(Part 2 of 2) Before You Wash Away the Year:  Records, Property Taxes, Sales Tax, and the Year-End Question Every Owner Should Ask

by Brian Davis, CFO / Howco, Inc.

Now for the items that don't get the glamorous headlines but can be just as important to your bottom line:  your records, your property taxes, your sales tax, and your relationship with your CPA.

Here are the remaining four things worth discussing with your tax professional before the year gets away from you.

4. Your fixed-asset list shouldn't include equipment that disappeared three years ago.

Here's a glamorous year-end activity: read your fixed-asset ledger.

We know. Try to contain your excitement. But stay with us.

Car washes accumulate assets quickly:

Over time, things get replaced, moved between locations, scrapped, sold, or retired.

However, the accounting records don't always get the memo. That can create problems for depreciation records and for state or local business personal property reporting.

Before year-end, consider walking your fixed-asset report against what is actually at the site.

Ask:

• Do we still own this?
• Is it still operating?
• Is it at the right location?
• Was the old unit removed when its replacement was capitalized?
• Do we have the supporting invoice and installation information?
  

Good records make tax preparation easier. They also make an eventual property-tax audit considerably less exciting—which, when we're talking about audits, is exactly what you want.

5. Your property assessment is a bill, not a compliment.

Your county says your property is worth considerably more than it was a few years ago.

Congratulations? Maybe.

Higher real estate values sound terrific when you're selling. They can sound less terrific when the property-tax bill arrives.

Operators should review assessed values when new valuations are issued rather than automatically assuming the government's value is correct.

Look at:

• the assessed value
• comparable properties
• recent transactions
• the physical condition of the site
• operating characteristics
• whether the assessor's property information is accurate
  

If a valuation appears unreasonable, determine whether an appeal makes sense—and check the deadline immediately. Those procedures vary widely by jurisdiction, and missing an appeal window can mean living with the assessment longer than you intended.

For multi-site operators, this deserves even more attention.

A relatively small overassessment may not look significant at one property. Multiply it by ten, twenty or fifty sites, and the economics change quickly.

6. Sales tax: "That's how we've always done it" is not a tax strategy.

Sales tax can be deceptively difficult in the car wash industry.

Different states can treat washes and related services differently. Even within a state, the tax treatment may depend on the exact type of wash, services provided, or structure of the transaction. That makes year-end a good time for a simple checkup.

Ask yourself:

• Are we charging sales tax where required?
• Are our POS tax rates current?
• Are different revenue streams coded correctly?
• Are returns being filed on time?
• Are the amounts collected actually reconciling to the amounts remitted?
  

And if you operate in multiple states:

• Have we accidentally assumed State B works just like State A?

That's an especially dangerous assumption.

Sales tax errors have another unpleasant characteristic: businesses may discover them several years later during an audit. At that point, collecting the tax retroactively from thousands of customers isn't exactly practical.

A little review today can prevent a much larger conversation later.

7. Take your CPA out to lunch—just don't expect to deduct all of it.

Here's an easy one to forget.

Business entertainment is generally nondeductible for federal income-tax purposes, while qualifying business meals generally remain 50% deductible.

The distinction between meals and entertainment matters, as does documentation.

So while you're having that year-end conversation with your CPA, keep good records of:

• who attended,
• the business purpose,
• the date and location, and
• the amount spent.
  

And perhaps let your CPA pick the restaurant. You're about to ask a lot of questions.

The Most Important Year-End Tax Question

After all of that, there is one question we think every owner should ask before making a tax-motivated purchase: "Would I still want to make this investment if there were no tax deduction?"

If the answer is no, you may want to reconsider the investment.

Taxes matter. Cash matters more.

A deduction reduces the cost of a good business decision. It doesn't turn a bad business decision into a good one.

The better year-end planning process looks something like this:

Step 1: Identify the equipment, repairs, and projects your operation actually needs.

Step 2: Determine which projects generate an acceptable operational and financial return.

Step 3: Review those projects with your tax professional.

Step 4: Determine whether accelerating—or sometimes delaying—the project improves your overall after-tax cash flow.

Step 5: Make the decision based on the economics of the business, not simply the size of the deduction.

That's tax planning, not December shopping.

Your 15-Minute Year-End Checklist

Before your next conversation with your CPA, pull together:

Then ask your tax professional one simple question:

"Is there anything on this list where doing it before—or after—December 31 materially changes our tax or cash-flow outcome?"

That's a much better conversation than calling on December 30 and asking, "Is there anything I should buy?"

Howco can help with the operational side of the equation.

Your CPA knows your tax situation.

You know your operation.

Howco knows car wash equipment.

If equipment replacement, repairs, parts, chemicals, service, or installation are already part of your operating or capital plan, talk with the Howco team early enough to understand product availability, installation requirements, and realistic project timing.

Because whether you're planning for taxes, uptime, or next year's growth, there is one year-end deadline none of us can move: December 31 still arrives on December 31.

This article provides general business and tax information and is not intended as tax advice for any particular taxpayer. Tax treatment depends on individual facts and circumstances. Car wash operators should review specific strategies and transactions with their tax professional.