CATA News

The dollar thresholds in Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing) that determine exempt consumer credit and lease transactions increases from $58,300 to $61,000 effective Jan. 1.

The thresholds are adjusted annually based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as of June 1 each year.

 

Local car dealers teamed up this holiday season with Chicago area charitable organizations to help fulfill the holiday dreams of less fortunate children. Area dealers from Fox Lake to Tinley Park understand the vital impact their businesses have on the communities they serve, which is why they have gone the extra mile for causes such as Toys for Tots and the Humanitarian Service Project. 

"Chicagoland’s new-car dealers are the pillars of their communities and among the first to donate to local organizations in need," said Chicago Automobile Trade Association Chairman Kevin Keefe. "This holiday season is no exception."

Ray Chrysler-Dodge-Jeep-Ram in Fox Lake partnered again with Jeeps on the Run (JOTR), a local Jeep enthusiast club and Lake County’s largest donating group to the U.S. Marine Corps Reserve Toys for Tots program. More than 750 Jeeps gathered Dec. 5 for a 25-mile, fully escorted JOTR caravan that kicked off at the dealership and culminated at the historic Genesee Theatre in Waukegan, where Jeep owners offloaded their Toys for Tots donations to the U.S. Marine Corps. 

"I started Jeeps on the Run nearly a decade ago as a family-oriented Jeep enthusiast club, but it has since evolved into a nonprofit organization that gives back to charitable organizations all year long," said JOTR President Mike Missak. "Jeeps on the Run has become a tradition for local families and, for many, it’s the kickoff to the holiday season. We simply wouldn’t have the success we do if it wasn’t for our supporters like Ray Chrysler Dodge Jeep Ram." 

The dealership also organized a raffle among participants to donate a 2021 Jeep Wrangler.

"We’re thrilled to be the primary sponsor for this wonderful cause for the second year in a row," said Ray Scarpelli Jr., owner of Ray Chrysler-Dodge-Jeep-Ram and Ray Chevrolet, also in Fox Lake. "We experienced so much success last year and saw firsthand the joy it brought to families in need, so it was a no-brainer for us to be involved again this year." 

Friendly Ford in Roselle hosted an annual "Fill a Ford" Toy Drive in partnership with the Humanitarian Service Project in Carol Stream to ensure that every child in DuPage and Kane counties living in poverty will have gifts to open at Christmas.

Community members brought to the dealership new and unwrapped toys for kids of all ages, for the dealership to "fill a Ford" with all of the toys and transport them to the Humanitarian Service Project for distribution to local families. Friendly Ford matched every toy with its own donation. 

Apple Chevrolet in Tinley Park also collected new and unwrapped toys for children of all ages, in partnership with the U.S. Marine Corps Reserves Toys for Tots program. Nearby residents helped the dealership reach its goal of filling eight Chevy Silverado pickup trucks with gifts to help bring holiday cheer to less fortunate children. 

"We’ve partnered with Toys for Tots for eight consecutive years, as what better way to bring joy to those in need and give back during the holiday season," said Apple Chevrolet Principal John Alfirevich. "We hosted holiday fun for local families with a DJ, balloon-making and even an appearance from the jolly guy himself, Santa." 

Because dealerships are closely weaved into the fabric of their local communities, many individuals and organizations turn to them in times of need. The CATA similarly has been a longtime supporter of local nonprofit organizations. The association has donated more than $100,000 to local charitable organizations through its Chicagoland Dealers Care program, which helps expand on CATA members’ donations and shine a spotlight on new-car dealers’ positive impact within their communities.

For more information on the CATA’s Chicagoland Dealers Care program, visit ChicagolandDealersCare.com. 

 

Dynatron Software, a CATA approved member partner, will host a webinar at 11 a.m. Dec. 15 to review the new revenue opportunities stemming from OEM warranty legislation effective Jan. 1. As you may be aware, House Bill 3940 was signed and takes effect Jan 1, 2022. This groundbreaking legislation requires IMMEDIATE ATTENTION to capitalize on significant short-term net profit impact.

To join the free webinar, go to https://meetings.ringcentral.com/j/8479133412.

 

The maximum amount that Illinois dealers can charge in 2022 for documentary preparation fees is $324.24, the Illinois attorney general’s office announced Dec. 10.

The $20.64 increase over the 2021 maximum fee reflects a 6.8% rise in the federal Consumer Price Index for the 12-month period ending Nov. 30. The index is tracked by the U.S. Department of Labor. As always, the DOC fee is taxable and must be substantiated upon request by the attorney general’s office.

The CATA is developing a poster about the DOC fee that dealer members can display. On the poster, the DOC fee amount is left blank for dealers to fill in; any amount up to the maximum allowed may be charged, but all customers should be charged the same amount. Systematically charging one group but not another — all males but no females, for instance — could bring charges of profiling.

Two copies of the poster will be mailed to dealers later this month. For limited additional copies, call the CATA at (630) 495-2282.

IMPORTANT: The new maximum fee cannot be charged before Jan. 1.

 

Carjackings across the country this year are up by 43%. In Cook County, they are on track to be the worst in two decades.

 

An Illinois task force that includes the Chicago Police Department, the Cook County Sheriff’s Office, the Illinois State Police and federal agencies are working together to stop the surge by sharing carjacking-related data. The goal is to track trends across the county that will help law enforcement stop carjackers. The taskforce also will use helicopters to eliminate dangerous car chases.

 

Most vehicles made after 2015 — which make up the majority of the area's hijacked vehicles — have the ability to be tracked. But police face challenges in working with vehicle manufacturers to trace the vehicles in a timely manner, sometimes having to navigate overly complicated processes.

 

One local victim, Dr. Stephanie Davis, was carjacked in broad daylight while she was stopped at a gas station. When Davis called her dealer, she was told the vehicle couldn’t be tracked, even though it had that capability. Later, she learned it was used in another carjacking.

 

The Cook County sheriff’s office developed a Consent-to-Release-Data form. Cook County Sheriff Tom Dart said that filling out and submitting the form will allow law enforcement to access data location information for the described vehicle from the relevant manufacturer if the vehicle has been unlawfully taken and such information is available. Swift access to such information can help law enforcement recover the vehicle.

 

Earlier this year, Dart’s office added a new member to the agency’s anti-carjacking squad: former radio talk show host Roe Conn. "It should be no surprise that an individual like Roe Conn, who spent years interacting with people from many different backgrounds and areas of expertise, would be a valuable asset in our efforts," Dart’s office said.

 

Conn, the sheriff’s office said, is working to "develop programs and processes that expand our agency’s crime data collection and dissemination efforts to support our local, state, and federal partners."

 

Dart said several factors contributed to the rise in carjackings this year.

 

"Over half of the carjackings are done by juveniles," Dart said. "And during COVID-19, so many of the afterschool programs and schools were [closed]. There were less [activities] for kids to do. That was part of it, but there were other dynamics that were coming into play," Dart said. 

 

"[Before the pandemic] if you had an individual with a mask on coming anywhere near you, you knew there was trouble afoot. Now, everyone has a mask on. As far as trying to arrest and prosecute people, it’s much more difficult to identify [suspects] because the norm is that everyone wears masks."

 

Dealership compensation for warranty repairs increases Jan. 1, when the calculation of reimbursement rates for most repairs will be at retail and not merely "reasonable" in a manufacturer’s view.

Illinois Gov. J.B. Pritzker on July 30 signed legislation that changes how manufacturer pay is calculated on warranty work. Manufacturers failed to reverse the move during the General Assembly’s fall session, although they did manage to trim payouts on engines and transmissions to 30% of what the franchisee paid.

All other compensation shall be no less than the amount charged to a retail customer for the same parts and service. Dealers can calculate labor times by using agreed upon guides or by 1.5 times the manufacturer’s time guide.

The coming changes were reviewed in a Dec. 7 webinar hosted by the Illinois Automobile Dealers Association and presented by law firm Bellavia Blatt’s Keith Gitman, an attorney, and Ken Lohr, the firm’s director of retail warranty reimbursement. Dynatron Software will host a similar webinar Dec. 15 for CATA members.

In addition to establishing an equitable compensation scheme for warranty work, the new law prevents manufacturers from imposing cost recovery fees or surcharges to overcome the legislation’s effect. For manufacturers, it preserves their right to approve or disapprove dealership claims, and it ensures manufacturers have a way to charge back any false or unsubstantiated claims they paid.

"The manufacturer looks for reasons to reject you. Perfection is the name of the game" in compensation filings, said Lohr. He added that using a third-party vendor to calculate parts and labor rates can help dealers maximize their reimbursement claims.

The new law requires that the booked time allowances for the diagnosis and performance of warranty work be no less than what is charged to retail customers for the same work, that manufacturers pay dealerships the same effective labor rate as the dealership receives for customer-pay repairs, and that manufacturers reimburse dealerships for any parts (except engines and transmissions) provided in satisfaction of a warranty at the prevailing retail price charged by the dealership when sold to retail customers. 

 

Mechanics Local 701, whose members include area technicians, worked with the CATA and other groups to advance the legislation. Supporters say it will bring a fairness to the payment process that could attract new technicians to dealerships.

New on labor: manufacturer compensation for labor must include any time spent on calls to technician assistance centers for diagnosis guidance. For accurate time calculations, Lohr said technicians should clock out of repair work, punch in separately for the time talking, and then punch back in to resume repair work.

In advance of Jan. 1, some manufacturers approached their franchisees about locking them in to uniform warranty reimbursement agreements that pay less than retail. Gitman said that state statutes trump any agreement, so even dealers who signed a uniform agreement can establish the labor time guides they will use.

 

Scott Muller, 63, a partner of the six-franchise Muller Auto Group in suburban Chicago and northwest Indiana, died Nov. 17.

 

Mr. Muller served on the CATA board of directors since 2019 and sat on the board's DriveChicago, Media Strategy, and Member Benefits committees.

 

Survivors include his children, Priscilla and Jared Muller; his father, Michael; and a brother, Mark.

 

Memorial contributions appreciated to the Wounded Warrior Project.

 

The next edition of this newsletter will include notice of the maximum documentary service fee that can be charged in 2022. 

 

The edition will go out Dec. 10, the same day the Illinois attorney general’s office will announce the ’22 max.

 

Dealers are critical members of their communities, and the CATA knows that many of you are contributing — whether monetarily or with volunteer hours — to local charitable causes this holiday season. The association wants to highlight those stories in an upcoming CATA Bulletin as well as in a press release that we’ll share with local media outlets to help showcase all the goodwill that dealers do for their communities. The holiday season brings along a sentiment of giving, so now seems like a good time to share some of those wonderful stories. 

 

To be included, please share as many details as possible (charity name, cause/mission, event date/time if applicable) with Jennifer Morand, the CATA’s director of PR and social media, at jmorand@drivechicago.com before Dec. 1.

 

By MichaelSilver, Certified Public Accountants and CATA Member

 

As another tax year comes to a close, it is time to consider your tax planning opportunities and year-end tasks. 

 

Year-End Planning:

1. Owners who operate their businesses as sole proprietors or as a pass-through entity such as Partnerships and S Corporations are entitled to a deduction of up to 20% of their qualified business income. The deduction can be maximized through salary planning and entity aggregation.

 

2. The Section 179 expensing limit for 2021 is $1,050,000 with a $2,620,000 investment limit phase-out. This allows businesses to expense the cost of fixed assets such as equipment and furniture and fixtures. This expensing opportunity is also available for certain qualified improvements to property. Consider placing eligible assets into service before the end of 2021 to take advantage of this expensing limit.

 

3. 100% bonus depreciation also can be used to write off the cost of both used and new fixed assets that are placed in service before year end. This is not available if you will need to use the floor plan interest exception to fully deduct interest expense for 2021. For tax years ending on or after December 31, 2021, Illinois has decoupled from 100% federal bonus depreciation.

 

4. If you plan to make any charitable contributions, consider making them in 2021 to receive a tax deduction. Payments by credit card are deductible on the day they are made even if the payment to the credit card company occurs on a later date. With the increase in the standard deduction, consider bunching two years of contributions into one year in order to benefit from itemizing your deductions. 

 

5. Confirm you have made all required personal and corporate income tax deposits for 2021 and see that your personal income tax withholding is adequate. 

 

6. Consider maximizing your retirement contributions, $58,000 for defined contribution plans. This $58,000 limit includes your employee elected deferrals ($19,500 for 2021). An additional $6,500 catch up deferral is allowed for age 50 or over.

 

7. If you or the dealership own stock that has unrealized losses, consider discussing with your tax or investment professional the benefit of selling them by year end to offset realized gains recognized earlier in the year.

 

8. Confirm you have substantiation for your 2021 meal and travel expenses. Travel expenses continue to be 100% deductible. Meals, including those provided to employees purchased from a restaurant are 100% deductible.  Entertainment expenses are no longer deductible.

 

9. Accrued interest on loans from shareholders and other related parties, as well as rents, must be paid in order for the dealership to deduct these amounts in the current year.

 

10. The new pass-through entity income tax election (Illinois and certain other states) will allow the owners an increase in their federal deduction for state taxes and bypass the $10,000 limitation.

 

Keep the Accounting Records Open at the End of December: 

1. Maximize LIFO deductions. Record all new vehicles that were built and invoiced in 2021 as vehicle purchases in 2021 by keeping the new vehicle purchase journal open the first few days of 2022.

 

2. You must include a reasonable estimate of your LIFO adjustment for the year on all versions of your December financial statements. There are no exceptions.

 

3. Compare your actual parts inventory to the accounting parts inventory and make adjustments where appropriate. Have your parts manager determine which parts should be considered worthless and disposed of by year end.

 

4. Make sure all miscellaneous inventories are adjusted to actual, including labor inventory, sublet, gas-oil-grease, etc.

 

5. Record December finance chargebacks in December. 

 

6. Keep your accounts payable journal open to record all 2021 expenses in 2021.

 

7. If you did not pay your 2021 real estate taxes by year end, adjust your property tax payable account to equal what you anticipate it will be.

 

8. If any vehicle deal is not a 100% completed deal in 2021 (all paperwork and funding in 2021), then treat it as a 2022 vehicle sale.

 

9. All wages and commissions paid in 2022 for 2021 services should be accrued in 2021. Make sure the first payroll in 2022 (even though some portion of the payroll was for 2021 services) is not included on your W-2s for 2021, but will instead be on the W-2s for 2022. 

a. All accrued payroll for non-shareholders must be paid no later than March 15, 2022 to be deductible in 2021. 

b. If you are a C Corporation, make sure you pay any salaries, commissions, or bonuses to stockholders and related parties in December (if their ownership exceeds 50% including related party interests) in order to take a 2021 tax deduction.

c. If you are an S Corporation, wages to any shareholder cannot be accrued and deducted for tax purposes. You must pay them in 2021 and include the wages on the 2021 W-2.

 

10. Distributions paid to S Corporation shareholders should be equalized in accordance to their ownership percentage before year end.

 

11. Reconcile, where possible, all balance sheet accounts before closing the year.

 

Additional Year-End TO DOs:

1. If you are not on LIFO for used vehicles, adjust all of your used vehicles to current wholesale market value at year end. On an annual basis, used vehicle LIFO should be discussed with your tax advisor. 

 

2. Businesses should consider the "de minimis safe harbor election" to expense the costs of lower value capital assets, materials, and supplies. Regulations allow businesses to write off small asset purchases. The safe harbor amount that can be written off is up to $5,000 per item or invoice if you have an audited financial statement and $2,500 if you do not. However, you can set a write-off policy at any level that is material to you. 

 

3. Review all past due accounts receivables, including employee receivables. Write off those receivables that are uncollectible.

 

4. Review prepaid assets and expense all items in this account that are not valid as prepaid at year end.

 

5. All payroll tax and sales tax payable accounts must equal the actual amount of the applicable taxes paid in 2022 for the 2021 fourth quarter and year-end filings.

 

6. Compute the December 31, 2021 accrued vacation wages payable and adjust the books accordingly. Accrued vacation wages paid January 1, 2022 through March 15, 2022 are deductible in 2021 for tax purposes. No vacation accrual is allowed for any shareholders.

 

7. Review bank reconciliations for checks (including payroll checks over 60 days old) not expected to clear. These checks should be voided and reissued.

 

Year-End Tax Reporting:

1. IRS Form 1099-NEC must be issued to all individuals who are not employees and all unincorporated businesses who received $600 or more for payment for services, awards, commissions, fees or services.  This includes payments of fees for services to all attorneys, whether incorporated or not. Form 1099-MISC must be issued for all rents, royalties and other income paid to non-corporate taxpayers, including shareholders. Forms 1099-INT and 1099-DIV must be used to report interest payments to shareholders and others and dividend payments to shareholders, respectively. 1099-NEC forms must be filed with the IRS by February 1, 2022 and sent to recipients by Jan. 31, 2022. 1099-MISC, 1099-INT and 1099-DIV forms must be filed with the IRS by March 1, 2022 if you file on paper or March 31, 2022 if you file electronically and must be sent to recipients by January 31, 2022.

 

2. W-2s for S Corporation shareholders must include in wages health insurance premiums paid by the corporation. This amount is not subject to social security or Medicare tax.

 

3. Under the Affordable Care Act, if you have 50 or more full-time or full-time equivalent employees, you are considered an Applicable Large Employer ("ALE"). ALEs are required to complete Form 1095-C, Employer-Provided Health Insurance Offer and Coverage for all full-time employees. 

 

Review Procedures for the Use of Demonstrators to Ensure You Comply With the Current IRS Regulations:

1. All individuals who are provided a demo to drive should sign a written demonstrator agreement.

 

2. There are two IRS approved methods that can be used for full-time salespeople. The first method, used by most dealers, is the partial exclusion method. Under this method, an amount is added to wages on a monthly basis. The IRS has provided daily income amounts based on the value of the vehicle. For example, for a vehicle valued at $40,000, the daily inclusion is $9.00. Under this method, employees are not required to maintain logs. The second method provides them with tax-free use of the demo. This method is fairly complicated and restrictive. 

 

3. For employees who are not full-time salespeople and any other individuals who drive demos, the annual lease value method is used. The amount included in income is based on personal-use mileage and the IRS annual lease table. The IRS requires that logs be maintained in order to verify business versus personal use of the vehicle.

 

4. The amount included in income is to be added to each employee’s W-2. Non-employee family member income amounts must also be included in the employee’s W-2. This income is subject to social security and Medicare tax. Shareholders not on the payroll and any other non-employees must be issued a Form 1099-MISC for the income. 

 

5. You can obtain more information about the personal use of autos, including sample demonstrator agreements, by requesting our Dealer Demonstrator Guidelines.

 

Other:

1. Form 8300 must be filed if you receive cash in excess of $10,000 from a customer. This includes cashier checks, money orders, and traveler’s checks except those issued by financial institutions requiring a lien on the vehicle.

 

2. If the dealership has a Section 125 plan (cafeteria plan), make sure eligible employees complete the 2022 election forms before the first 2022 payroll. Remember that stockholders owning more than 2% in S Corporations (LLCs, etc.) are not eligible to participate.

 

3. If you offer a health care Flexible Spending Account (FSA) as part of your cafeteria plan, in order for it to be a qualified benefit under a cafeteria plan, the maximum salary reduction contribution to the health care FSA for 2021 is limited to $2,750. Stockholders owning more than 2% in an S Corporation or an LLC are not eligible to participate. If your company offers a qualified high deductible health insurance plan, you and employees might be able to contribute to individual Health Savings Accounts (HSAs). Contribution limits for 2021 are $3,600 for an individual and $7,300 for a family with a $1,000 additional contribution for those who are age 55 and over. 

 

4. Applications and instructions for PPP loan forgiveness are available at https://www.sba.gov/document/sba-form-paycheck-protection-program-loan-forgiveness-application. Businesses have up to 10 months after their chosen covered period (8 or 24 weeks) to apply for forgiveness.