Legal Disclaimer: This article is written for informational purposes only and does not constitute professional financial advice. Please reference section179.org and a professional accountant for advice on financial planning and filing taxes.
As 2020 comes to an end, you might be thinking about all of this year's expenses and wondering what you might be able to write off on your taxes. You may even be considering whether or not to make a big purchase, weighing the tax deductions you could get if you bought it this year versus next.
Is it worth buying that new lift before the year ends? Or should you put it off until 2021?
What is Section 179?
Section 179 of the IRS tax code allows business owners to write off the entire cost of a piece of equipment, renovations, or other assets in the first year instead of writing off an asset a little bit at a time over a five, seven, fifteen, or thirty-nine year period. To give an example, if a shop owner buys a new tire machine, they could either write off the taxes over a seven-year period, or they can use Section 179 to get the entire deduction in the first year.
What Type of Costs Qualify for Section 179?
Tangible business property, including machinery and equipment
Leasehold improvements
Computer software*
*Is Tekmetric Eligible for Section 179?
Generally speaking, off-the-shelf computer software that has been purchased outright is eligible for Section 179. Because Tekmetric is a web-based software and does not make users sign a contract, it is not eligible for section 179, but it does qualify for a standard tax deduction.
What are Leasehold Improvements?
Leasehold improvements are any repairs or modifications that you make to your building or property, including adding a new roof, installing security or safety systems, and remodeling parts of your building without expanding the footprint. Without Section 179, leasehold improvements depreciate over 15 or 39 years, depending on what the improvements are. With Section 179, you can receive the entire deduction in the first year.
How Often Does Section 179 Change?
Section 179 is typically adjusted every several years. Most recently, Section 179 was adjusted in 2018 when the deduction limit was doubled and more types of purchases were made eligible. Section 179 may change again in the following years.
When Should You Use Section 179?
If you know that you’re going to pay taxes this year, and you have made a major qualifying purchase, then you may want to consider using Section 179 to save on your taxes and free up some cash flow for 2021.
If you financed a major purchase, you may want to consider how soon you plan on paying off that purchase and whether or not you would like to receive a tax deduction in the following years as you pay it off. For example, if you have a loan on a piece of equipment that you plan on paying over five or ten years, you may want to opt for the regular depreciated tax reduction so that you have money to offset those taxes in the following years.
Should You Make a Major Purchase Before the Year Ends to Use Section 179?
It’s not the wisest decision to buy something just to save money. It is true that Section 179, and tax benefits in general, are the best that they’ve been in years, but consider only making a major purchase if it is already in your plan and budget. If it is something that you already planned on buying in the next six months, then you may want to make the purchase before the end of the year to leverage Section 179’s tax deductions.
Talk to the Auto Repair Accounting Experts
Every situation is different. Take a look at what your tax rates are and ask yourself, "Is my income low enough this year where I'm actually reducing taxes at a pretty low rate? What do I think the tax rates are going to be in the future? Or will this benefit me more in the coming years when I think I'll be making more money?"
Talk to your accountant to form a game plan for all of this.
This article was written with the guidance of automotive repair industry CPA Hunt Demarest of Paar, Melis, & Associates, P.C.
Need help planning your taxes for 2020? Contact Paar, Melis, & Associates.
Smart Jobs is a revolutionary new way to build jobs in Tekmetric with just one click. Shop management software, at its core, is meant to help you build jobs, and we wanted to streamline that process as much as possible. So that’s what we did!
Your typical repair order may have one or more jobs packaged together. Usually that requires a lot of clicking around to find the right labor rates, and the right parts, sourcing the parts you don’t have, and applying the right markup matrices, over and over again.
That means an extra click for every single step. If you ask us, that’s too many clicks.
The reality is that all shop management systems require far too many actions for what really should be a one-click process.
When we set out to create Tekmetric, we set out to revolutionize the independent auto repair industry. We wanted to simplify, yet maximize the work your shop does.
We’re certain you’ll love how much Smart Jobs does just that.
"Smart jobs is a must have, it'll speed up your service writing by a huge amount.” - Chris Chagnon, COO at the Cardinal Plaza Shell
Adjusting your pricing on parts to make a profit is pretty straightforward. But when it comes to labor times for auto repair shops…that’s where things can get a bit tricky. Yes, you need competitive labor rates, but you also need to keep those rates reasonable so you don’t scare off your customers with sky-high prices.
3 ways your shop can make more money on labor:
By using a labor matrix
By creating custom labor rates
By applying a labor guide markup
Before we dive into the differences between these three methods for setting the best labor times at your shop, here’s a quick refresher on the one thing these methods have in common: the labor guide.
What is a Labor Guide?
A labor guide is like the gospel of labor times for auto repair shops. It tells you how long, on average, it takes to complete different types of repair work. Remember that the times listed in auto repair labor guides are averages, so it’s best to treat them as a starting point.
Factors That Can Affect Labor Times for Auto Repair Shops
Let’s take a look at some of the factors to consider when determining how much to mark up (or mark down) your shop’s labor rates.
Age of Vehicle
Older vehicles are often trickier to fix, especially because finding parts for them can require a time-consuming hunt across parts suppliers. You can make up for the time spent hunting down uncommon parts by charging more for all repairs involving vehicles over a certain age.
Geographic Location
Some areas lead to different types of repair challenges that can affect the time it takes for repairs. For example, shops in Syracuse, New York—the snowiest city in America—might find themselves working with cars that have rust, which can significantly add to the time it takes to remove or even clean certain parts.
Experience of Technician
Chances are, you’re already paying experienced technicians a higher base salary or hourly rate. However, certain situations might call for cranking up those numbers, like if you really need to put their skills to the test for a tricky repair for a client who wants it done ASAP.
Customer Needs
You can offer customers who need their cars back fast a “Pro Tech” rate, where your tech wraps up the job in record time. When you’re asking techs to complete a job faster than the time on the labor guide, and still do a good job, the customer is getting special service. Be sure to let customers know that speediness comes with a surcharge.
Relationship With Customers
It’s a good idea to consider giving loyal customers a special rate as a token of appreciation. With that said, industry leaders advise sticking to your labor rates as much as possible, because if it becomes a habit, you risk financially harming your business.
How to Choose a Reliable Labor Guide
A reliable auto repair labor guide is foundational for your shop when you’re setting labor rates, so you’ll want to use a labor guide that stays up-to-date with the latest labor times in the industry. Just like many people use online directories instead of the Yellow Pages, many auto repair shops use digital labor guides that are constantly updated with the latest labor times.
When seeking out a digital labor guide, look for one that:
Offers consistent, comprehensive data on labor times from industry leaders, so you can set accurate labor rates that will keep your shop profitable
Adds labor times for new vehicles and jobs periodically, so your shop’s pricing can stay competitive
Integrates with your auto repair shop management software, so you don’t have to dig through multiple systems
Safeguarding the physical and digital confidential assets of your business is of utmost importance for any repair shop owner. However, figuring out the right steps to initiate this process can be challenging.
The Importance of Security
Shop owners must always know who is coming in and out of their shops, this can be monitored by alarms and security camera systems throughout and around the building to insure the physical protection of the digital systems within the shop.
For those who are working in the shop, they should be trained on the protection of proprietary data within the shop by implementing password management, data integrity, and regular system backups.
Finding the Right Tools for the Job
Choosing a shop management system such as Tekmetric can help you manage your shop more efficiently, automate your processes and improve your overall customer communications while keeping your data secure and protected.
Shop management systems have proven to be beneficial for protecting data in the case of natural disasters or fires. When you are looking for a shop management system to protect your data be sure to choose the system that is transparent regarding their systems data backup process and insurance in the event of a breach.
Switching to the Cloud
Deciding to make the switch to cloud-based systems for data storage and accessibility such as Tekmetric can give shop employees and owners peace of mind knowing that their digital confidential assets are safe and secure.
Training and empowering employees on how to protect digital information is equally as important as physically protecting your shop with security alarms, cameras and locks.
By implementing the right processes and tools, shop owners and their employees can be confident that their shop's data is secure, accessible and protected from unexpected crises.
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