill!

Please contact Albin, Randall & Bennett if you have questions or would like more information.

Using the LIFO inventory system can provide significant tax benefits to you as a dealer, but it can also provide many complications if not adequately used.  A major requirement of LIFO and a crucial stepping-stone is the need for adequate comprehensive records. 

While there are different methods of LIFO for both new and used vehicle inventories, this article will focus on the use of new vehicle LIFO.  IRS Revenue Procedure 97-36 was enacted to provide guidance to dealerships looking to use this form of LIFO.

Under this method, dealers must maintain “complete records” when calculating LIFO values.  Dealerships must also maintain and retain original invoices on new vehicles.  It is in the dealerships best interest to maintain records dating back to the first year the alternative LIFO method was elected for use.

If you do not maintain adequate records what could you face as a dealership you may wonder?  Well, first and foremost it could lead to tax complications.  Adequate records would help you withstand challenges from the IRS and potentially avoid penalties.  Having detailed records also makes it easier to explain to outside parties how you arrived at your LIFO calculation.

How can you maintain adequate records?  There are several different ways you as a dealership can do this.  The easiest way is to keep a copy of these files backed up somewhere within the dealership.  A downfall of this approach is that it can consume large amounts of space that could be used to occupy other items. A second option is that you could keep the records stored off site in the event of a natural disaster to prevent loss of these files.  A third option is to scan the invoices onto your server and back them up on disks or a hard drive of some sort for easy access. 

While there is much more to LIFO that just maintaining adequate records, it is a simple starting point to guide you in the right direction.

Still have questions?  Feel free to contact one of our dealership specialists and we can help guide you through the correct process to help maintain your adequate LIFO valuations. 

December finished up a strong year for 2011 and the table is set for 2012 to be another great year. The average age of vehicles is the highest it has been in years, banks are lending money again, new cars are more affordable than they have ever been, 46% of the population says they intend to purchase a new vehicle within the next year, our population is one of the fastest growing and is the third largest in the world, and almost every manufacturer is creating and building great products. As business continues to improve it is important for dealers to stay focused and not slip back into old habits. Make sure you continue evaluating and improving processes, planning for the future, controlling expenses, and managing inventory levels despite pressure from manufacturers as they continue to ramp up production. Staying focused will ensure continued profitability growth and ensure you get your share of the anticipated 14 million units that will be sold in 2012.

It is interesting to see how new vehicle sales trend from one month to the next. Many analysts try to explain why December sales increased.  In fact, it appears to just be a natural trend. By clicking here you will view a historical comparison of annual new vehicle sales as reported by Automotive News. Please contact Bart Haag or one of our other dealer services team members at (207) 772-1981 if you have any questions.

The IRS recently released the 2012 standard business mileage reimbursement rate, which will be 55.5 cents for all business miles, effective January 1, 2012.  The 2012 standard mileage rate for medical and moving purposes will be 23 cents per mile, effective January 1, 2012.  The 2012 standard mileage rate for charitable purposes is unchanged at the rate of 14 cents per mile.

Generally, Form 1099-MISC must be filed for each person who received at least $600 in non-employee compensation paid in the course of your trade or business.  Payments made to a corporation are generally not required to be reported.  Attorneys’ fees of $600 or more paid in the course of your trade or business must be reported on Form 1099-MISC.  The exemption from reporting payments made to corporations does not apply to legal fees.

Forms W-2 and 1099 should generally be distributed to recipients by January 31, 2012.

Forms W-2 and 1099 should be sent to the government no later than:

Electronic filing                                     April 2, 2012

Paper or magnetic media                     February 29, 2012

We recommend filing government copies on or about their due date (no sooner), so any recipient requested changes can be made without filing corrected Forms W-2 and 1099.

The 2012 wage ceiling for FICA-Social Security tax has increased to $110,100 from $106,800 for 2011.  Just before Christmas, legislation was enacted to maintain the lower 4.2% rate for an employee’s share of Social Security tax until February 29, 2012. The legislation includes a commitment to negotiate a full one-year extension of the lower rate.  The employer’s match remains the same at 6.2%.

The maximum 2012 employee contribution to 401(k), 403(b), and certain 457 plans is $17,000, and for SIMPLE plans the maximum is $11,500.  In addition, participants who are age 50 or over can contribute an additional $5,500 to 401(k), 403(b), and certain 457 plans, and an additional $2,500 to SIMPLE plans.

U.S Manufacturing continues to grow while other parts of the world experienced a slowdown. A recently released Purchasing Managers’ Index (PMI), an indicator compiled monthly from surveys done by the Institute for Supply Management’s (ISM), climbed to 53.9 in December. Any reading above 50 is indicative of an expansion within the manufacturing sector. The PMI index rose due to an increase in new orders-a welcoming sign for manufacturers in the United States.

U.S. manufacturers managed to “shrug off the apparent sharp slowdown in growth in Asia and what looks like a renewed recession in Europe,” wrote Paul Ashworth, chief U.S. economist for Capital Economics, in a market report.

In a recent report from China, the November readings contracted for the first time, to their lowest levels since 2009, but rebounded in December to 50.3. However, with the European zone headed towards a potential recession, exports will continue to look grim for many companies globally.

Despite the negative outlook by countries world wide, U.S. manufacturers continue to remain optimistic and their outlook is positive. With the uptick in manufacturing and with reports showing strong retail sales, there appears to be enough of a reason to be positive about the U.S. economy. However, many economists are beginning to question how long the U.S. can continue to expand when so much of the world appears to be contracting economically.

The bottom line is that the recent economic numbers are encouraging for manufacturers, but we certainly are not out of woods yet. We’ll wait to see if the positive data is reflecting an economy that’s expanding for the long run. 

At the beginning of 2011, far-reaching and onerous new rules were on the horizon regarding 1099-MISC filing requirements.  However, during 2011, those provisions were repealed.  Therefore, in general, the rules that have historically applied for filing Forms 1099-MISC continue to apply to the 2011 forms.

Despite the repeal during 2011, the IRS is paying more attention to Form 1099 compliance.  Questions have been added to 2011 income tax returns asking whether or not 1099 forms are required to be filed and, if so, whether or not the forms have indeed been filed.

As the 1099-MISC filing season approaches, keep in mind Albin, Randall & Bennett can assist you with preparation of those forms.