12 Deadly Sins: 12 Mistakes Killing Profit & Lifelong Success for Auto Shops: Part 3 of 3

Welcome back to our 3-part blog series where we discuss 12 Deadly Sins that could potentially kill profit and lifelong success for auto shops. Read on for the final Sins: 9 – 12. If you missed last week’s blog, click here. You Aren’t Paying Your Kids Did you know that the standard deduction is now $12,000/year? That means that if someone earns less than $12,000 they pay no federal income taxes. This creates a great tax planning opportunity to think about putting your kids on payroll. Paying your kids needs to still pass the “fair and reasonable” test like all business expenses, but there are a lot of ways our clients use this to their advantage. Say your kid is in college and you are paying them to be there (housing, food, etc). You are using after-tax dollars to pay all of this. What if you hired them to be your social media manager, which plenty of people do remotely. Now by paying them $1000/month, you are giving your business a full write off, and this is income tax free for the child. What you have done is made their college expenses a business tax write off. There are some other factors to look into, but you can see the potential tax savings. You Aren’t Funding Your HSA In the new age of health insurance plans, a popular option is what is called a “high deductible health care plan.” The general idea is that the deductible (money that you pay out of pocket before insurance kicks in), is high so that the monthly premiums are lower. This is okay if you do not have a lot of healthcare costs, but if you do it can quickly get expensive. What a lot of plans offer is a HSA, or Health Savings […]

April 15, 2019 Blog

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12 Deadly Sins: 12 Mistakes Killing Profit & Lifelong Success for Auto Shops: Part 2 of 3

Welcome back to our 3-part blog series where we discuss 12 Deadly Sins that could potentially kill profit and lifelong success for auto shops. Read on for Sins 5 – 8. If you missed last week’s blog, click here. You Think Tax Planning Starts and Ends on April 15th                 Too many times we get new clients after they have received the dreaded April 14th surprise from their old accountant: “You owe a big tax bill and you need to pay it ASAP.” Unexpected expenditures are the main killer to any small business, and unexpected taxes are the worst because the government always gets their money. We are known to be pretty aggressive in our tax positions because at the end of the day, we have the same objective as you: Pay the least amount of tax legally possible utilizing any avenues that keep more money in your pocket and lead to your long-term success. However, there is only so much that we can do after the year is over. All our monthly clients know how much tax they are going to owe by fall time. We do a full tax estimate that incorporates their payroll, their business, and any deductions for the year so that we have a complete picture. Once we know how much they are going to owe (or get back) we talk about tax planning, tax minimization, and possibly budgeting for the upcoming balance due. Some very successful businesses are going to owe tax, and there is no way to get around that. However, if you know that you are going to owe a $20k tax bill in 6 months, you will make very different decisions on how you run your business and your personal life. Tax planning needs to be done proactively, not retroactively. You […]

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12 Deadly Sins: 12 Mistakes Killing Profit & Lifelong Success for Auto Shops: Part 1 of 3

By working with automotive repair and collision shops all across the country, we have a unique perspective of the inner workings of most shops. Our clients have taught us a lot about what it takes to become a successful shop, but we also see a number of things that are hurting some. The following is a list that we have put together of the 12 Deadly Sins that are killing profit and lifelong success for auto shops. Your Point of Sale Doesn’t Match Your Quickbooks This is one of the first items that we check when we get a new client and we often find the two don’t jive. You are asking your service writer or your estimator to get a certain target gross profit percentage in different categories, but what if the numbers they are looking at are not correct? If your front counter person thinks they are getting an average of 50% GP on work, but Quickbooks is only showing 40%, which number is correct? The POS software is showing what you think you are making, versus Quickbooks showing what you actually received and actually paid out to vendors or employees. The major differences that we see for labor margins are that most POS do not factor in inefficiencies of techs or added costs to their hourly rates or bonuses. The major differences that we see for parts margins is cores and credits not being received or sent back, parts going on customer cars and not getting billed, and even parts walking out the back door. Unless you can get both softwares to match and be accurate, how can you ask your service advisor or estimator to improve the margins? Your Portal Doesn’t Match Your Quickbooks A lot of our clients use coaching companies to help them improve […]

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Lower or No 2018 Tax Refund

One of the big issues that has been in the news lately is decreased refunds or even some tax payers finding out that they have a balance due. The new 2018 tax laws brought some of the biggest changes to the tax code in recent memory and we are just now starting to see the effects as clients start to file their returns. According to current data, on average, tax refunds for the year are down 8.7% compared to previous years. It is still early in the filing season, but we believe that that number will probably hold true. One of the biggest misunderstandings is that overall, the tax rates have been lowered and we are seeing people paying less tax on the same amount of income compared to previous years. However, along with the tax code released last year, withholding tables were also updated in February. What we then had was a mad scramble for payroll companies and employers to update their withholding tables, and in most cases lowered the amount of taxes being withheld from an employee’s paycheck. One of the IRS’ goals with the new withholding tables was to limit the large overpayments or underpayments, hoping that the withholding would end up being very close to the actual tax due. For some clients that has meant that their refunds have gone down, but they still paid less tax. Maybe not the result that they were looking for, but still at the end of the year they paid less tax. In some cases, we have seen the withholdings tables adjusted too much and clients are actually owing tax at the end of the year. This is something that we rarely saw in the past and could be a brutal surprise for some people already, or in the next […]

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Biggest Changes to Tax Laws Affecting Shop Owners

As we get into the heart of tax season, most shop owners are going to start seeing the effects of the Tax Cuts and Jobs Act that went into effect in 2018. We are going to cover some expenses that might have been modified, added, or even removed. We will also go over some of the major changes and how to make them work in your benefit. Entertainment Entertainment expense has been eliminated as an allowable deduction for 2018 taxes. In the past, if you took a client to a football game or out on a boat trip you could deduct 50% of the cost as an allowable expense. This year that is gone altogether. One thing that we are telling all our clients is to remove the word “Entertainment” from any of their expense accounts in Quickbooks. The standard account title for meals is “Meals & Entertainment” and we are having our clients change it to just “Meals.” “Meals” are mostly unchanged and still available for a 50% deduction, but by having the word “Entertainment” on the account, you risk misclassification by your accountant or a possible issue down the road if audited. Home Office Deduction Some of our clients deducted part of their household expenses for the business use of the home. However, unreimbursed employee expenses are no longer deductible on your personal tax return. What we are having our clients do is set up an accountable direct reimbursement plan for their home office. In short, you calculate the expense of having the home office and bill your company for that cost. The company is then able to reimburse the owner for a full deduction and tax-free income to the owner. Win-win. Tools and Uniforms for Employees Since unreimbursed employee expenses are no longer deductible, your employees will […]

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Are your Taxes Correct?

Tax Reform

With the new changes of last years’ tax law coming into effect, the question of accuracy of your taxes becomes more important than ever. We consistently get new clients that have lost confidence in their accountant’s ability and reach out to us to review the work. Sometimes we do not find any changes that need to be made, but a lot of times we can pick up on missing deductions or even just incorrect work. Your accountant should be reviewing your financials as well as having conversations with you to make sure that any and all deductions are accounted for. If your accountant is not reviewing your financials with you, there is no way that either of you can ensure that all deductions are accounted for and classified correctly. What does that mean to you? You are paying more tax than you should! A good accountant and a business owner should have one goal in mind: pay the least amount of taxes legally possible at any time. We recently did a tax review for a client in Oklahoma who felt that something just wasn’t right with his taxes. He was never able to get a good answer from his accountant on why he owed so much and where this “income” was that his accountant was reporting. After a review of his entire tax picture we found that his current accountant was misclassifying deductions that totaled to over $50k in extra tax paid over 2 years! We are currently working with him to fix these returns and get his money back from Uncle Sam. No one likes paying tax, especially tax that you should not have paid in the first place. If you are thinking that you have an issue of your own, click here to set up a free consultation […]

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How Much Should I Pay Myself?

fair and reasonable salary

Under today’s current tax laws, most of our clients have elected to become S-Corporations for federal income tax purposes. S-Corporations have many advantages over conventional Corporations and Partnerships, which is why they have become so popular. One of the greatest advantages is the ability to make and control distributions of after-tax profits at any point, for any reason. The only caveat that to this is that the owner is taking a “fair and reasonable” salary from the company if they are working in the business. This leads us to one question that I get asked all the time; “How much should the owner’s salary be?” When answering this questions we have to take 3 different considerations into account: future Social Security impact, payroll taxes and IRS guidelines. Social Security and Medicare taxes are calculated at 15.3% of the wage base. The wage base is the lesser of the actual salary or the annual max. (For 2018, the max base is $128,400. Once your salary exceeds that base, no additional SS tax is collected, MC does continue.)  Social Security benefits are calculated using an average of your highest wage base 35 years of employment. There are adjustments for time, but simply put, if you average $100,000/year for 35 years, your Social Security base will be $100,000. The current max Social Security benefit is almost $2,800/month. However, if your average base is $60,000/year, your estimated monthly Social Security benefit will be roughly $2,000/month. As you can see, there is an increase in the future Social Security benefits by maxing out your SS contributions. However, there is a law of diminishing returns – as the dollars contributed go up, the future benefit goes up, but by less and less. If you pay yourself $125,000 this year, you will pay almost $19,000 in payroll […]

December 13, 2018 Blog

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