Client Profile
Industry: | Dealership | Entity Type: | Partnership | Ownership Structure: | Three Partners | Geographic Footprint: | Midwest region | Annual Revenue: | $64 Million | Number of Employees: | 107 | |
Issue
A construction equipment dealership faced challenges in the current volatile economic climate. High inflation rates caused significant cost increases while they were also experiencing dramatic swings in their inventory levels. Additionally, their preferred tax strategy, bonus depreciation, was not available. A 2017 change in the tax law prevented the use of bonus depreciation because the dealership incurs and deducts floor plan interest. As a result, they were facing significant tax bills for the first time.
Solution
In times of high inflation, the last in, first out (LIFO) accounting method for inventory can provide substantial tax savings. Our team conducted a thorough LIFO analysis using three different methods of calculation on all inventory, including new units, used units, and parts. After careful evaluation, we recommended making a LIFO election for all three areas of inventory and suggested using the Producer Price Index (PPI) as the most beneficial method for their specific situation.
Outcome
Our analysis and subsequent recommendations resulted in the company receiving a $1.48 million deduction, leading to cash flow tax savings of approximately $504,000 for the owners. Given their industry’s significant challenges, which include high inflation costs, increased financing expenses, and supply chain interruptions from the pandemic, preserving half a million dollars in cash flow was a critical achievement for the company. We anticipate that they will continue to receive LIFO deductions for the foreseeable future, providing them with much-needed financial relief.
Copyright © 2023, CBIZ, Inc. All rights reserved.