Pub. 13 2014-2015 Issue 4

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S 27 new jersey auto retailer W W W . N J C A R . O R G Planning Can Address Many Tax Challenges BY ROBERT J. BROWN, CPA To insure the future of your dealership in a way that you have envisioned, it is important to have a well thought out, strategic plan in place. Currently, there are three players that have a vested interest in the dealerships’ operational ownership. First, there is the factory that has always been pushing their ideas on the best way to sell cars. Toyota/Lexus have been in the forefront in requiring dealers to have a designated successor and General Motors is now having discussions on this issue with its dealer body. This is a best practice idea that all manufacturers are embracing. Dealers should not consider this an intrusion but, a gentle nudge in addressing the issue of retaining control over their lifetime — you built it, you own it and you control it. The manufacturers’ concerns come partly from the current interest in dealership ownership from outside investors like Warren Buffett and George Soros. The relationship that they share with the current dealer body would have to be adjusted to deal with these new private equity firms. Due to these new players in the acquisition arena and the growth in vehicle sales in recent years, the market values of dealerships have grown significantly, which will affect the tax planning needed to reduce the future tax burden. Second, we have the Federal government looking for ways to add to your tax burden by penalizing you for being a responsible citizen and a successf ul entrepreneur. President Obama is now proposi ng changes to inheritance and capital gains taxes that could raise the estate tax rate. His plan would also eliminate the benefit of getting a “step-up in basis” in inherited property to its fair market value at the date of death. He will also ask to increase the capital gains rate from 20% to a maximum of 28%. Currently, when a parent or grandparent dies, the increase in the value of their assets from when it was originally purchased is not taxed. The State of New Jersey also has a stake in this as it is one of only two states with both an estate tax, on the assets of the person who died, and an inheritance tax, charged to certain people who are bequeathed assets including cash. IRS Tangible Property Regulations Due to the facility upgrade programs required by the manufacturers, these regulations will have a significant effect on the dealers. These regulations govern when taxpayers must capitalize and when they may deduc t expend it u res for acqu i r i ng, PLANNING  continued on page 29