Dealer Services
Audit, tax, and advisory for auto, truck, RV, and equipment dealerships that answer to manufacturers, floor plan lenders, and their own long-term ownership plans.
Overview
Dealerships have one of the most specialized accounting environments in retail. Inventory is large and financed through floor plan lines, manufacturers require monthly financial statements in their own formats, and income comes from several departments, including new and used vehicles, service, parts, and finance and insurance. Each stream has its own accounting and tax considerations. Pease Bell, a Top 200 U.S. CPA firm headquartered in Cleveland, Ohio, provides audit, tax, and advisory for auto dealers and dealers of trucks, recreational vehicles, powersports, and equipment.
We help dealers manage LIFO inventory, reconcile floor plan balances, prepare for lender and manufacturer reviews, and account correctly for F&I commissions and chargebacks. We also work with dealer principals on entity structure, including the common practice of holding dealership real estate in a separate entity, and on succession planning as ownership moves to the next generation or to a buyer.
How We Help Dealerships
LIFO Inventory Planning
LIFO election analysis, annual calculations, and pool management for new and used vehicle and parts inventory, including evaluation of the alternative LIFO method available to auto dealers and planning to limit liquidation risk.
Floor Plan Accounting
Reconciliation of floor plan balances to vehicle inventory, review of curtailments and interest, and analysis of the tax treatment of floor plan financing interest, which has a specific exception under the business interest rules.
Manufacturer Financial Statements
Support for preparing and reviewing monthly and year-end manufacturer-format financial statements, and reconciling them to the general ledger and tax return so reported figures stay consistent across every audience.
F&I Income and Chargebacks
Accounting for finance reserve, service contract, and product commissions, including estimating chargeback reserves for early payoffs and cancellations so F&I income is recognized in the proper period.
Dealer Audits and Reviews
Audited and reviewed financial statements for floor plan lenders and other stakeholders, plus internal control reviews of contracts in transit, cash, and vehicle inventory to help reduce the risk of loss.
Entity and Real Estate Structure
Planning for dealership operating entities and separately held real estate, including related-party leases, cost segregation considerations for facilities, and succession and buy-sell planning for dealer principals.
Challenges We Help Dealers Address
- ✓LIFO reserves at risk of liquidation when inventory levels drop
- ✓Floor plan balances that do not reconcile to units on the lot
- ✓Manufacturer statements that differ from the general ledger or tax return
- ✓Estimating F&I chargebacks on cancelled contracts and early payoffs
- ✓Planning dealership and real estate transfers to the next owner
Frequently Asked Questions
Why do auto dealers use LIFO?
Vehicle and parts costs tend to rise over time, so LIFO, which matches the most recent costs against sales, can defer taxable income for dealers with stable or growing inventory. Auto dealers may also use a simplified alternative LIFO method for new vehicles. Because the deferral can reverse when inventory falls, dealers should monitor year-end stock levels and pool structures carefully.
Is floor plan interest deductible for dealerships?
Generally, yes. Floor plan financing interest on vehicles held for sale or lease is excluded from the business interest limitation under IRC Section 163(j), so it is not subject to that cap. However, dealers that rely on this exception may lose access to bonus depreciation on certain property, so the trade-off should be reviewed.
How is F&I income recognized?
Commissions on finance reserves, service contracts, and other products are generally recognized when the vehicle sale is completed, with a reserve for expected chargebacks if customers cancel products or pay off loans early. The reserve is typically based on the dealership’s historical chargeback experience and should be updated periodically.
Should dealership real estate be held in a separate entity?
Many dealer principals hold the property in a separate entity that leases it to the dealership. This can help separate operating risk from real estate value, simplify a future sale of either the dealership or the property, and support estate planning. Lease terms between the related entities should be reasonable and documented.
Related services & industries
Contact Us
Tell us about your organization and a member of our team will be in touch.