#237 - Is The IRS Going To Shut You Down w/ Hugo Sanchez

Hey, guys, just real quick, before we start the podcast, we want to make sure you guys know about the owner's manual. It's the Independent Dealer Podcast, weekly newsletter.

Yeah, Jeff, a lot of fun. Something you and I came up with weekly. Pithy, less than five minute video talking to you about things you need to be doing as an owner, things you can do to help train your staff. And I think the easiest way to get that, Jeff, is to go to the website. Right? What is the website?

Go to the independentdealer.com and then just enter your email in to sign up for the newsletter. It's free, it comes out weekly, and like Lou said, it's great tactical advice. It's actionable items. Whereas the podcast, we talk a lot about ideas and stuff and kind of chit chat. This is actually things that you can put into your dealership and make it better this week. So jump on our website, sign up for the newsletter, and here's the episode. You are listening to the Independent Dealer Podcast with hosts Luke Godwin and Jeff Watson. Hello and welcome the Independent Dealer, brought to you by Buckeye Dealership Consulting. This week, Luke, I don't know if you've noticed or heard out in the news, our. Our administration has taken some very, very serious, serious steps to reduce inflation.

I love how you can spend $800 billion to reduce inflation. Doesn't that make sense, Jeff?

Yes. Yeah. Well, it's not in the first couple years, but it's in the last couple years. We're going to get this thing under control. But part of that and the little line in there is we're going to have a lot of new IRS agents coming to our houses and places of employment with guns and shaking us down, from what I've read on Reddit or Reddit or Fox News or Twitter or any of these things. So I'm panicked, you know what I'm saying? Like, I've got, I'm stalking, I got guns, I'm hiding everything that I'm supposed to hide. But I figured instead of me just reading the headlines, I was going to get an expert here to talk to us.

Yeah. So luckily we got Hugo Sanchez here, CPA at Butler and Sanchez, and he's gonna tell us that. Jeff, it's really not that bad. He's going to tell you, you know, Trump's going to ride in in 2024 and save the day, so. So you're going to be fine, Jeff. Don't worry about it.

No, he's getting audited and raided, too. Nobody's safe Hugo, introduce yourself to the community. Give us a little bit of your background.

Hey, everyone, thank you guys for having me on the show. My name is Hugo Sanchez. I'm the tax partner, tax partner at Butler Sanchez, LLC. We're a CPA firm, focuses primarily with Buy Here, Pay Here car dealers. So we know the industry, we understand what you're doing and that's, you know, that's pretty much all we do. I've been working with Buy Here, Pay here dealers for about four or five years in my career. Also worked with high net worth individuals. So I understand the real, real estate side of things and I like doing the tax research stuff. So when these bills come out, I enjoy sitting there reading it, taking the classes, figuring this stuff out. Just to let you know that, hey, only half money's being spent on guns and ammo, so don't worry.

Can we write off what Jeopardy will say? Can you write off the guns and ammo? No, I'm just kidding.

Only if you keep them at the office. If you take them home, you can't.

So if you guys know, if you're in the communities, the forums, that if you go to convention at all, you know that Hugo and Amanda are super active in the community. They're always giving good advice. They're always there to help out. So these guys are truly, truly CPAs that are trying to help us be better and they're giving other time. I've had so many phone calls with Amanda about stuff and she's not even my accountant, you know, she'll take my phone calls and we'll chat about all sorts of stuff. So a couple of great people. But Hugo, tell, tell me this. So we're going to have you back on in a couple of weeks and we're going to dig into this EV credit that's in there as well because a couple of our dealers that listen to the podcast sell electric vehicles. Luke's got his. He'll probably never sell it. I'm selling one. My Model 3 is going out tomorrow and I'm going to buy a Model Y here in a couple of minutes. If we get off this phone call in time, I don't miss it. I sell EVs. So you're going to give us an update on how this EV credit is actually going to help used car dealers, right? There's a piece of that, right?

Absolutely. So a part of the bill does include the residential energy credits, but more importantly, this EV credits. So they brought some of that back and extended some of these credits. More importantly, though, There are now credits for buying a used vehicle. Used ev. Yeah.

That's crazy. And it gets. That credit can be transferred to the dealership.

Indirectly, yes.

Oh, okay. Indirectly. It's a tax.

Yeah. Jeff's always trying to find some. Some loophole there.

Right.

Speaking of loopholes, Hugo. So here's my concern, and this is. I don't know. Maybe I'm the only one. If you. I don't know where you're finding these 87,000 agents because you can't even get anybody work anywhere right now. So good luck filling the positions. Are these guys. Are we hiring a bunch of help desk people? You know, a bunch of people that I'll actually pick up the phone when I call to get answers, or are they hiring people that are going to have to go out and justify the fact that they got hired by auditing someone like me, finding issues, finding me to justify the fact that they're there.

Right. So it's a little bit of everything, but the majority is going to be the help desk people, and it's really where they need the most help.

Yeah, right.

There are. It is the real picture, if you've seen it. They're in one of the big IRS offices in Ogden. Their cafeteria is just boxes and boxes of files that haven't been processed. They're just absolutely crazy behind a report came out a couple of weeks ago that said that they are answering about 1% of all phone calls directed to the IRS. So they need the help. They really do need the money. And it's not all, you know, agents. It's not all the CIA agents that have the guns and that are going to be knocking on your door. I'm not worried about that.

That sounds like a whole other conversation to get into. But I don't know why an IRS agent would never need a gun.

You said you had guns.

A little confusing, right? Like, that just. That concerns me, like, are you going to shoot me because I don't give you my files, or do you expect me to shoot you? I don't understand. When this gun battle comes into play during my. Well, it's like I should be training for this. Hugo.

Yeah, I think. Hugo.

So the IRScriminal investigations is a real department. They do have guns. Typically when they're out in the field, they're out in the field with, like, the FBI, the atf.

It's.

You know, they're. If you forgot to send somebody a 1089 for that referral fee or something like that, it's not CIA that's going to be coming knocking at your door. Don't worry. So.

But Hugo has a really good point that they need to hire some people. And I think administrations in the past, and not just Republicans, Republicans and Democrats, have, have kind of neglected the irs. And I have a real, real life story here to talk about that. We pay our taxes usually before April 15th, and we file before April 15th. Well, before January 15th, we pay them. And my dad paid everything. This is in 2000. Put in his. Filed his taxes on time, and they sent him a nasty letter saying, if you don't file your 2020 taxes, every penny that you paid in. In quarterlies is going to disappear. And he said, hey, I've paid these. Unfortunately, you can't get anybody on the phone. You write him a letter. Who cares? They don't care. He spent $2,000 with his CPA to try to get it resolved. And finally, a week ago, he gets a letter saying, oh, yeah, we got your. We finally processed your tax returns. Well, his wife sat at home for weeks on the phone trying to get somebody on the phone, and nobody would help. So I really think it's probably a step in the right direction, don't you think, Hugo?

Absolutely. I would guess that about 15 to 20% of the notices that I'm getting right now that clients send to me are just completely wrong.

Right.

It's just issues like that. It's. They don't know what they're doing. The last one that I got said, hey, we know you filed your tax return, but we lost it. Can you send it to us? Yeah.

Something happened back in, like, 2020 area where they, like, the IRS transitioned over to some collections company, and all of a sudden, some old database got opened up, and they sent out collection letters to everyone. Because I got a couple that I had no idea existed, and I was like, what do you mean? I was late filing in 2017, and you've charged me this plus all this interest. So I gave it to my accountant, and he's like, yeah, we're never going to get a hold of anyone. I filed something, and lo and behold, like Luke said, three years later, they sent me a letter that said, oh, yeah, you did file on time. Ignore these. You know, so it's like, we get there.

Scary. This can be really scary because it's.

Really scary to what? Like, they're not gonna. They send you a notice three years late. How long is it going to be till they actually show up at your doorstep to collect your money?

Let's say you pay 200 years. So you paid $200,000 in, in money quarterlies and they send you a letter saying they're going to take all that money from you if you don't file your taxes.

Yeah, but they're not going to.

Well, you never know. And so I think having people there to answer the phone and to do their job is a good thing.

So my last argument, Hugo, is didn't the Congressional Budget Office come out and say that part of the tax or part of the revenue from this bill would come from increased tax revenue that they expect these new agents to bring in? I thought that was somewhere in there. Am I just passing on fake news?

So the biggest revenue raising part of the bill is again, that they extended the excess business loss limitation. So that's, that's a law that's currently in place. Has a weird background because they brought it around with Tax Cuts and Jobs Act. They got rid of it for a couple of years with the CARES Act. Now they said, okay, it's back, but now it's back for an additional three years than we planned. And that's just if you have excess business losses, right. Over half a million or so, you can't deduct certain things. You don't lose out on it. It's just, you know, essentially deferral of those losses.

Right.

Carry over those of those losses. So that's their biggest money, the generate revenue generating part of the bill and.

The 15% minimum corporate.

But that's on corporate servers.

Right. That affects publicly traded companies in the billions of dollars. You know, like Luke's.

Right.

Absolutely.

Let's, let's, let's address that, that carryover loss, though, because I believe that people with RFCs could see this problem in their dealership if they're not, if they're not working this properly. Correct.

Right. So that's a balance. Right. And that's one thing we do always, every quarter that we prepare those financial statements, we're keeping an eye on where we're at, we're keeping an eye on your basis and loss limitations to make sure that we don't, we don't hit that. Or if we do, we can stop selling notes. We can, you know, maybe do a little less reinsurance, do whatever we need to, to make sure that we're not affected by that.

Yeah, because I, I mean, that's one of those things. If you don't know how to, to balance, how to walk that tightrope of, of making your dealership make, you know, $10 or not lose $500,000 in the end you could end up in a bad situation because of, of, of, of this law. Correct?

Right, Absolutely.

Hey everybody, real quick, interrupt the podcast, talking about reinsurance. So if you're looking for a way to put aside money legally and you're looking to reduce that tax bill legally, that will stand up like solid against an audit. Reinsurance.

Yeah. Buckeye Reinsurance is, is the way to go. Buckeye Dealership Consulting. And Jeff, you know, you talk about your friend. I hope your friend has a reinsurance company so he doesn't have to do all these crazy stuff with, you know, with his taxes here. Because you can really shelter or be tax advantaged by using your reinsurance.

Yeah, I guess that would be the thing. Stop looking for like the little pennies to pick up that you think are gray areas where you're like, oh yeah, I'm going to charge this as an entertainment or I'm going to charge this as this thing to try to pick up the onesie twosies. Just bulk up your reinsurance products, right? Add a VSI and a VSC and a QPL and an LPD and all those other acronyms and just start funding that sucker, you know, on steroids. If you want to spend money somewhere, spend it on yourself. The best tax advantage, actually putting the money out there. You just put it in your left pocket.

Yeah, reassurance is the best tax advantage out there.

Accordingly, let's transition. Now at this point, I'm fully under the assumption that all of us are getting audited in the next three to five years. Right? It's going to happen. They're going to come after us. We're kind of that low hanging fruit. Like we're, we're small enough that we don't have attorneys on staff, but we're big enough to be making a lot of money. And they see us taking losses from a reinsurance company and passing notes back and forth and they're like reinsurance and you're shipping stuff to a different account and they just don't like us, whatever. So they're going to hit us because we're kind of low hanging fruit. Talk to me like I am a brand new dealer that has never done this before. What type of things, steps should I be doing to be smart?

For starters, file your tax returns.

Right?

Extensions are okay. If you can't finish by the March 15 or April 15 deadline, make sure you file an extension and you have all summer. Get it done by the September 15th or the October 15th deadline, depending on what, you know, what needs to be filed. Easiest way to get on their radar is by simply not filing anything when they know you should be filing something.

Yeah.

I mean, if you're selling, if you. Come on, guys, I mean, you have a dealer's license, you're filing a tax return. That should just straight up, if you're listening to this podcast and you call yourself a dealer, you're not running cash. People know you're there. That's ridiculous. Yeah.

Well, Hugo, let's just say if there was a dealer out there listening, and we have some smaller dealers that listen, sometimes they didn't file their taxes for the last five years. What should they do right now?

Start gathering their records and file asap. So typically, when you want to get back into compliance, the first thing the IRS wants to see is the last six years filed.

Right.

Even if you haven't filed in 10 years, at least file the last six. And kind of figure out where we're at. How much tax do we owe? Right. Get a game plan together, but without at least having some decent records and figuring out what that net income was, what your taxable income is. That's the starting point. We got to start there and figure out, okay, this is our net income. This is how much tax we owe. We can. We can plan from there.

Yeah.

So I was going to say the. And touching on that. It's knowing. Knowing what your tax structure is.

Right.

Most dealerships, especially if they have the related finance company, we want them to be escorts. But sometimes people tell me, oh, I'm taxing an llc. Well, an LLC can be a sole proprietorship. It can be an S corp, C Corp, a partnership. You know, it has flexibility from tax standpoint. So know what tax elections you make. And again, knowing that, you know, if you. If you make that s. Election for your llc, guess what? Now you've got to file a tax return or an extension by March 15th. It's no longer April 15th. Right. So understand what you're doing from a tax standpoint at least. You know, work with somebody that will explain to you what some of those. These different tax elections are.

What's another way to get on somebody on the IRS's radar? I said we did. We didn't file our taxes. And what's another one?

So again, going back to most dealerships and finance companies are S Corps. Reasonable compensation is huge. And that's one thing that they are definitely, from what I can tell, going to increase audits on this. It's nice to take money out of the S Corp as a distribution because you don't have to pay payroll taxes on that. Right? It's. You don't, you don't have to run it as a W2. You don't have to pay the 15.3 payroll taxes. Well, the IRS is dumb, but they're not that dumb. Right. They're not going to let you get away with only taking distributions from the company. They want to see some officer compensation. They want to see that somebody's getting paid to run the business. If you're, if your hands off from the business and, you know, somebody else is running it, that's fine. You can take distributions and not be on payroll because you're not providing any services to the business. Right? But if you're in there buying cars, if you're looking at underwriting, if you're acting as the GM of the lot, you should be getting paid a reasonable salary for doing those things. Then any profit on top of that, you can take as distributions.

Let's talk about reasonable compensation, because I've had this argument with other dealers before, and, and what I tell them is, if you had to go out and hire yourself again, what is it going to cost? And now you don't have to pay that. Right, Hugo? But you got to be. You got to be reasonable, right?

Right. Absolutely. Everybody thinks that as the business owner, they're indispensable and they're, you know, no, I can't afford to pay somebody what I would pay myself. Right, but that's, that's different. It is. You know, you, as the owner, can take the. And that's, that's separate from your compensation for actually providing services. So you look at, you know, hey, if you spend 20% of your time doing admin work that you could outsource for $15 an hour, you know, there's, there's part of your reasonable compensation. If you spend, you know, 70% of your time, you know, out at auction buying cars, what are you going to pay your typical buyer to do that? You know, you can, you're, you're, you can make up your reasonable compensation out of the different components and different roles that you, you provide for this for the business.

And you don't have to be exact. You just have to be reasonable. And I think that's absolutely. What's a thousand dollars a year? Well, that, that's not going to work. You know, that's not reasonable.

Right.

I think people need to know that.

What's the, what's the reasonable compensation for a babysitter these days?

$20 an hour.

That's what I am.

Yeah.

This Is right on. Perfect. That's exactly what I pay myself. 20 an hour.

You gotta pay. You gotta pay 20 an hour, then you gotta. Or babysitter, Then you have to pay your firefighter fee, which, however much that is.

Yeah. What firefighters make these days.

Not a lot of therapists.

Yeah. Sweeper, mopper, bottle washer. So reasonable compensation, meaning that as a. As a dealer, I'm taking that through a payroll company. I'm paying my unemployment, self employment, all those other taxes that way.

Correct.

And on that.

So on S Corp return, we specifically, there's a line item for officer compensation. And then somewhere else on the return, it shows what distributions you took. So if there's a number on that distributions line and nothing on that office salary line, big red flag. Probably going to get audited.

Yeah, well, and. And if you have a desk at your dealership and you have your name on business cards, guaranteed, you guys, you should be taking a reasonable salary. Right. You're physically there. Hugo, talk to me about receipts. This is always. I mean, I do everything by the books, 100%, so it's not me. But a friend asked once, are we still under the impression that we write the name of everyone we ate lunch with on the receipt?

Actually, yes. They still want you to do that.

Oh, my gosh.

So if I.

Receipts go away like that, that paper just goes, yeah.

Anyway, so my credit card statement through my American Express is not going to be good enough in an audit. When I say, hey, I've got all these transactions, and they're like, well, why do you have, you know, sushi joint? Well, I was there with Luke, and we were talking about the podcast. It's an expense. And they're like, no, no, no, no. Is that.

That. That's correct. Yeah. They won't. You know, they want to see the actual receipt. I think what they're looking for is at least that two meals were purchased. So maybe if you want. If you're extra hungry, maybe you could get away with it on your own. But the point of the. The meal seduction is, hey, it's. It's an employee of the business plus somebody else.

Right?

You can't just be deducting your own meals. A staff meeting of one doesn't count.

Didn't they cut that to 50 anyway?

Well, right now it's. It's at 100 because of the CARES act for 2021 and 2022. But it's going back to 50%. Absolutely.

Now's the time, Luke, stock up. Does that differ? If. But if I bring food into the dealership. Is that different? Like if I buy lunch for the team on Friday?

So if you buy lunch from a actual restaurant that has like a sit down location or something like that, that's still 100% deductible. If you go to like the gas station and just buy like a bunch of those little sandwiches from their cooler or whatever, that is still technically 50% deductible.

Who makes great distinction.

But if you're bringing it into the office from a real restaurant, it is.

Correct, 100% deductible as an office expense. So I'm going to drill you with some of these questions that my friend gave me, Hugo, and maybe you can help me out because I imagine a lot of dealers, I hope you're all struggling with the same issues that my friend struggling with. That's an office expense. His, his uniform like he wears a uniform that my, that has. If it has to have Butler and Sanchez on the, on the shirt for to be a deductible.

Correct? Yeah. So if you buy everyday wear whatever you would just wear, you know, going out to a nice dinner on your own or you know, just out and about running your errands, that, that's regular clothing and that's a personal expense. But if you do have the logo, if you, you know, if you're using it kind of for advertising purposes or, or everybody's required to wear it, you know, on the lot, that's a uniform and it's deductible.

And, and they. He's going to go through your closet. Right. The IRS agents make sure that, I mean, Lululemon polos all got embroidered.

Right? You know, keep it reasonable. You're not going to go and see a bunch of charges from Macy's and say, oh yeah, this is all uniforms like that, personal clothing. Unless you can show that you got it embroidered.

Luke's a well dressed fella, so I don't know.

But what about this company? To dress myself, except for my polish.

All of my gas receipts. I should have gas receipts for every car. Like my credit card statement's not going to be good enough for gas receipts.

So again, it's ideally we want to have the receipts. We want to be able to show the details of the individual transactions. And I get it, you don't want to have boxes of this stuff pile up, right? You can scan them in. It's not like you have to keep the original. If you scan them in and stick them in a folder in your, you know, onedrive or something saying, oh, this was all my, you know, August 2022 expenses and just kind of throw them in there so that if we need to find them, we can. I have been in audit rep work, audit representation, where they were able to accept the credit card because we didn't have full receipts, so they were able to accept the credit card statement. You know, there's some rules saying they can, you know, as long as the expenses are reasonable, etc. But ideally we want to have the receipts, we want to show the detail of the transaction.

You know, it's, it's funny, you keep using the word reasonable and I think if you, if you're reasonable with things, then you're not going to get in too much trouble. Jeff, you may need to talk to your friend about being reasonable.

Well, reasonable is, that's, that's a very like subjective type term. Right. What is reasonable to Luke is not reasonable to this friend.

It is a gray area.

Sometimes it depends on the agent that you get too. Right. Some of them are trying to prove a point or they're new and they're green and they're trying to, you know, show off to their superiors.

Oh, absolutely.

But for the most part, you know, they're, they're human beings too, you know.

How does Luke write off his trips to Napa Valley?

Thanks, Jeff.

Very carefully.

So, but, but in that scenario, Luke goes on a trip and he brings his wife who's also a co worker, and they have an off site. They're allowed to have one off site meeting. Right. Or there are.

Yeah, absolutely. A lot of, a lot of dealers go to the 20 groups. They bring their spouse. If the spouse is, is involved in the business and things like that, then you know, that's deductible. If the spouse isn't involved or they have their own full time job, things of that nature, it wouldn't be deductible, but yeah, you can, you know, theoretically have, you know, kind of a board of directors meeting off site.

Yeah. So Luke flies out to Napa Valley with his wife. Everything's deductible. It starts in the US Ends in the US Is that still a thing.

That there's some rules there too? There's, there's rules if you go out of, out of the country and there's some cruises that you can take specifically to kind of get around some of those rules. Yeah, it's out there.

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Yeah. And it is a tax deductible expense. You know, I'm not sure if it's tax deductible in a leasing model because technically it would go into the asset. You could probably depreciate it as part of the asset, I imagine.

Yeah. And you're depreciating that 100%.

But it's a buy here, pay here. You're not charging the customer for the GPS. It is 100% business expense. Part of doing business. It remains yours. It stays on the car. You can. You can take that expense.

Yeah, you sure can. And that's a easy way to protect yourself and get that.

Yeah. And just put GPSs on everything, man. They're tax deductible. Just start slapping them on your cat and your. Your freaking jump boxes and your dealer plates and everything else that seems to walk off your car.

Your friend. Your friend should do something like that. I'm still trying to think about how I'm gonna go to Napa this year without writing all this off. No, no. I. I think we know that our.

20 group trainings are. Are deductible, right?

Yeah.

And meals while you're at training, those are deductible. Fully. Okay. But not the meals when I'm here.

While you buy clothes that you buy while you're training, are those.

They're deductible, so probably not. Again, if you're going to Macy's, not deductible.

When Luke goes to topgolf at a meeting, our activities then deductible.

So entertainment is not deductible at all. Topgolf would be, right? Correct.

Even if we. So if I have an employee. If I have an employee get together and we all go to topgolf, that is not deductible.

Correct.

What if you do? My friend is going to be blown away by that.

There's some rules there. I don't know this one off the top of my head. If it's like a Christmas party, you know, there's kind of a once a year type of rule around that.

Yeah.

But for the most part, like regular entertainment, if you buy like ball tickets or, you know, something like that, where you take it to team, that's technically considered entertainment and not deductible.

Wow. What if.

How about country clubs?

Are they deductible no, those are specifically non deductible.

Why is that?

Because it's entertainment.

Because of all the reasons you're doing it. So what if it's part of employee compensation? What if you go out there and you buy, you know, a bunch of tickets or season tickets to the, you know, Utah Jazz, and you give those to your employees as part of their compensation or bonuses and maybe you use a couple yourself, like that seems reasonable.

Well, yeah, but you answered your own question, right?

It's.

It's compensation or a bonus. So technically, the fair market value needs to be added to their W2.

Oh. So I would need to charge them for that fair market value. Right. I can't just give it to them.

Correct.

Ah, good point, good point. What if I use it as an advertising expense and I say, hey, these are. I'm gonna give away a couple tickets. Plus.

So if you do it from an, from an app, again, if you're just kind of giving them to certain clients or whatever, that's still entertainment and not deductible. If you kind of maybe do a raffle or you know, kind of something to bring people in the door, maybe we could get away with calling it advertising. Again, it kind of depending on the agent that you get that starts questioning that it will kind of. We'll see how they, how they want.

So interesting. Entertainment is not deductible. Correct. Huge takeaway entertainment at my house, the Christmas party. And we rent my house from me.

That's. So that's a good one. That's called the Augusta rule.

Yeah, yeah, yeah.

From the Masters tournament. So if you rent your personal residence for under 14 days. Right. If you rent it less than 14 days a year, then it is tax free income to you personally. Right. So the dealership would get the deduction for paying you and. But you don't have to pick it up as income because of the Augusta rule. One of the things about that is, again, it has to be considered fair market value. You can't just decide, oh, man, I'm having this party at my house, I'm going to pay myself ten grand to use the house. Like, no, that's, you know, nobody. No. But no other third party would actually rent your house for an evening for ten grand. What would they actually, you know?

Well, no one would deal with Luke.

So what does Airbnb say?

You know, one night, one night party rentals worth.

Yeah, right, exactly.

So, so does all my pool and lawn maintenance become deductible at that point too?

No, no, it's Just because that, that rent income is tax free anyway. So there's, I mean, there's nothing to, you know, there's nothing to, there's no income to deduct against.

Mm.

What about Luke's boat? Is Luke's boat deductible at his dealership if he takes his employees out on it?

That would be entertainment as well.

That would be entertainment. Man, we're getting slaughtered on this entertainment thing. Now, if it's a vehicle, you can take that as a one time expense, right. Over £6,000, and deduct the whole thing in the year that you bought it.

Correct. As long as it's 100% business use, right?

Yeah. So you buy a monster truck, right?

Absolutely. Yes. That's, that's fully deductible. You can bonus depreciate it, so you get the deduction in year one. Now, if you're driving that monster truck from your house to the lot every day, that's commuting. So that's, that's not deductible. And that's no longer 100 business use.

What about Luke's fancy Tesla? What if he wraps it?

You can only. So again, the, the depending on the mileage for whether it's personal commuting or business use would allocate how much of the actual Tesla you can deduct. And then you can deduct 100 of the actual wrap itself.

Should wrap it, Luke.

No, I don't want to wrap it. I wouldn't have bought that color if I wanted to wrap it. But, Hugo, is there something else there? Another red flag that we can. That we talk about? One that some people you see are doing that, that you just shouldn't do.

Outside of the. Well, I've got a couple. One of them would definitely be how you treat your employees versus independent contractors. W2s versus 1099s.

Right.

The IRS, again, a little bit of a gray area. Again, that's, that's my favorite part of the job is the gray areas we plan. But the IRS looks at three things. Your behavioral control, your financial control, and the overall relationship with that person. Right. If you tell them, hey, you've got to be here 9 to 5. Here are the tools for your mechanics. You know, you've got to, you know, you've got to work these hours, you've got to be here these days, etc.

Wear uniform, right?

That's, that's an employee. You have control over how they do their job and that you should be issuing them a W2. A lot of the Guys in the shop definitely want to be a 1099 because then when they buy their own tools, they can write them off and stuff like that. But in reality, you've got control over them. They should be a W2 employee. Right. If it's somebody that, if you just kind of tell them, hey, fix these cars, I don't care how you do it. I don't care if you bring in your own team. You, you know, maybe you might have a couple of specialized tools in the shop that they might need to use. But if for the most part, they bring their own tools and kind of do their own thing, that's an independent contractor and you can give them that 1099.

And. Yeah, a flatmate. A flat rate mechanic that's working under a shade tree at his house. I just dropped the car off. He does this thing. He's a 1099. What about that massage therapist that Luke brings into the office every week? Would that be a 1099 or a W2 or would that be called Entertainment?

I like, I like the question. I would, I would guess 10.99.

Yeah.

Now if it is, if it is just for Luke's benefit, probably not deductible. If it is, you know, a company benefit, I'd say 10.99.

Everyone has access and deductible.

If it's. Yeah, right, because I know, absolutely.

But, but seriously, I do have a dealer buddy who has a coach. He brings a coach in once a month or every couple of weeks. And every employee can sit down and have a therapy session with this guy. And he's life coach, he's work coach. He's everything. That guy. That's not entertainment. Even though it might be entertaining. It is a 1099 employee or a 1099 sub that brings in. I don't know.

Right.

Yes.

1099 employee. Contradiction there.

Right.

It's a 1099. An independent contractor.

Yeah, sorry, sorry, sorry. 1099 independent contractor. Because the uniform that Luke forces the massage therapist to wear is technically not Godwin Motor branded. So she is not.

It might be. It might be.

It is technically that. I'm gonna have to delete that.

Aren't I touching on 1099s? If you have an RFC 1099 CS, when you stop trying to collect on any debt, you've gotta. You've gotta issue those. So depending on the state you're in, Texas we have strict foreclosure. When you write that off, you need to issue those 1099Cs in that year.

I don't even want to go down that route.

I don't. Yeah, that's something. That's a whole nother episode. Hugo. We're going to have you back for that strict foreclosure 1099C. That stuff's. That's a lot of fun.

I don't want to jump in that one.

No, I don't either. Other things that we need to be.

Aware of for somebody that has the related finance company as well, there are rules that, you know, the. The RFC needs to be kind of its own company needs to be paying its own expenses, you know, have its own employees. We can kind of, you know, allocate some expenses. If the dealership's paying for everything, we can kind of pay, you know, a management fee from the RFC to the. To the dealership. We can do that. And. But we need to have support for it, right? It can't just be, oh, I'm just going to pay ten grand a month and move on with my life. We need to have a little bit of, hey, this is, you know, how much I paid in utilities. The RFC uses 40% of that. We need to have a little bit of a schedule and some backup support for that. But we can't just, you know, commingle fund between the two entities. If the note is. Is owned by the RFC, collections should go into the RFC's bank account, then transfer to the dealership, you know, et cetera. We want to keep the two companies as separate as possible and as. As independent as possible.

Yep. That's a due to do from accounting, and that's. That's a bear. I have to deal with that all the time.

Right? Absolutely. Yeah. And you want to show that the finance company is paying down for its notes.

Right?

You wouldn't. You wouldn't go and sell your notes to a third party and never get paid for them. So the RFC needs to be moving to that. Some of that money back to the dealership and paying down that due to. From.

Yeah, Luke, almost makes you want to do leasing, huh?

Oh, Jeff, then you don't got to.

Worry about the due to do from. But you can buy them over in bulk, I assume. I mean, bulk note purchases are common.

Yeah, absolutely.

Maybe you're not cutting a check for every single deal.

No, no, no, it doesn't. Yeah, no, that due to. From balance can kind of just be a running balance. And like I said, as long as you're moving money, you know, around, that's okay. But yeah, most of. Most of our clients either do they sell everything Point of sale.

Right.

They immediately. The, the RFC assumes the note or once a month, once a quarter type of thing.

We do all ours once a year and it's, we'll run the due to all the way up and then at a year it'll be down to zero. So that's a, that's pretty normal, I think.

Absolutely. Yeah.

Hugo, we, I think we've scared Jeff straight. Anything else you have here, Jeff, or your friend? Jeff's friend.

Yeah. I'm gonna make sure my friend listens to this episode a couple times. Guys.

He is, he is.

He's doing pretty good. He's getting better. And I think that's probably my closing argument. And the biggest issue I have is again, dealers, we just don't know what we don't know. I'm no count, I'm not an accountant. I'm not a CPA. I mean, I could barely open QuickBooks, let alone get around it like so. These types of conversations, I think are good.

They are. And that's, that's definitely something that, if we've said this so many times, Jeff, if you're a car dealer and you do not have a car dealer, accountant, cpa, you're doing yourself a disservice because Hugo studies up on what we do. Your, your buddy Jimbo down the street does it. And so Hugo talk about the value of, of having you as your CPA and, and plug you, Plug your company again, if you will.

I, I agree with you. I mean, if you are in this industry, especially by here pay here, they've got some goofy rules, right? When it comes to tax and accounting, I regularly see dealers underreporting revenue by 6, 7 figures because their previous accountant, you know, wasn't. Didn't understand the industry. Like you said, we are at the conferences, you know, we sit in on some of the sessions. We're learning what you guys are learning because we enjoy what we do. We enjoy the industry and we're here to help. Whether you use us or one of the other, you know, CPA firms in this industry. I highly recommend you at least get your stuff looked over by somebody to make sure that you're on the right track. I'm always happy to talk to CPAs outside of the industry just to give them a heads up, say, hey, this is wrong, we need to fix this, or whatever as well, just because it can go bad pretty quick sometimes.

And how do people get a hold of you?

You can reach us at www.buyhere bhpcpa.com that's it.

That's a good one. How'd you get that?

That takes us to. That takes you to our main website. We have the Facebook group, BHPH boardroom as well. We're pretty active there and try to post regularly and give some good information there as well.

And you're. You're in Austin, Texas, is that correct?

Houston.

Houston, Texas. But you don't do just Texas dealers, so you can handle everybody, right?

Absolutely. We've got clients. I think we. Last time we counted, we were about 20 states or so. But we. We work with dealers in just about anywhere.

And if I hire you to do my quarterlies, they'll be done within a reasonable period of time?

Yeah, absolutely.

Not saying it's the end of August, that I'm still waiting for my second quarters to get done, but I might be saying I'm waiting for my second quarter to get done.

It also depends on when you get, you know, if you turned in your information yesterday. I mean, hey, that's on you, right? You turned in your stuff, you know, July 3rd. Yeah, we're.

That's exactly when I turned it in.

We'll get it done.

Hey, someone who doesn't know how to open QuickBooks. So anyway, well, his friend doesn't know what he's doing.

Yeah, right. All right, guys, appreciate it. Good conversation. Hope everyone got something out of it. We'll talk to you guys next week.

Thanks, guys.

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