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Accounting and Tax Planning Coronavirus Special Coverage

Year-end Tax Planning

By Kristina Drzal Houghton, CPA, MST

 

This year has been unlike any other in recent memory. Front and center, the COVID-19 pandemic has touched virtually every aspect of daily living and business activity in 2020. In addition to other financial consequences, the resulting fallout is likely to have a significant impact on year-end tax planning for both individuals and small businesses.

Kristina Drzal Houghton

Kristina Drzal Houghton

Furthermore, if the election of Joe Biden is confirmed and the Republican party does not hold a majority in the Senate following the runoff elections in Georgia, it is likely to affect the tax situation in 2021 and beyond. This article will first address 2020 planning and then summarize some of the Biden tax proposals at the end.

In response to the pandemic, Congress authorized economic-stimulus payments and favorable business loans as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act also features key changes relating to income and payroll taxes. This new law follows close on the heels of the massive Tax Cuts and Jobs Act (TCJA) of 2017. The TCJA revised whole sections of the tax code and includes notable provisions for both individuals and businesses.

This is the time to paint your overall tax picture for 2020. By developing a year-end plan, you can maximize the tax breaks currently on the books and avoid potential pitfalls.

 

BUSINESS TAX PLANNING

Depreciation-related Deductions

Under current law, a business may benefit from a combination of three depreciation-based tax breaks: the Section 179 deduction, ‘bonus’ depreciation, and regular depreciation.

• Place qualified property in service before the end of the year. Typically, a small business can write off most, if not all, of the cost in 2020.

• The maximum Section 179 allowance for 2020 is $1,040,000 provided asset purchases do not exceed $2,590,000.

• Be aware that the Section 179 deduction cannot exceed the taxable income from all your business activities this year. This could limit your deduction for 2020.

• If you buy a heavy-duty SUV or van for business, you may claim a first-year Section 179 deduction of up to $25,000. The ‘luxury car’ limits do not apply to certain heavy-duty vehicles.

• If your deduction is limited due to either the income threshold or the amount of additions, a first-year bonus depreciation deduction of 100% for property placed in 2020 is also available.

• Massachusetts does not follow the bonus depreciation, but does allow the increased Section 179 expense; however, many states do not follow that increased expense either.

 

Business Interest

• Prior to 2018, business interest was fully deductible. But the TCJA generally limited the deduction for business interest to 30% of adjusted taxable income (ATI). Now the CARES Act raises the deduction to 50% of ATI, but only for 2019 and 2020.

• Determine if you qualify for a special exception. The 50%-of-ATI limit does not apply to a business with average gross receipts of $25 million (indexed for inflation) or less for the three prior years. The threshold for 2020 is $26 million.

 

Bad-debt Deduction

During this turbulent year, many small businesses are struggling to stay afloat, resulting in large numbers of outstanding receivables and collectibles.

• Increase your collection activities now. For instance, you may issue a series of dunning letters to debtors asking for payment. Then, if you are still unable to collect the unpaid amount, you can generally write off the debt as a business bad debt in 2020.

• Generally, business bad debts are claimed in the year they become worthless. To qualify as a business bad debt, a loan or advance must have been created or acquired in connection with your business operation and result in a loss to the business entity if it cannot be repaid.

 

Miscellaneous

• If you pay year-end bonuses to employees in 2020, the bonuses are generally deductible by your company and taxable to the employees in 2020. A calendar-year company operating on the accrual basis may be able to deduct bonuses paid as late as March 15, 2021 on its 2020 return.

• Generally, repairs are currently deductible, while capital improvements must be depreciated over time. Therefore, make minor repairs before 2021 to increase your 2020 deduction.

• Switch to cash accounting. Under a TCJA provision, a C-corporation may use this simplified method if average gross receipts for last year exceeded $26 million (up from $5 million).

• An employer can claim a refundable credit for certain family and medical leaves provided to employees. The credit is currently scheduled to expire after 2020.

• Investigate Paycheck Protection Program (PPP) forgiveness. Under the CARES Act, PPP loans may be fully or partially forgiven without tax being imposed. Despite recent guidance, this remains a complex procedure, so consult with your professional tax advisor about the details.

 

INDIVIDUAL TAX PLANNING

Charitable Donations

Generally, itemizers can deduct amounts donated to qualified charitable organizations, as long as substantiation requirements are met. Be aware that the TCJA increased the annual deduction limit on monetary contributions from 50% of adjusted gross income (AGI) to 60% for 2018 through 2025. Even better, the CARES Act raises the threshold to 100% for 2020.

• In addition, the CARES Act authorizes an above-the-line deduction of up to $300 for monetary contributions made by a non-itemizer in 2020 ($600 for a married couple).

• In most cases, you should try to ‘bunch’ charitable donations in the year they will do you the most tax good. For instance, if you will be itemizing in 2020, boost your gift giving at the end of the year. Conversely, if you expect to claim the standard deduction this year, you may decide to postpone contributions to 2021.

• For donations of appreciated property that you have owned longer than one year, you can generally deduct an amount equal to the property’s fair market value (FMV). Otherwise, the deduction is typically limited to your initial cost. Also, other special rules may apply to gifts of property. Notably, the annual deduction for property donations generally cannot exceed 30% of AGI.

• If you donate to a charity by credit card in December — for example, if you make an online contribution — you can still write off the donation on your 2020 return, even if you do not actually pay the credit-card charge until January.

 

Family Income Splitting

The time-tested technique of family income splitting still works. Currently, the top ordinary income-tax rate is 37%, while the rate for taxpayers in the lowest income tax bracket is only 10%. Thus, the tax rate differential between you and a low-taxed family member, such as a child or grandchild, could be as much as 27% — not even counting the 3.8% net investment-income tax (more on this later).

• Shift income-producing property, such as securities, to family members in low tax brackets through direct gifts or trusts. This will lower the overall family tax bill. But remember that you are giving up control over those assets. In other words, you no longer have any legal claim to the property.

• Also, be aware of potential complications caused by the ‘kiddie tax.’ Generally, unearned income above $2,200 received in 2020 by a child younger than age 19, or a child who is a full-time student younger than age 24, is taxed at the top marginal tax rate of the child’s parents. (Recent legislation reverses a TCJA change on the tax treatment.) The kiddie tax could affect family income-splitting strategies at the end of the year.

 

Higher-education Expenses

The tax law provides tax breaks to parents of children in college, subject to certain limits. This often includes a choice between one of two higher-education credits and a tuition-and-fees deduction.

• Typically, you can claim either the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC). The maximum AOTC of $2,500 is available for qualified expenses of each student, while the maximum $2,000 LLC is claimed on a per-family basis. Thus, the AOTC is usually preferable. Both credits are phased out based on modified adjusted gross income (MAGI).

• Alternatively, you may claim the tuition-and-fees deduction, which is either $4,000 or $2,000 before it is phased out based on MAGI. The tuition-and-fees deduction, which has expired and been revived several times, is scheduled to end after 2020, but could be reinstated again by Congress.

• When appropriate, pay qualified expenses for next semester by the end of this year. Generally, the costs will be eligible for a credit or deduction in 2020, even if the semester does not begin until 2021.

 

Medical and Dental Expenses

Previously, taxpayers could only deduct unreimbursed medical and dental expenses above 10% of their AGI. When it is possible, accelerate non-emergency qualifying expenses into this year to benefit from the lower threshold. For instance, if you expect to itemize deductions and have already surpassed the 7.5%-of-AGI threshold this year, or you expect to clear it soon, accelerate elective expenses into 2020. Of course, the 7.5%-of-AGI threshold may be extended again, but you should maximize the tax deduction when you can.

 

Estimated Tax Payments

The IRS requires you to pay federal income tax through any combination of quarterly installments and tax withholding. Otherwise, it may impose an ‘estimated tax’ penalty.

However, no estimated tax penalty is assessed if you meet one of these three ‘safe harbor’ exceptions under the tax law:

• Your annual payments equal at least 90% of your current liability;

• Your annual payments equal at least 100% of the prior year’s tax liability (110% if your AGI for the prior year exceeded $150,000); or

• You make installment payments under an ‘annualized income’ method. This option may be available to taxpayers who receive most of their income during the holiday season.

If you have received unemployment benefits in 2020 — for example, if you lost your job due to the COVID-19 pandemic — remember that those benefits are subject to income tax. Factor this into your estimated tax calculations for the year.

 

Capital Gains and Losses

Frequently, investors time sales of assets such as securities at year-end to produce optimal tax results. For starters, capital gains and losses offset each other. If you show an excess loss for the year, it offsets up to $3,000 of ordinary income before being carried over to the next year. If you sell securities at a loss and reacquire substantially identical securities within 30 days of the sale, the tax loss is disallowed.

• Long-term capital gains from sales of securities owned longer than one year are taxed at a maximum rate of 15%, or 20% for certain high-income investors. Conversely, short-term capital gains are taxed at ordinary income rates reaching up to 37% in 2020.

• Review your investment portfolio. Depending on your situation, you may harvest capital losses to offset gains realized earlier in the year or cherry-pick capital gains that will be partially or wholly absorbed by prior losses.

 

Net Investment-income Tax

In addition to capital-gains tax, a special 3.8% tax applies to the lesser of your net investment income (NII), or the amount by which your modified adjusted gross income (MAGI) for the year exceeds $200,000 for single filers or $250,000 for joint filers. (These thresholds are not indexed for inflation.) The definition of NII includes interest, dividends, capital gains, and income from passive activities, but not Social Security benefits, tax-exempt interest, and distributions from qualified retirement plans and IRAs.

• Assess the amount of your NII and your MAGI at the end of the year. When it is possible, reduce your NII tax liability in 2020 or avoid it altogether.

 

Required Minimum Distributions

As a general rule, you must receive required minimum distributions (RMDs) from qualified retirement plans and IRAs after reaching age 72 (70½ for taxpayers affected prior to 2020). The amount of the RMD is based on IRS life-expectancy tables and your account balance at the end of last year

• Take RMDs in 2020 if you need the cash. Otherwise, you can skip them this year, thanks to a suspension of the usual rules by the CARES Act. There is no requirement to demonstrate any hardship relating to the pandemic. Finally, although RMDs are no longer required in 2020, consider a qualified charitable distribution (QCD). If you are age 70½ or older, you can transfer up to $100,000 of IRA funds directly to a charity. Although the contribution is not deductible, the QCD is exempt from tax. This may benefit your overall tax picture.

 

IRA Rollovers

If you receive a distribution from a qualified retirement plan or IRA, it is generally subject to tax unless you roll it over into another qualified plan or IRA within 60 days. In addition, you may owe a 10% tax penalty on taxable distributions received before age 59½. However, some taxpayers may have more leeway to avoid tax liability in 2020 under a special CARES Act provision.

• Take your time redepositing the funds if it qualifies as a COVID-19-related distribution. The CARES Act gives you three years, instead of the usual 60 days, to redeposit up to $100,000 of funds in a plan or IRA without owing any tax.

• To qualify for this tax break, you (or your spouse, if you are married) must have been diagnosed with COVID-19 or experienced adverse financial consequences due to the virus (e.g., being laid off, having work hours reduced, or being quarantined or furloughed). If you do not replace the funds, the resulting tax is spread evenly over three years.

• This may be a good time to consider a conversion of a traditional IRA to a Roth IRA. With a Roth, future payouts are generally exempt from tax, but you must pay current tax on the converted amount. Have a tax professional help you determine if this makes sense for your situation.

 

Estate and Gift Taxes

Since the turn of the century, Congress has gradually increased the federal estate-tax exemption, while eventually establishing a top estate-tax rate of 40%. The TCJA doubled the exemption from $5 million to $10 million for 2018 through 2025, inflation-indexed to $11.58 million in 2020.

Under the ‘portability provision’ for a married couple, the unused portion of the estate-tax exemption of the first spouse to die may be carried over to the estate of the surviving spouse. This tax break is now permanent.

Finally, guidance has been published establishing that, when the exemption is decreased in the future, a recapture or ‘claw-back’ of the extra exemption used will not be required.

Update your estate plan to reflect current law. You may revise wills and trusts to accommodate the rule allowing portability of the estate-tax exemption. Additionally, consider the maximum gifting currently as allowable in your financial position.

 

Miscellaneous

You can contribute up to $19,500 to a 401(k) in 2020 ($26,000 if you are age 50 or older).

 

BIDEN’S NOTABLE TAX PROPOSALS

Business Tax

• The statutory corporate tax rate would be increased from 21% to 28%.

• The benefits of the Section 199A/qualified business-income deduction would be phased out for individuals with taxable income greater than $400,000.

• The real-estate industry will potentially be impacted. The Biden campaign had suggested potential changes to the §1031 like-kind exchange provisions as well as changes to effectively limit losses that may be utilized by real-estate investors.

 

Individual Tax

Many of the revenue-raising aspects of the Biden tax proposal for individuals apply only to those taxpayers with taxable income over $400,000. It has not been specified whether this threshold is to be adjusted for filing status.

• The top ordinary rate would be restored to 39.6% for taxpayers with income over $400,000. This reflects a return to pre-2017 tax reform when the top ordinary rate was dropped to 37%.

• For top income earners, this rate is currently capped at 20% (plus 3.8% to the extent subject to the net investment-income tax). Under the Biden plan, capital gains and qualified dividends will be subject to the top rate of 39.6% for individuals with more than $1 million in income.

• The Section 199A/qualified business-income deduction would begin to phase out for individuals over $400,000 in taxable income.

• Itemized deductions would be capped to 28% of value. Additionally, benefits would begin to phase out for individuals with taxable income over $400,000.

• The child and dependent care credit would be increased to a maximum of $8,000 for low-income and middle-class families. In addition, the credit would be made refundable.

• First-time homebuyers could receive up to $15,000 of refundable and advanceable tax credit.

• There could be temporary expansion of the child tax credit, depending on the progression of the pandemic and economic conditions. This expansion would increase the credit from $2,000 to $3,000 for children 17 or younger with an additional $600 for children under 6. The credit would also be refundable and allowable to be received in monthly installments.

 

Gift and Estate Tax

The gift- and estate-tax exemption amount would be reduced. Many are suggesting that Biden is looking to reduce the gift- and estate-tax exemption to the pre-TCJA levels.

 

Conclusion

This year-end tax-planning letter is based on the prevailing federal tax laws, rules, and regulations. Of course, it is subject to change, especially if additional tax legislation is enacted by Congress before the end of the year.

Finally, remember that this article is intended to serve only as general guideline. Your personal circumstances will likely require careful examination. u

 

Kristina Drzal Houghton, CPA, MST is partner, Executive Committee, and director of Taxation Services at Meyers Brothers Kalicka; (413) 536-8510.

Law

Taxing Decisions

By Hyman G. Darling, Esq.

As this article is being written, the election is pending, and many people are trying to consider the options relative to tax issues for the end of 2020 and going into 2021. Since no one can predict with 100% accuracy what the tax laws will be in the future, even beyond 2021, it is important to consider the options available. Taking action now will allow you (or your heirs) to save funds.

Hyman Darling

Hyman Darling

Before proceeding, a refresher on federal estate and gift taxes may be needed. The federal estate-tax and gift-tax exemption is what is known as a unified credit, which means the amount may be used to make gifts during one’s lifetime or at death, or a combination of both.

The amount currently is set at $11.58 million for 2020. If the law does not change, this amount is due to reduce to $5 million in 2026 (indexed for inflation as of 2010, so this amount will probably be $6 million). This means a person may gift up to $11.58 million during his or her lifetime or at death before any tax is due. If this amount is exceeded, a tax rate of 40% applies to the excess. Since the unified credit may be reduced, larger gifts may be considered prior to year-end before a new law is enacted next year that could be effective as of Jan. 1, 2021.

Many misconceptions apply to gifts, the most popular being the annual exclusion of $15,000 per recipient. Most people believe that, if the $15,000 amount is exceeded, the donor or the recipient must pay a tax. The law states that a person may gift up to $15,000 each year without reporting any gifts. If this amount is exceeded, then a gift-tax return is required to be filed by April 15 of the year following the gift.

But, again, no tax is due until the $11.58 million is exceeded. For example, if a person gifts to their child, there is a requirement to file a return, but the first $15,000 is ‘free,’ and the next $100,000 merely reduces the credit from $11.58 million to $11.48 million, which is still available to gift during the lifetime or at death. Thus, a person does not have to limit a gift to $15,000 as, in most cases, they will not be paying a tax. (Note that this rule is a tax rule, and does not have a relation to Medicaid planning, which treats all gifts as disqualifying for the five-year look-back period.)

If the estate credit is reduced after 2020, it is anticipated that the credit utilized this year will not adversely affect the amount a person will have available under a new law when he or she dies. So, if a person wishes to make significant gifts, they should make them before the end of the year to utilize as much of the credit as they may want.

For income-tax purposes, there are several options to consider. One easy one is the ‘above-the-line’ charitable deduction for up to $300 if given to a qualified charity. This is not for donations of clothing, as it must be a gift of cash, and it qualifies for everyone, even if a person is not itemizing.

Another significant option is that, in 2020, a minimum deduction is not required to be made from an IRA or other qualified plan. However, some people who have little to no other taxable income may still want to take a distribution as their tax bracket may be low enough to eliminate taxes this year.

“If the estate credit is reduced after 2020, it is anticipated that the credit utilized this year will not adversely affect the amount a person will have available under a new law when he or she dies. So, if a person wishes to make significant gifts, they should make them before the end of the year to utilize as much of the credit as they may want.”

In addition to this option, there is also the benefit for those age 70½ and older who may wish to make a donation to charity. Funds may be paid directly to a charity (or multiple charities) from the retirement account, and this donation will not be taxable income. The annual limit is $100,000, but the distribution does satisfy the required minimum distribution (RMD). If the taxpayer is going to make donations in any event, the IRA should be used to fund the donations.

The amount does not get added to taxable income, so the taxable amount will be less, Social Security payments may then not be taxable, and the Medicare premium will not be higher as the RMD does not get factored into the calculation.

If a taxpayer has losses to report, they may be taken and either reduce income up to $3,000 or perhaps offset gains of other assets. If a person has gains, they may wish to take the gain in 2020 with the anticipation that capital-gains rates could increase and/or income-tax rates may increase.

As with all tax and estate-planning considerations, there are many general rules with specific exceptions, so a qualified professional should be consulted prior to making any decisions. But be sure to get started soon, as decisions should be made and implemented prior the end of 2020.

 

Attorney Hyman G. Darling is a shareholder and the head of the probate/estates team at Bacon Wilson, P.C. He is a past president of the National Academy of Elder Law Attorneys and has been a frequent presenter for the Massachusetts Bar Assoc., MCLE, and many Springfield civic and professional groups. He is a member of the Special Needs Alliance and many local planned-giving committees, as well as an adjunct faculty member in the LLM Program at Western New England University School of Law and Bay Path University; (413) 781-0560; [email protected]

Autos

’Tis the Season

Peter and Michelle Wirth, co-owners of Mercedes-Benz of Springfield, stand in a showroom that is expected to see a heavy volume of shoppers looking to take advantage of end-of-year sales.

The names of the programs have become ingrained in consumers’ consciousness — December to Remember, Winter Sales Event, Wish List Sales Event, and many others — and the TV commercials are seemingly endless. But the year-end auto-sales initiatives have several goals, and have become a present for dealers and consumers alike.

The commercials started appearing during the football games and the Jeopardy! Tournament of Champions, among other places, a few weeks ago.

You’ve seen them … the ones where mom or dad, or perhaps their college-age daughter, looks out the window on a snowy Christmas morning to find a new car in the driveway with a big red bow on the roof or the hood.

The commercials, and there are a lot of them now with a host of themes, are part of what has become a very important — and generally very joyous — time for car makers, car dealers, and, yes, consumers: the holiday, end-of-year sales.

These campaigns all have names now — there’s the Toyota-thon, the Lexus December to Remember, the Mercedes-Benz Winter Event, the Lincoln Wish List Sales Event, and many others. And while it was once mostly a luxury-brand initiative, it’s now generally across the board.

“You have all this inventory being built based on how many vehicles the industry analysts believe are going to be purchased that year. Well, if they forecasted ’19 to be up, and it’s flat, right away you have probably more inventory than you need; this is going to be a great holiday for consumers.”

As for those commercials, while farfetched to some, they are, well, spot on in some respects.

Indeed, a growing number of consumers will ask for that red bow, and, yes, they do like to have it on the car as it sits parked in the driveway or garage on the holiday morning, said Ben Sullivan, chief operating officer for Balise Motor Sales.

“It happens more than most people might think,” he told BusinessWest, adding that, while some dealers will make timely and perhaps dramatic deliveries — even on Christmas Eve — most buyers will get the car (and the bow) a few days before and stash them somewhere.

And there should be more cars with ribbons on them in driveways this year, figuratively if not literally, said Robinson and others we spoke with, because this year’s holiday season is shaping up to be a big one for consumers.

That’s because, overall, auto sales in 2019 have been flat, which is still good considering how strong they’ve been for the past few years. But they were projected to be a few percentage points higher than last year.

Roughly 3% to be more precise, Sullivan went on, adding that 3% of 17 million (the approximate number of cars sold in each of the past few years) is a big number.

“You have all this inventory being built based on how many vehicles the industry analysts believe are going to be purchased that year,” he explained. “Well, if they forecasted ’19 to be up, and it’s flat, right away you have probably more inventory than you need; this is going to be a great holiday for consumers.”

But that’s only one of the reasons why this could end up being an extraordinary holiday sales period, said those we talked with, adding that, in addition to the traditional tax breaks for commercial vehicles — especially the first-year bonus depreciation deduction — a number of other factors are quite favorable.

Ben Sullivan says the holidays sales event help clear lots of cars in advance of the new model-year arrivals, while also helping manufacturers meet their goals for a given year.

These include gas prices — a little higher than earlier in the year, but still relatively low — as well as interest rates (low but projected to climb in 2020) and consumer confidence, which is still rather high as recession fears have eased in recent weeks.

But even in what would be considered more typical years, the holiday-season sale has become an effective vehicle for clearing lots of cars before the new models roll in, and also for introducing a brand to people who might otherwise overlook it.

That’s the case with Mercedes, which has been working hard in recent years to convince car buyers that its models (or some of them, anyway) are within their reach.

Peter Wirth, co-owner of Mercedes-Benz of Springfield, said the dealership, which draws from a large geographic area that includes Southern Vermont, Southern New Hampshire, Eastern New York, and Northern Connecticut, has been active in trying to introduce itself to consumers seeking a lower price range. And the year-end event has been one of many drawing cards.

Joe Clark, general manager of Steve Lewis Subaru in Hadley, said that car maker’s holiday sales event has a different name and different twist. The former is Share the Love, which partially explains the latter, which involves contributions to charities, which adds another ‘win’ to what was already a win-win-win scenario.

Subaru donates $250 for each car sold to a charity of the buyer’s choice, said Clark, adding that there are national and local options, and Steve Lewis matches with $50.

“In 2019, it took until July before all the ’18s had been sold off. In the meantime, all the manufacturers are making ’19s, and here we are coming into the end of the year; you want to start as clean as you can with the next model year.”

“Over the past few years, we’ve been able to raise more than $50,000,” he said, adding that, while Subaru doesn’t offer the same kinds of incentives as other makers — he says it doesn’t need to because the cars are priced appropriately — the charitable donations act as an incentive to bring consumers to the showrooms at the end of the year.

For this issue and its focus on transportation, BusinessWest talked with area dealers about these year-end sales and how they’ve become a different type of holiday tradition.

Opportunities Present Themselves

Tracing the history of the holiday sales push, Sullivan, who works for a company with more than a dozen brands in its portfolio, said that, traditionally, November and December were not big months for dealers, emphasizing the past tense.

Weather played a part in this, he said, as well as the fact that people are, by and large, focusing their time, attention, and spending dollars on the holidays and not a new car.

To spark some life into end-of-year sales activity, manufacturers, as a group, began to offer some of their best incentives at that time of the year, with the goal of hitting sales targets set roughly 12 months earlier.

Now, the deals, the incentives, and, yes, those red ribbons have become a tradition, and savvy buyers set their watches by it.

So much so that October has become a somewhat lackluster month for many dealers.

It wasn’t for Mercedes, which stages an annual certified pre-owned sale that month, said Wirth, adding that the Springfield dealership had a great October and was challenged to keep a good inventory of used cars on the lot.

But that’s another story.

This one is about the holiday sales events, which have, overall, done what they were designed to do — clear inventory and help manufacturers and dealers hit their numbers.

Joe Clark says Subaru’s ‘Share the Love’ year-end event provides consumers with still another reason to shop that brand at the end of the year.

And this year, the sales will be needed to do both, said Sullivan, noting, again, that sales have been flat and there are a lot of 2019s still on the lots that manufacturers would prefer to see gone by year’s end or at least early next year.

“In 2019, it took until July before all the ’18s had been sold off,” he went on, adding that some 2019 models, like the Toyota Tacoma, are still being built. “In the meantime, all the manufacturers are making ’19s, and here we are coming into the end of the year; you want to start as clean as you can with the next model year.

“So this year, in particular, will be interesting because it took so long to get the ’18s sold off, and now we have ’19s that we have to sell off,” he continued. “I expect that the manufacturers are going to do even more in this holiday season than they would typically in order to alleviate that stock level.”

Wirth said Mercedes has two major seasonal pushes — its summer sales program, designed to help dealers clear out inventory before the new model year arrives, and the year-end initiative, which helps meet annual sales goals.

The latter, the Winter Sales Event, is among the oldest in the business, Wirth noted, adding that Mercedes throws not only large amounts of marketing dollars at the program, but some attractive incentives as well.

“And we latch onto these programs on a dealership level because it’s not just marketing,” he told BusinessWest. “The deals are actually really good; if you’re in the market for a new car, November and December is a really good time to buy.”

Elaborating, he said that, while the incentives might not change on some of the models — and Mercedes has quite a few of them — for those months, the deals will become better for models where there is significant inventory and an opportunity to make a dent in it.

And unlike the deals presented by many manufacturers, those at Mercedes involve the latest models, in this case 2020s, as opposed to the 2019s on most lots.

Wirth told BusinessWest there isn’t a deep body of work when it comes to this dealership and the year-end sales events; after all, it opened just a few weeks before the holidays in 2017. But already some trends have emerged.

One involves commercial vehicles, and, yes, Mercedes sells a good number of them. Its vans, the mid-sized Metris and full-size Sprinter, can compete with other makes on price, and they have the Mercedes star on the grill, said Wirth, adding that some of the SUVs also qualify for what’s known as the Chapter 179 tax deduction.

“The accountants talk to their clients and say, ‘hey, you need to do something,’” he noted, adding that, while he can’t remember whether November or December was the top month for van sales last year, the other came in just behind.

Another trend involves the last few months of the year becoming some of the busiest of the year, something that has pretty much always been the case for luxury imports. In fact, the week between Christmas and New Year’s might be the busiest of the entire year, although the week before the holiday is also quite busy, said Wirth, adding that the perception that the very best time of year to buy a car is toward the end of December may well have something to do with this.

But he said the dealership strives to make it a good experience regardless of the month or the date.

Overall, the year-end tax breaks on commercial vehicles have long made November and December strong months for those types of transactions, said Sullivan, adding that, over the past several years, the holiday sales events have broadened the scope of activity to pretty much all brands and all types of vehicles. They’ve made October a somewhat lonely month for dealers, but November and December a time of excitement and, well, anticipation as they wait to see what the incentives will be.

“It’s much like a Christmas present for dealers — we have to wait to open it up when they say ‘the event is now on, and here are the consumer incentives you’ll be able to offer,’” he explained, adding that the numbers are generally known by the middle of November.

And while dealers and consumers are on the receiving end of presents, Subaru’s annual holiday event puts another group in that category — regional and national nonprofits.

“It’s not about car sales or how much you can save on a car,” said Clark. “It’s about Subaru doing what’s right and raising a bunch of money for some great charities.”

Like all the other programs, though, it provides consumers with a reason — or some additional reasons — to shop at the end of the year, he went on, adding that, over the years, the Steve Lewis dealership has supported groups and agencies ranging from area schools to the Dakin animal shelter. This year, the beneficiary will be Cooley Dickinson Hospital’s Cooley Cares for Kids program.

While there are some inventory-clearing motivations for the holiday-sales event, generally Subaru doesn’t have excess-inventory issues, he noted, and, in fact, keeping a supply on the lot is the main challenge.

That’s a Wrap

As he talked while walking through the Lexus dealership on Riverdale Street, Sullivan gestured to the ornate red ribbons atop each of the models on the floor.

He said they’re supplied by a local maker, and generally start appearing on car roofs a few weeks before Thanksgiving. He didn’t say whether this year’s order was larger than normal, but he certainly implied that more ribbons — again, figuratively if not literally — will be needed this year.

That’s because, as he said, this is shaping up to be a joyous a holiday for consumers — one right out of one of those commercials.

George O’Brien can be reached at [email protected]

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