Change in Treatment of Trade Discounts May Provide Accelerated Deductions for Dealers

IRS Provides Dealers with Significant Tax Deduction Opportunity
Dealers who currently capitalize volume-related trade discounts may have a significant tax deduction awaiting them. Through analysis of nearly 2000 dealership clients, the majority of dealerships capitalize such discounts and would benefit by changing the way they account for them.

Dealers receive trade discounts (finance credits, advertising credits, fuel discounts, prep. and conditioning reimbursements, etc.) when they purchase new vehicles. For example, a dealer may purchase a new car for $12,000 with the agreement that the manufacturer will rebate $200 of the purchase price to the dealer at year end. Many dealers record the $12,000 as the purchase price of the new car and report $200 in income when the rebate is received. The proper tax treatment is to record the purchase at $11,800 and report now income when the rebate is received.

What Does it Mean to Auto Dealers?

(* - on average).