industry expert / accounting
Maximizing Income and Minimizing Taxes for Your BHPH and RFC
David Keller, CPA, CFE, is a partner with CliftonLarsonAllen, a top 10 nationwide CPA firm with extensive experience in serving the new, used, heavy truck, utility trailer and buy-here pay-here industries. Contact him at 314.925.4317.
DKeller@AutoDealerMonthly.com
like we just got finished with the last one, probably because we just closed the 2011 tax season on Oct. 15. With the year-end coming soon, it is very important to accomplish a few things before the drop-dead date of Dec. 31.
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Amongthe things you need to review now, especially if you haven't been doing so each month or quarter this year, are your loan covenants. Just
nce again we are get- ting close to another year's end. It seems
because you have been meet- ing or surpassing your loan covenants all year doesn't mean you will continue to do so at the end of the year. Why do I say that? Because you take your final receivable write-offs, make inventory write-downs, sell the remaining notes to your related finance company (RFC), purchase reinsurance contracts and make your accrual adjustments at the end of the year.
Now is the time to take a hard look at your financial
statements. You need to make the most of your decisions now, so you will know approxi- mately what to expect for year-to-date income (loss) will be on both the dealership and your RFC. Failure to do this can mean breaking a loan covenant which can create large problems with your lender. Most lenders do not to see like large "surprise" adjust- ments at year-end, especially if your year-to-date income has been good.
Even if you don't want to actu- ally make any adjustments before year-end, you should at the very least plan the adjust- ments now so you can then complete a projected balance sheet and income statement using the adjustments. This will allow you to recalculate your loan covenants and other
ratios and make sure you still meet them. Your personal goals are probably to make a sizable amount of income, pay very little income taxes and meet your loan covenants. Unfortunately, it is very hard to accomplish all three of these things at the same time.
The biggest problem we encounter at year-end is unreconciled balance sheet accounts. If you are not bal- ancing your accounts monthly, you can end up with some large year-end adjustments. The best time to find out if adjustments will be needed is now. Start with your cash accounts and then work your way down the balance sheet accounts until you get to retained earnings.
If your cash accounts aren't
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