Car dealerships legally save $1,000,000s in taxes...
And you can too.
Here's how they do it: Most of the profit dealers make is NOT from selling cars.
Yup, you heard that correctly.
Dealers sell many lucrative products and services in addition to the cars themselves.
But there is one secret dealers don’t talk about often…
Introducing the Captive Insurance Company.
What is it?
A captive insurance company is an insurance subsidiary of a non-insurance entity.
In normal-people terms, it's a mini insurance company within your existing company.
Here's how this plays out in the dealer world:
1. Dealer launches captive insurance entity 2. Dealer sells warranty/insurance products to customers 3. Dealer insures the risk and makes underwriting profit (or loss)
This process, known as Reinsurance, is one of the most tax-advantaged parts of car dealerships.
Here’s why… Captive insurance companies are formed in the Turks and Caicos.
The T&C offer many advantages, such as those in the image below:
But the biggest advantage of forming a Captive in the T&C?
Captives formed in the T&C don't pay ANY taxes on their profits.
But it doesn't end there... Eventually, you may want to spend your profits somehow, right?
College tuition for the kids, buy a new car, etc
Well, why declare a dividend and pay taxes when you can LEND money to yourself?
Yup, you can lend money to YOURSELF, tax-free.
And the cherry-on-top of it all... Any remaining funds that are sitting in the ‘reinsurance reserves’ are invested as well.
So in summary:
- Profits are not taxed
- You can lend money to yourself, tax-free
- Your reinsurance reserves are invested (albeit, in very low-risk securities).
Pretty amazing, huh? If your business sells warranties or insurance products to consumers,
You may want to consider looking into creating a reinsurance company.
A few Google searches and you will quickly find the right law firm or partner that can help you set this up for your business.
This is NOT legal advice. If you're thinking of reinsuring, consult a professional.
I am NOT a lawyer, nor am I a CPA.
I simply sell cars, do some tech investing and have operated a reinsurance company for over a decade.
Lucrative benefits of Dealership Reinsurance:
- Consistent stream of revenue
- Sits in an untaxed, off-shore account (until it’s distributed to shareholders)
- Certain portion of unearned premium is invested in the capital markets
- Can borrow/lend to yourself to avoid triggering a taxable event
I call this “The Dealership Trust Fund”
But there are also downsides:
Sell shitty cars?
Your losses will eat up your reinsurance profit.
Close your business or sell your portion?
You may have to come out of pocket to cover future claims if your reserves are depleted.