As an automotive shop owner, you not only need to be busy servicing vehicles, but also ensuring your business financials are on point and that you are considering deductions throughout the year. Year-end tax planning is crucial to maximize your savings and minimize your tax liabilities, but the real trick is to be tax planning and strategizing all year long. In this vlog, we will explore five essential tax tips that every automotive shop owner should know.

Consider an S-Corp Election

One tax-saving strategy that could benefit your automotive repair shop is to consider an S-Corporation (S-Corp) election. This election allows your business to be treated as an S-Corp for tax purposes, potentially reducing your self-employment taxes. This is a super powerful tool to minimize tax liability and all shops should be aware of the option. 

When is the best time to make the election?  Yesterday?  Maybe….

Seriously, consider implementing this prior to year end so you can take advantage of the tax savings in the current year.

Explore the Home Office Deduction

If you operate a home office as part of your automotive shop business, you may be eligible for a home office deduction. This deduction can help offset expenses related to your home office, such as a portion of your rent or mortgage, utilities, and maintenance costs. It’s essential to meet the IRS requirements for a home office deduction and keep accurate records to claim this benefit. 

Please don’t think this a “red flag” that leads to an audit!  If you legitimately use a home office as your main space to run your business and your business operates as an S-corp, this deduction should be taken prior to year-end.

Maximize Depreciation on Assets

When it comes to assets, maximizing depreciation can lead to substantial tax savings. Ensure that you are correctly identifying and capturing all qualifying assets for accelerated depreciation, such as tools, diagnostic equipment, and vehicles. Please note that the bonus depreciation is decreasing to 60% for 2024 .

Evaluate Tax Credits

Depending on your shop’s size and the services you offer, you may be eligible for various tax credits. The Work Opportunity Tax Credit (WOTC), for example, provides incentives to hire individuals from targeted groups.  There are companies that specialize in this credit and help you track new hires that qualify for this credit at a very reasonable cost compared to the tax benefits.

Explore the available tax credits and ensure you are claiming all that apply to your business!

Optimize Retirement Contributions

Consider contributing to retirement accounts and yes, the benefits of a 401K plan completely offset the cost of implementing the plan!  You can set aside a portion of your income for retirement while reducing your taxable income.

You can also setup your retirement deductions to contribute to a ROTH, which is one of the huge benefits of implementing a 401K plan over any other type of retirement plan. Shop owners can significantly benefit from these retirement savings vehicles, all while securing their financial future.

Tax planning is not something to be overlooked, especially for automotive shop owners. Implementing these five tax-saving strategies can help you keep more of your hard-earned money while ensuring that your business remains financially healthy! We recommend consulting with a tax professional or accountant who understands strategic planning throughout the year to maximize savings and to tailor these tips to your specific situation.

By taking proactive steps now, you can rev up your savings and drive your automotive shop toward a prosperous and financially secure future.

About Us

Williamson Advisors is a national accounting firm, based in Austin, Texas. We offer monthly accounting services, tax planning/preparation, and Profit First. Our focus is increasing overall profit for our clients and promoting financial security that goes the distance—we’re not just about “short-term fixes.” We work closely with top automotive coaching programs whose members run businesses in the automotive industry, such as tire centers, body shops, and auto repair shops.