LIFO for Auto Dealerships

Source Advisors is the undisputed leader in automotive dealership LIFO consulting, performing more dealership LIFO calculations than anyone else in the country. Founded in 1983 as LIFO Systems, we’ve been assisting CPAs and dealerships to bring best in class LIFO solutions for over 35 years. Decades of experience and unrivaled customer service are at the core of every calculation we provide.

For dealerships, the LIFO benefit proposition is clear. The LIFO inventory method consistently values ending inventory lower than any other available option. This creates cash for your dealership by reducing federal tax liability. Whether you are a single franchise selling a domestic brand or a multi-location, multi-brand dealership group, LIFO brings year after year tax savings that can be reinvested back into your business.

A CPA firm we work with on several auto dealerships requested an estimate to see if LIFO would benefit a new dealership client they had acquired. The CPA provided both year-beginning and year-end vehicle information for the more than 350 Chrysler, Dodge and Jeep vehicles. Analyzing inflation by comparing base model costs under the IRS prescribed Alternative LIFO Method (ALM) revealed nearly 2% inflation for the year. With an ending inventory value of $14,000,000, the dealership was looking at a first year LIFO deduction (benefit) of over $275,000, reducing current year tax liability by nearly $100,000. The dealership moved forward with adopting LIFO, reinvesting the cash savings they received in the year of implementation in needed service department upgrades.