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Why Do Auto Dealers Choose the LIFO Inventory Valuation Method?

11/21/2016

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Many auto dealerships in the U.S. choose to use the LIFO inventory valuation method because they have found the benefits to be significant. The benefits of using the LIFO method for auto dealerships include matching inventory costs to revenue, reduction of income tax liability (deferment), and minimizing write-downs of vehicles to fair market value because of decline in inventory costs. The major reason LIFO calculations are so popular in the automotive industry is due to consistently increasing costs of vehicles which is at the heart of why the LIFO method may provide the dealership with significant income tax benefits and impact cash flows in terms of taxes paid.

The IRS has created detailed guidance on how LIFO calculations should be performed and vehicle eligibility. LBMC LIFO Solutions has taken the detailed guidance provided by the IRS to develop a software that tracks vehicle costs for eligible new and used vehicles and provides an easy-to-use platform to calculate LIFO reserves and indexes. Automotive dealerships that follow the detailed guidance provided by the IRS can be confident that the calculation will withstand any IRS challenge. Further, calculations that are computerized, using a nationally recognized software vendor, are preferred by the IRS. LBMC LIFO Solutions is an affordable, easy-to-use LIFO calculation software for auto dealers and CPA firms with auto dealer clients.

If you have questions about the LIFO method or our software, feel free to contact LBMC at 615-377-4600 to speak with a representative or use the contact form on this page.

Download Free Demo of LIFO Software LBMC LIFO Solutions, LLC, offers a FREE LIFO software demo that you can download here.

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