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By Deal Pack - September 24, 2012
You determine the splitting of the profits between immediate recognition and taxation of your profits by keeping them on the sales side, or delayed recognition and (potentially) taxation by discounting the receivable when you sell it to your Related Finance Company. The “Split” or discount percentage that you choose is very important for a multitude of reasons. You want to keep both sides of the business profitable, yet recognize the earnings when you receive the money. You may want to consult a local CPA when setting this up for the purposes of staying within the law.
Either way you set it up, whatever money that you receive as payment will be taxed accordingly. But you have to bring enough of your profit over to the RFC to cover the potential losses that we all know are associated with a BHPH, or sub-prime auto lender.
The other thing that you have to think of, is how much of your RFC money do you want to have floating out as profit on the sales side, when you are trying to finance as many loans as you can? It depends on which business activity do you prefer to be your money maker. If you want to make most of your money on the actual sale of the vehicle, then set a higher cash down payment, and a lower discount percentage. This will make your profit come out on the front end, with an immediate profit, immediate taxation, and a bigger chunk of your RFC money at risk. If you prefer the finance side to make more of the money to cover the losses, have a medium down payment, and a larger discount percentage when selling the loans over to the RFC. Again, consult a local CPA for the legality.
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Advanced Business Computers of America (ABCoA) develops and supports end-to-end software solutions for the subprime finance industry. Since 1983,
we have helped automotive dealerships and finance companies eliminate duplication, remain compliant, and achieve success with dependable, all-in-one software and white glove service and support.
Deal Pack is a complete, all-in-one software ecosystem customizable to your exact needs and scalable to your exact size - helping improve your operations, grow your business,
and solve the challenges you face. Whether you are a finance or sales company, multi-entity or publicly traded company handling BHPH or LHPH, operating or capital leases,
internal or external floor-planning, retail, rentals, consumer loans, origination, or seasoned paper, Deal Pack is the dependable software for mission critical operations.
Deal Pack handles all of your business needs transparently – providing you measurable improvements and complete financial control, saving you time,
increasing your bottom line, and allowing you the freedom to focus on your daily operations. Deal Pack is relied upon by thousands of customers across
all 50 states in the United States and six countries around the world. Customers properly using Deal Pack have never lost an IRS audit.
To learn more about ABCoA, visit www.abcoa.com.