In short

Tax support for repair shops covers the entity or Schedule C return, inventory and cost of goods sold for parts and tires, depreciation of lifts and diagnostic equipment, Forms 1099 for sublet vendors and contractors where required, and sales tax records for parts and, where taxable, labor. Owners of pass-through shops also need year-to-date profit for estimated payments.

Inventory and cost of goods sold

Shops that carry parts and tires for sale generally account for inventory. Publication 334 explains the requirements and the small business options your preparer may consider. A reconciled year-end count gives the return a solid starting point.

Equipment

Lifts, scanners, compressors and tools are depreciated or expensed under the rules in Publication 946. We keep a schedule with each asset's cost, in-service date and any trade-in.

Paying sublet shops and contractors

Shops that pay other businesses or individuals for services, such as transmission rebuilds or mobile glass work, may need to issue Form 1099-NEC for qualifying payments. We collect a Form W-9 from each vendor.

Sales tax on parts and labor

States differ on whether repair labor is taxable and how parts on a repair are taxed. We keep taxable and exempt sales separate in the books; see your state guide on our locations page.

Cash payments

Businesses that receive more than $10,000 in cash in one transaction or related transactions must file Form 8300. We flag large cash receipts when we see them.

Records we request

Lift, diagnostic equipment and tool purchase invoices.

Key terms

Definitions for terms used on this page:

  • Cost of Goods Sold: Cost of goods sold is the direct cost of the products a business sold during a period.
  • Exempt and Non-Exempt Employees: Non-exempt employees must receive overtime under federal law; exempt employees meet specific tests that remove that requirement.
  • Depreciation: Depreciation spreads the cost of a long-lived business asset over the years it is used, rather than deducting it all at once.

Auto Repair Shops problems this addresses

  • Repair orders combine parts, labor, shop supplies and sales tax
  • Insurance and fleet customers pay on account, sometimes slowly
  • Parts inventory and cores are hard to track accurately
  • Technicians may be paid flat-rate, hourly or with incentives
  • Lifts, diagnostic tools and equipment loans need asset records