The Range of F&I Profit Participation Programs F&I profit programs vary greatly in structure, economics, flexibility, risk and tax consequences. To find the best fit for your situation, you’ll want to understand each type and its ability to deliver what your business, transition plan and personal wealth strategy demand. Program How It Works Key Features What It Achieves U.S. Federal Income Tax Consequences Guaranteed Retro Dealer receives commission for sale of F&I product plus guaranteed underwriting profit. Guaranteed flat dollar amount per contract (varies based on product and sales mix). Payment is based on contract count net of cancellations (not based on loss ratios). Not subject to losses. Accelerated cash flow. Upfront underwriting. Don’t have to set up reinsurance company. Taxed as ordinary income for Federal Income Tax purposes at 37% for individuals. However, the Tax Cuts and Jobs Act (TCJA) may allow a deduction of up to 20% of the income if paid to an S Corp or LLC taxed as a partnership. Participating Retro Dealer receives commission for sale of F&I product, plus underwriting and investment income. Dealer does not have to invest in or open a reinsurance company. Dealer must recognize revenue as received. Historically, all upside, no downside. Highest cash flow program. No reinsurance required. 100% of underwriting profits and any investment income that is available. Taxed as ordinary income for Federal Income Tax purposes at 37% for individuals. However, the Tax Cuts and Jobs Act (TCJA) may allow a deduction of up to 20% of the retro income if paid to an S Corp or LLC taxed as a partnership. Dealers Renew Focus on F&I Profit Participation Strategies Learn What Steps Auto Dealers Can Take to Find the F&I Profit Program That Best Meets Their Goals By Truist Dealer Services, in partnership with Matt Joffe, Managing Shareholder for Total Warranty Services As profit margins return to historical levels, auto dealers are looking for ways to generate additional earnings. Dealer finance and insurance (F&I) profit participation programs are often overlooked in the quest to boost profits — an expensive oversight. These established strategies can provide dealers with solid cash flows and investment returns. While many dealerships already have profit-sharing programs in place, these programs often fall short of a dealer’s goals. And dealers can miss their full profit potential if warranty programs aren’t aligned with their business and personal wealth goals — or if they aren’t optimally executed. F&I profit participation programs can support a dealership in: • Generating cash flow. • Funding acquisitions. • Managing tax strategies. To varying degrees, the programs can be used to: • Provide incentives and rewards to key management. • Establish a vehicle for wealth building and estate planning. • Support multigenerational succession and business transition. 16 Illinois Automobile Dealer News
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