Auto Repair Shops: Year-End Tax Moves to Make Before December 31
Most of what you can do to lower your 2026 tax bill has to happen before December 31, not in March. By the time we sit down to prepare the return, the year is closed and most of the options are gone.
For an auto repair or body shop, the big levers are equipment purchases, how you pay yourself, and how clean your books are going into year end. Here's what we walk owners through every fall.
Section 179 and bonus depreciation for shop equipment
If you were already planning to buy a lift, alignment rack, tire machine, scan tool, paint booth or work truck, the timing matters. Under current law, 100% bonus depreciation is permanent for qualifying property acquired after January 19, 2025. That means you can usually deduct the full cost in the year you start using it, instead of spreading it over several years.
Section 179 is the other tool. For 2026 the limit is $2,560,000, far more than most shops will ever spend. It can't exceed your business income, so unlike bonus depreciation it can't create a loss. We pick the mix based on your numbers.
Three things trip owners up:
- Ordering is not enough. The equipment has to be delivered, installed and ready to use by December 31. A lift sitting in a crate on January 2 doesn't count for 2026.
- Heavy SUVs have their own cap. For 2026, the Section 179 deduction on a heavy SUV is limited to $32,000. Some pickups and cargo vans are treated differently depending on bed length and seating, so check before you buy a vehicle.
- A deduction is not a discount. Spending $50,000 to save $15,000 in tax still costs you $35,000. Buy what the shop needs, not what the tax bill suggests.
Not sure whether to buy or lease? Read should your shop lease or buy that new equipment.
Owner pay and S corporation planning
If your shop is an S corporation, the IRS expects you to pay yourself a reasonable salary through payroll. Too low invites questions. Too high and you pay more payroll tax than you need to. Fall is the time to look at where your salary and distributions stand, while there's still a payroll or two left in the year. We cover how reasonable pay is judged in What's a reasonable salary for an S corp owner?
If you're a sole proprietor or single-member LLC and the shop is making good money, ask whether an S corporation would save you money. It depends on profit, and it isn't free: you take on payroll, a separate tax return and more paperwork. We run the numbers before recommending it.
Retirement contributions are another lever. Some plans have to be set up before year end, while others can be opened and funded after. Ask before December so you know which one you have.
Clean up your shop's books before year end
Good tax planning needs good numbers. A shop with books three months behind can't plan anything, because nobody knows what profit looks like.
The items we see most often in auto shops:
- Parts and shop supplies: are purchases coded to cost of goods sold, or sitting in the wrong account?
- Customer receivables: fleet accounts and insurance work that is unpaid and aging. Know what's collectible.
- Loans and equipment financing: make sure principal and interest are split correctly and every new asset is recorded.
- Payroll: technician pay, overtime and bonuses should tie to your payroll reports before W-2s go out.
- Subcontractors and vendors: collect W-9s now, not in January. Our 1099 guide for contractors covers the rules.
A monthly close fixes most of this. If you're catching up in December, you're doing the same work under more pressure.
Your year-end checklist
- List any equipment you plan to buy and confirm it will be in service by December 31.
- Check your year-to-date profit before deciding how much to spend.
- Review owner salary and distributions.
- Get your books reconciled through October.
- Collect W-9s from every vendor and subcontractor you pay.
- Call us before you sign for anything large.
A 30-minute conversation in November is worth a lot more than one in March.
Want help with this? Call before you sign for anything large. We'll look at your numbers and tell you what is worth doing before December 31.
Request a Business Financial ReviewThis article is general information, not tax or legal advice for your specific situation. Tax rules change; talk with us before acting on it.