Dealers across the country are working through year-end and all its implications. It’s a busy time filled with closing out 2024 and planning for 2025. This season is all the more charged with change as dealers consider the wake of the election, especially possible changes regarding EV regulation. Read this edition of Accelerate to understand audit, tax, and other considerations as your dealership finalizes the 2024 year.
A&A Updates for Dealers
Recently Issued Accounting Standards
Several accounting standards were issued prior to 2024. Dealerships can revisit these items to help ensure compliance and ongoing proper treatment of these standards. They include but are not limited to:
Accounting Standards Codification (ASC 842)
This previously issued standard implemented a change in how companies report leases, primarily requiring that the present value of all material leases be recorded as right-of-use (ROU) assets and lease liabilities on a company’s balance sheet. Although accounting for existing leases will not change for 2024, dealerships should assess their new or modified leases for proper treatment under this standard.
Revenue Recognition (ASC 606)
One aspect of this previously issued standard that impacted certain dealerships was the requirement to recognize revenue for work performed on material open service orders through a year-end date. Dealerships that experience an increase in service or body shop activity will need to gauge whether they need to recognize revenue on work in process for year-end.
Current Expected Credit Losses (CECL)
FASB introduced this accounting standard’s methodology in 2023 for privately held companies to estimate allowances for credit losses.1 FASB has also proposed a practical expedient to reduce the challenges of applying CECL for private companies; this guidance is expected to be issued in 2025. Although this new approach typically did not impact dealers’ calculations for allowance for doubtful accounts on short-term receivables, dealerships with new, longer-term finance receivables should review the guidance and discuss it with their accountants.
New Accounting Standards
The following accounting standards and their potential impacts should be considered for dealerships.
Accounting Standard Update (ASU) 2023-012 – Common Control Leases
This update went into effect in 2023 and provides private companies with a practical expedient to use the written terms and conditions of a common control arrangement to determine whether a lease exists and, if so, the classification of and accounting for that lease.3 Thus, ASU-2023-01 allows private companies to use written terms of a related party lease when accounting under ASC 842 (mentioned above), even if it is a month-to-month lease. In addition, the ASU allows leasehold improvements for these leases to be amortized over the useful lives of the improvements, even if the underlying lease is short-term.
ASU 2023-08 – Crypto Assets
On December 13, 2023, FASB issued ASU 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets. The amendments in ASU 2023-08 require that an entity measure crypto assets at fair value in the statement of financial position each reporting period and recognize changes from remeasurement in net income.4
This update is effective for years ending after December 31, 2024 and requires valuation at fair value each reporting period. Dealerships holding any crypto assets must list gains and losses from crypto assets separately based on this guidance. In addition, enhanced disclosures about significant holdings, contractual sale restrictions, and changes during the reporting period are required.5
Upcoming Standards to Note
Dealerships should always have an eye on the horizon since upcoming standards can potentially impact their business and operations. These four areas could affect dealerships in 2025.
ASU 2024-01 – Compensation – Stock Compensation (Topic 718)
This guidance simplifies how an entity grants certain classes of equity or profit awards. The full ASU provides detailed examples for use in accounting for profits interest awards. Dealerships with profits interests in place or that issue new profits interest awards should be aware that this is effective for year-ends after December 15, 2025.
ASU 2023-05 – Joint Venture Formations
FASB issued ASU 2023-05 on August 23, 2023, wherein “the amendments address the accounting for contributions made to a joint venture, upon formation, in a joint venture’s separate financial statements. The objectives of the amendments are to (1) provide decision-useful information to investors and other allocators of capital (collectively, investors) in a joint venture’s financial statements and (2) reduce diversity in practice.”6
The ASU requires a newly formed joint venture to be treated as a new reporting entity with measurement of assets and liabilities on the formation date effective after January 1, 2025. Dealerships that enter into or operate as a joint venture should prepare accounting accordingly.
ASU 2023-09 – Income Tax Disclosures
Amendments in this update were issued to “enhance the transparency and decision usefulness of income tax disclosures. Investors, lenders, creditors, and other allocators of capital indicated that the existing income tax disclosures should be enhanced to provide information to better assess how an entity’s operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows.”7
This is effective for public business entities for annual periods ending after December 15, 2024. For taxable entities, the guidance includes some expanded requirements regarding rate reconciliations.
In addition to this, ASU 2023-09 makes changes to annual income taxes paid disclosures on federal, state, and foreign levels. Dealerships that are C corporations should begin reviewing their income tax disclosure processes and ensuring they capture the required information in compliance with ASU 2023-09.
ASU 2024-03 – Income Statement Expenses
FASB issued this update to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses in commonly presented expense captions (such as cost of sales; selling, general, and administrative expenses; and research and development).8
This update pertains to public companies only and goes into effect for annual reporting periods beginning after December 1, 2026.
Key Audit Considerations for Year-End
In addition to accounting standards, there are several audit items and reminders to reflect on as 2025 begins.
CDK Outage
Dealerships experienced an unprecedented event last summer during the CDK outage. Forvis Mazars shared action items for dealerships to take as they prepared to return to the CDK environment at that time, and those reminders are still relevant for the start of the new year. Specifically, dealerships can revisit their internal processes to look into critical areas such as employee education, penetration testing and vulnerability scans, backup processes, and third-party access.
Moreover, focus on accounting for insurance proceeds (if your company filed for them due to losses during the CDK outage). In order to recognize the income under U.S. GAAP before it is received, your insurance company must agree with the filed claim, and the claim needs to clearly cover losses incurred.
Year-End Reminders
By following industry best practices, dealerships can look for a smooth transition into the new year. First, revisit the previous year’s adjusting journal entries and your accountant’s prior year’s management letter comments. Reconcile key accounts (such as cash, floorplan, and factory accounts receivable/accounts payable), then compare actual results to your budget and/or previous year’s results, and review contracts for potential liabilities.
Next, dealerships can review their goodwill and franchise rights for potential impairment. For example, if your group previously paid a significant amount of blue sky for a store and that store is significantly underperforming, the goodwill and franchise rights assets associated with that store should be assessed for potential impairment under U.S. GAAP. Thus, it is important for dealerships to discuss impairment considerations early with their auditors. This is an area that requires significant judgment, and each situation is unique.
Third, an overarching, industry-agnostic best practice is to enlist time-saving strategies. This can help your dealership prepare for the future and set you up for ongoing success. Execute these practices by developing financial dashboards, utilizing automation (with continuous forecasting, routine tasks, and other areas that can be outsourced), and looking into technology such as artificial intelligence (AI). More information on AI usage and applicability to dealerships, risks and security concerns when using AI, and regulations related to the use of AI can be found in this edition of Accelerate.
Taking current and new accounting standards and key audit planning tasks into consideration can help your dealership prepare for the year-end process and help drive profitability, avoid risk, increase efficiencies, and enhance productivity over time.
End of Year Tax Considerations
While some may be expecting changes to tax regulation with President Donald Trump taking office, many updates will not be immediate. Keep these considerations in mind as you wrap up your tax documentation and plan for 2025.
E-Filing
In early 2024, the IRS revised regulations regarding electronic filing rules. Previously, there was a 250-return threshold for e-filing returns. This threshold has been lowered to 10 returns. Provisions apply to returns required to be filed for taxable years ending on or after December 31, 2023. Any dealer with 10 or more applicable returns—including business income tax returns, withholding returns, 1099s, and more—is required to e-file moving forward.
Read more about the guidance and next steps to take in this FORsights™ article.
Inflation Reduction Act (IRA)
Dealers are pondering what will become of IRA clean energy credits. Some are rushing to take advantage of certain EV charging station tax credits while others are waiting on whether guidance will change under the Trump Administration.
We’ve seen EV sales growth cool off recently, so dealers are cautious about investing more for the tax credit.
For dealers who are moving forward on EV infrastructure and installation projects, be sure to clarify wage and apprenticeship requirements early. Learn the questions you should ask your contractor before starting the project. Other IRA energy credits include the investment tax credit, EV-related credits such as the alternative fuel charging station credit, and energy efficiency deductions.
Although the future remains unclear, dealers with applicable projects that meet IRA requirements can use this time to take advantage of IRA opportunities. Our professionals are ready to assist in this area, and we offer a free tool to help you understand how you may qualify.
Estate & Gift Tax Exemption Sunset
Similar to the IRA, the sunset of the lifetime Estate & Gift Tax Exemption is now under question given the new administration. Many wonder if the exemption will be extended and no longer sunset at the end of 2025. For this to happen, Congress would need to amend the current legislation and pass an updated timeframe. With a Senate and House majority, this could happen in the next year.
Regardless, time may still be of the essence to begin planning from both a tax and estate perspective. Plan now to connect with the right teams—attorneys, your advisor at Forvis Mazars, and your OEM—to begin the process. Even with a potential deferral of the sunset date, it may still make sense to complete a gift in 2025 to freeze the value of the assets gifted and remove them from your estate. Identifying the future of your family legacy is not an overnight activity. It will take months of planning, strategy, and conversations with your family and dealership group to identify the best next steps.
Other Tax Sunsets – 2026
The year 2026 will come with many sunsetting tax provisions, not the least of which include bonus depreciation, the qualified business income deduction (QBI), and overall tax rates. It is yet to be determined how Congress will handle many of these sunsetting tax provisions.Our team is closely following legislation related to the Tax Cuts and Jobs Act of 2017 (TCJA) sunsets.
Most have already felt the impact of the bonus depreciation phase-out. The TCJA brought with it 100% bonus depreciation from September 2017 through December 2022. Beginning with the 2023 tax year, bonus depreciation is reduced by 20% each year, meaning that in 2024, bonus depreciation is 60%. Bonus depreciation will fully phase out beginning with the 2027 tax year. This creates some significant tax planning opportunities regarding capital expenditures.
A major component of TCJA was to reduce the corporate tax rate to 21%. In an attempt to even the playing field for small businesses, the Qualified Business Income (QBI) deduction was introduced. The QBI deduction is a flat 20% deduction on qualifying trade or business income computed on the ultimate taxpayer’s return. If the taxpayer is in the highest income tax bracket of 37%, a maximized QBI deduction of 20% would result in an effective tax rate of 29.6% on that qualified business income. The current tax rates and QBI provisions will expire after 2025, making the top income tax bracket 39.6% in 2026—an effective increase of 10% on qualified business income.
Additionally, beginning in 2026, the standard deduction will be reduced significantly from its current level. For taxpayers who itemize, the deduction for state and local income taxes—which was previously capped at $10,000—will again be fully deductible. Many states that enacted PTE tax provisions may see those expire in conjunction with the SALT cap being removed.
One key provision of TCJA that is not set to sunset is the 163(j) interest expense limitation. Under current law, interest expense is limited to 30% of your adjusted taxable income. This provision has had a significant impact on many businesses, particularly in 2022 and 2023. Beginning with tax year 2022, depreciation and amortization were no longer allowed as an add-back in calculating adjusted taxable income. For many taxpayers, this significantly increased the disallowed interest expense. Our professionals are very familiar with the intricacies of the 163(j) interest expense limitation and its interplay with dealerships and are ready to assist with your planning needs.
Other Key Topics for 2025
Cybersecurity
We are now over half a year from the CDK cyber event that changed how the dealership industry viewed cybersecurity. After filing the business interruption insurance claims, dealers might fall back into a “business as normal” attitude without making changes to their cybersecurity posture.
Cyber incidents aren’t a matter of “if” but “when,” and it’s likely CDK will not be the only dealer platform that intercepts an attack over the next few years. During planning for the next year, start the conversation with your dealership group on how you’ll address cyber events moving forward. You will want to weigh the pros and cons of a cybersecurity insurance policy, address internal policies that may need updating, and consider if you need the assistance of a cybersecurity professional.
Forvis Mazars offers a team of tenured individuals who understand dealerships and can help with a cybersecurity assessment and identify areas for your team to be prepared the next time an event occurs. Watch this webinar recording to learn more.
Talent
Staffing at the store and executive level continue to be competitive landscapes. Dealers strategizing for 2025 may want to take the time to review current hiring and retention strategies. Decades-old programs may not work anymore, especially when it comes to technician talent for commercial truck and machinery and equipment dealers.
Placing the highest attention on employee engagement, growth, and career development can lead to a better experience for dealership customers. Read a previous edition of Accelerate for a few talent retention strategies to consider as you plan for the next year.
Conclusion
There are many items for dealers to look into as they close out one fiscal year and start another. Whether you’re working through your end-of-year accounting or considering tax strategies for the new year, our team can help in these various year-end planning areas. Learn more about our Dealerships Practice and how we can help your dealership thrive in the new year.
- 1“Interagency Policy Statement on Allowances for Credit Losses (Revised April 2023),” federalregister.gov, April 27, 2023.
- 2“FASB Accounting Standards Update, Leases (Topic 842) Common Control Arrangements,” fasb.org, March 2023.
- 3“FASB Improves Leases Guidance on Related Party Arrangements between Entities under Common Control,” fasb.org, March 27, 2023.
- 4“ASU 2023-08: Accounting for and Disclosure of Crypto Assets,” aicpa-cima.com, December 19, 2023.
- 5“Accounting for and Disclosure of Crypto Assets,” fasb.org, December 2023.
- 6“FASB ASU 2023-05 – Business Combinations—Joint Venture Formations (Subtopic 805-60), Recognition and Initial Measurement,” fasb.org, August 2023.
- 7“FASB ASU 2023-09 – Income Taxes (Topic 740) – Improvements to Income Tax Disclosures,” fasb.org, December 2023.
- 8“Disaggregation – Income Statement Expenses,” fasb.org, November 2024.