DealersEdge Professional Forums

what is the rule for figuring what dollar amount you can write-off per month and/or year?

Hi Jimm,

No dollar amount is acceptable for writing off. But, there are some very creative ways to 'budget' for those bothersome parts that you can't send back to the manufacturer and you need to purge.

One creative way is to use a portion of your purchase discounts earned and apply it to inventory adjustments on a monthly basis. Let's say you earn $5,000 per month in purchase discounts on stock orders. Take 10% of this and apply it to your inventory adjustment account and you have $6,000 per year accrued to purge true non-returnable parts.

Also, look at your inventory appreciation over the year. If you have several price increases from your manufacturer each year, take the appreciation and apply it to your inventory adjustment account for parts that are aging.

Here is a simple scenario that could save you from having to just "write-off" and trash your inventory. Let's say that you have $5,000 to purge and you have accrued enough in purchase discounts or inventory appreciation. You now can purge this and donate it and take a 39% tax write off on the loss. Or, you could sell it a .60/1.00 to a dealer who purchases obsolescence and make $3,000 on your trash. Remember, you already accrued for it so now whatever you sell you get the profit pure and simple.

The problem is that because dealership personnel and managers are paid on purchase discounts and/or inventory gains that there is a reluctance to use this practice. Non-Returnable inventory is a reality of our business, if you do some planning and prepare to handle it you can avoid the chargebacks and hassles that come with the sudden realization that you have a big problem and need to write it off.

Chuck Hartle'