By Natalie - January 21, 2025
Categories: Accounting, Bookkeeping, General, Taxes

Welcome to 2025! As a new year begins, it’s time to start thinking about taxes. 

For auto repair shop owners, understanding potential tax deductions is crucial for maximizing profitability. 

This blog post will explore some common tax write-offs available to your business. It will help you keep more of your hard-earned money so you can achieve success!

Understanding Deductible Expenses

The IRS allows businesses to deduct “ordinary and necessary” expenses. 

This includes costs that are common and helpful in the day-to-day operations of your auto repair shop.

Cost of Goods Sold (COGS)

This includes the direct costs associated with the parts you sell and install. 

COGS covers everything from small items like spark plugs and brake pads to larger components such as engine parts and tires. 

Accurate and detailed records of all purchases, including invoices and receipts, are essential when reporting these deductions.

It’s critical to properly value your inventory at the beginning and end of the year because this directly affects your COGS and, consequently, your taxable income.

Labor Costs

Labor costs are another substantial deduction that you will want to claim.

Labor costs encompass:

  • Employee wages
  • Employee salaries
  • Employee benefits

When examining your labor costs, be sure to report the gross wages paid to everyone, from mechanics and service writers to administrative staff. These are the people who keep your shop running like a well-oiled machine. 

The employer-paid portions of Social Security, Medicare, and unemployment taxes are also deductible, along with various employee benefits like health insurance and retirement plan contributions.

Operational Expenses 

Operational expenses cover the day-to-day costs of running your business. 

This category includes:

  • Rent for your shop space (if you lease)
  • Utilities such as electricity, water, and gas
  • The maintenance and repair fees of your shop equipment and facilities
  • Insurance for business liability, property, and company vehicles

Expenses related to promoting your business, such as online advertising, print ads, and local sponsorships, fall under deductible advertising and marketing costs, which are also operational expenses.

You can even deduct the fees paid to professionals and service providers such as accountants, lawyers, and other consultants for business-related services.

Depreciation 

Depreciation is often an overlooked deductible, but it is important in maximizing your profit, nonetheless, because it allows you to deduct the cost of long-term assets over their useful life. 

Depreciation deductions apply to equipment such as lifts, diagnostic tools, and other essential items used in your shop. 

If you have company vehicles that are used solely for business purposes, such as a tow truck, you can also deduct their depreciation.

Other Deductions 

COGS, labor costs, operational expenses, and depreciation are the core categories, but that doesn’t mean other dedications don’t apply. 

Here are a few more auto shop costs to consider claiming:

  • Employee training 
  • Continuing education
  • Business travel for industry conferences or training
  • Unpaid invoices from customers (you may be able to deduct the unpaid amount as a bad debt!)

And always remember. . . 

Meticulous record-keeping is absolutely essential for substantiating your deductions. 

Keep all invoices, receipts, and other relevant documentation organized. An online accounting system such as Quickbooks Online can help! 

Tax laws can be complex, so consulting with a professional is highly recommended. They can provide personalized advice and ensure you’re taking advantage of all applicable deductions. 

Remember: tax laws can change, so stay informed about any updates that may affect your business so you can stay on the right track to growth! 

Proper planning and education will help you significantly reduce your tax liability and improve your bottom line year after year! 

Are you ready for a smooth tax season? Reach out to us with any questions or to learn more about how our services can help.