Archive for the ‘Accounting’ Category

‘Ghost Assets’ Haunting Your Business?

Tuesday, October 7th, 2014

The IRS recently issued taxpayer-friendly guidance regarding the disposition of a component of real or personal property.

Under the Internal Revenue Code, taxpayers are required to capitalize certain amounts paid to acquire, produce or improve real or tangible personal property during the year and that is used for a trade, business or for the production of income. However, prior to the issuance of new regulations in 2013 taxpayers were unable to write-off the remaining cost of a component of a larger asset or building that was repaired or replaced (e.g. a roof). In fact, under the old rules, it was not uncommon for business owners to be required to depreciate “ghost assets” – assets that were removed or replaced by the taxpayer and are no longer in service.

The good news is that the IRS has changed its mind on these, so-called, “partial dispositions.”

So, What’s Changing?

Beginning Jan. 1, 2014, taxpayers were able to deduct the remaining cost of such components in the year they were replaced/repaired by making an election on their tax return.

Additionally, the IRS allowed taxpayers to apply the regulations to dispositions that had already happened in prior years as long as the ghost assets were still being depreciated.

What was unclear until recently was how a taxpayer could effectively make the election on a retroactive basis given that businesses were required to file their 2013 year tax returns before the IRS had issued definitive guidance.

The IRS’ Response

The IRS officially announced a specific revenue procedure that provides a limited opportunity for taxpayers to write-off assets that were disposed of during a prior year. The guidance outlines the procedures necessary for taxpayers to secure the write-off, as well as what documents they should include when filing their request. If you do plan to write off a ghost asset from a previous year, you must make plans do so now as this retroactive election opportunity is time sensitive. Taxpayers who miss this opportunity will be required to continue depreciating these ghost assets. For some, this means that you could be depreciating ghost assets for another 15-20 years.

Are you a business owner who is still paying the IRS for assets that you no longer have or that have been replaced? Do you want to learn more about the IRS’s new rules on ghost assets and how they can impact your business? Email Rea & Associates to find out if you can write off ghost assets that continue to haunt your business.

Author: Chris Axene, CPA (Dublin office)

 

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To Shred Or Not To Shred: That Is The Question … Ask Your Financial Advisor

Monday, October 6th, 2014

Are you wondering what to do with all those tax documents and records you have piling up around your office or in your computer files? Are you thinking about wiping them from your company’s hard drive or sending them to the shredder? Not so fast. The IRS has several rules when it comes to how long your business should keep its records. Make sure you are up to date on the current records retention schedule before you permanently delete something important.

Generally speaking, records that support your income or deduction claims for tax return purposes should be kept until the period of limitations for a particular tax return expires. The “period of limitations” is defined as the period of time the IRS gives you to change information on your return, particularly when the information relates to a refund or credit you have claimed. Also, just because you aren’t planning to make any changes to your tax return doesn’t mean the IRS won’t. Therefore it’s in your best interest to keep your documents until the IRS can no longer assess additional taxes or request additional information from you.

Below is a quick reference guide pertaining to some common records your office has been collecting over the years and how long you should keep them.

Records You Should Keep Permanently:

  • Copyright registration
  • Correspondence (legal and important matters)
  • Deeds, mortgages, bills of sale
  • Depreciation schedules
  • Financial statements (end-of-year)
  • General and private ledgers (and end-of-year trial balances)
  • Insurance records, current accident reports, claims, policies, etc.
  • Minute books for director and stockholder (including bylaws and charter)
  • Property appraisals by outside appraisers
  • Retirement and pension records
  • Tax returns and worksheets, revenue agent’s reports and other documents relating to determination of income tax, sales tax, or payroll tax liability

Records That Should Be Retained For At Least Seven Years:

  • Accident reports and claims (settled cases)
  • Accounts payable/receivable ledgers and schedules
  • Expense analyses and expense distribution schedules
  • Garnishments
  • Inventories of products, materials and supplies
  • Plant cost ledgers
  • Telephone logs/message books
  • Time books/cards
  • Withholding tax statements
  • Employee payroll records (W-2, W-4, annual earnings, etc.)

Records That Can Be Destroyed After Three Years:

  • Bank deposit slips
  • Employment records
  • General correspondence
  • Internal work orders
  • Production and sales reports
  • Sales commission reports

If the records you are looking for aren’t listed above, you can find additional record retention recommendations in our current record retention schedule.

IMPORTANT: The actual amount of time you are required to keep a specific document may be longer depending on your business or what is contained in the document. If you have questions about specific documents or would like some advice on your current record retention practices, email Rea & Associates.

Author: Joe Popp, JD, LLM (Dublin office)

 

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From Good To Great: 5 Ways You Can Improve Your Manufacturing Business

Friday, October 3rd, 2014

Today, millions of hard-working men and women will celebrate Manufacturing Day across our nation. United in their mission to address common misperceptions about the industry, manufacturers will rally together to take charge of the industry’s public image, address the industry’s skilled labor shortage and promote the ongoing prosperity of manufacturing throughout the U.S.

Manufacturing has always been the backbone of Ohio – and Rea has been proud to support many companies throughout the state. In recognition of Manufacturing Day, here are five ways you, as a manufacturer, can overcome challenges facing your industry.

Be The Leader You Want to Be. 

As a seasoned manufacturer, you know your business inside and out – when there is a problem, you provide a solution; when a ball drops, you pick it up. If this sounds like you, then it’s time to get out of your comfort zone. If you always find yourself in the middle of daily business operations, you’re unlikely to get out in front of opportunities that could maximize your company’s long-term value. Be the leader your company needs. Stop putting out fires. Instead, make waves.

Tell Your Story, Invest In People. 

The manufacturing industry has had its share of problems when it comes to attracting and retaining a talented workforce, but you can alter how people think about a career in manufacturing by simply sharing your own stories and experiences. Unless you take the time to personally promote the manufacturing industry, your would-be employees may incorrectly associate the industry with unprofessional, dead-end jobs in dirty factories. Get out and connect with local vocational schools and other educational entities and community groups to tell your story.

Embrace A Strategy; Minimize Risk. 

Every company should have a strategic plan. From financial objectives to operational goals, your strategic plan should provide your workforce with an overview of the company’s operational and growth initiatives. Formal plans should also address the company’s budget and financial forecast. Proper utilization of these plans will help you reap optimal results by providing you with the information needed to make better decisions. Below are initiatives you can include in your strategy to gain greater insight into the industry and to learn how you can better manage your current financial and operational objectives.

  • Benchmarking is a proactive way to stay in line with, or ahead of, the competition. It’s important for you to understand how your company stacks up against the competition, as well as gain insight into current trends, future opportunities and potential risks.
  • Key performance indicators (KPIs) are critical to the management of your daily operations. In order for you to deliver results, you and your management team must understand the resources you are working with and how you are affected. Key indicators also provide management with insight into production and can alert leaders to potential areas of risk.
  • Get to know your ERP system. Many companies have implemented some type of enterprise resource planning (ERP) system in the hopes of streamlining their accounting, production, benchmarking and KPI efforts. Unfortunately, many are unable to actually use the system in the way they would like. You must take control of your ERP system and insist the vendor meet with your team to set up the ERP system in a way that makes sense to your company. An ERP system that is set up properly will provide your company with the data you need to manage your business more effectively.
  • Understand your cost structure. For example, understanding what it costs to make, distribute and/or sell each unit of each product line, will give you a better grasp of how much you’re spending on material, labor and overhead, which will better equip you to allocate your efforts and resources. Unfortunately, many managers don’t understand the company’s cost structure, which puts the company at risk of losing money in the long run.

Back-Up For Safety. 

Many companies in the manufacturing industry have taken steps to embrace technology and have added hardware and software to help collect data and streamline workflow; however, with the introduction of new programs and equipment comes the introduction of additional risks. Some companies have chosen to back-up their information as a way to avoid losing important data, but if the back-up isn’t tested, there is no guarantee that it will actually work. Unfortunately, some companies lose critical data simply because they fail to test the back-up.

Consider Going Lean. 

The manufacturing industry underwent a significant transformation in the 90s with the wide-spread practice of Lean Six Sigma, which helps companies become more efficient and effective by introducing better processes throughout the organization. Many companies, however, have yet to incorporate Lean Six Sigma into their operations. Much has changed over the course of two decades and new uses for Lean Six Sigma have been discovered and applied to additional departments outside of just the manufacturing floor, the service and transactional functions of businesses have really benefited. You should consider Lean Six Sigma as a way to become more efficient and effective in every aspect of their business. Especially while the industry struggles to attract new talent, Lean Six Sigma may be just your company needs when you need to do more with less.

These are just a few examples of challenges facing the manufacturing industry where a trusted advisor can help you navigate through possible solutions. If you own a company in the manufacturing industry or if you want to explore ways to improve your business’s efficiency, effectiveness, profitability and risk management systems, email Rea & Associates. Our team is passionate about helping manufacturers reach new heights, mitigate risks and attract and retain employees.

Author: Kyle Stemple, CPA, Director of Manufacturing Services (New Philadelphia office)

 

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IRS Says You Owe More? Don’t Write That Check Yet!

Tuesday, September 23rd, 2014

Tax season can be rough for any business. Just about the time you allow yourself to move on to something else and breathe a sigh of relief … it happens. You sift through your mail and find yourself staring face-to-face with a letter from the Internal Revenue Service (IRS). In a matter of seconds your adrenaline levels are through the roof. You know that what’s inside the envelope isn’t a simple thank-you note for filing your taxes on time. You carefully tear it open.

Nobody likes to hear that they have to pay more to the IRS than they originally thought. But, before you jump to conclusions and quickly write out a check for the amount the letter says you owe:

  • Stop
  • Take a deep breath
  • Call your financial advisor

4 Tips For Resolving Your Tax Dispute

Believe it or not, the IRS does make mistakes. Agents can accidentally input incorrect information, computers can misread data and tax codes can be inadvertently overlooked or misinterpreted. It happens. If you believe that the IRS was wrong in a decision it made about your business’s tax returns, follow these four steps to reach a resolution.

  1. Follow Instructions. Sometimes the easiest way to resolve the issue is to follow the instructions. Sounds easy enough, but not everybody gets this part right. If the IRS sent you a notice, look for the section that explains what to do if you disagree with their decision and follow directions. Additionally, be sure to attach any supporting documentation and mail it back to the address given by the deadline requested. After the IRS has made its decision, you will be notified via U.S. Mail. When in doubt, opt to send inquiries to the IRS via certified mail and request a receipt.
  2. Make The Call. If your initial challenge was rejected, your next step is to follow up with a phone call. The rejection notice you received should have included another important piece of information: the contact name and number of the IRS employee who rejected your challenge. When you call, in a polite and professional manner, ask to speak to the employee’s manager. Even though you are passing over the employee on the chain of command, take care not to say anything about why you are asking to speak with their supervisor. The last thing you need is to create animosity. When you finally have the opportunity to speak with a supervisor, your case should be laid out in much the same way as your original challenge. You should be clear and concise in your explanation while taking care to address any concerns that were noted by the original employee in their rejection letter. If your letter didn’t include an employee’s name and phone number, send another certified letter to a general supervisor with the agency and request that they reconsider your case.
  3. Appealing To A Higher Office. If you still haven’t convinced the IRS to change its mind, don’t give up – even if you have already mailed several letters and racked up a lot of call time with the agency. Further up the chain of command is the Office of Appeals, an independent office within the IRS. This is just one more step you have to take on your journey to find an IRS employee who agrees with your. To get your case to the Office of Appeals, follow the instructions that were found in the earlier notices. If you are unable to locate these instructions, you can find them on the IRS website.
  4. Welcome to U.S. Tax Court. Sometimes a resolution can’t be achieved in the first three steps of the appeal process. If you find yourself in this situation your final option is to take the case to the U.S. Tax Court. At this point you may be discouraged and may even question whether you should continue on with the fight, but if you still believe that the IRS is wrong it is probably in your best interest to see it out to the end.

If your dispute is less than $50,000 you will have the option to represent yourself. Similar to how a small-claims court operates, there is no jury and the judge will not hold your inexperience against you. Once court is in session you will state your case again, provide evidence and answer any questions a judge may ask about the claim. Be advised, however, that once a decision is made at this phase it is final and cannot be appealed.

Sometimes, even though you have decided that you want to move forward, an IRS attorney may offer to settle out of court for a figure less than what the IRS says you owe. If this happens, you need to decide whether you will accept the settlement or if you will move forward with presenting your case to the judge. The choice is yours.

If you find yourself at odds with the IRS over a tax issue and are not sure how to proceed, email Rea & Associates for more information.

Author: Clayton W. Rose, III, CPA

 

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Getting Back To Business: How Outsourcing May Provide Relief To Your Business

Friday, September 19th, 2014

As a business owner, you have a lot to think about. Your investors, managers, employees and clients depend on you to deliver top notch products and services while keeping overhead costs low in favor of increased revenue. In fact, your business’s success can probably be attributed to your leadership skills and your knack for being able to see the big picture while bringing together all the other elements to reach a profitable conclusion. So why are you still in charge of handling your business’s accounting and bookkeeping needs when you could be so much more effective guiding your business toward further growth? Outsourcing may provide you and your business with the relief you need to get back on track.

Maybe you think your business is just too small to hire an accountant or bookkeeper or that you’re saving money by doing these jobs yourself. Perhaps you just aren’t aware of what options are available to you and your business. When you consider that the most effective solution is the one that effectively addresses your unique needs and budget, it should be no surprise that an outside accounting firm may be the answer you’ve been looking for.

Know Your Strengths And Weaknesses

The cost of hiring a full-time accountant or bookkeeper is a huge concern for many small business owners. To avoid a large expense, many owners or managers will purchase a copy of QuickBooks and try to work through their accounts themselves. Unfortunately, even if they have basic accounting skills, they may not have the patience, expertise and experience to handle the work. If done incorrectly, accounting flaws can be very costly, and could result in catastrophic consequences for your business.

Proper accounting and bookkeeping is essential to the short- and long-term success of your business. Outsourcing your accounting and bookkeeping work can help ensure accuracy and will free you up to focus on future growth, higher efficiency and increased sales. Below are a few examples of how outsourcing can solve your small business challenges.

***

Issue: Your business is relatively small (with a similar budget), and you can’t justify bringing on a full-time accountant.

Solution: Hiring an in-house accountant could turn out to be a hefty expense, especially if the quantity of work is relatively minimal throughout most of the year. Not only do you have to pay the new employee a living wage and benefits, you must be prepared to invest in the software and/or training a new accountant needs. By filtering work to an outsourced controller, you will have access to affordable, ongoing or as needed reporting. As a result, your management team will become more flexible and will have more data – and thus more authority – when making decisions that directly affect the business.

***

Issue: You’ve already invested in QuickBooks to manage your business’s finances. It seems to be working well so far, but you haven’t been formally trained on the software.

Solution: While QuickBooks is easy to use, sufficient supervision by someone who is proficient with accounting skills is essential. Without a QuickBooks expert on hand, you will have no clue as to what is going on “behind the numbers.” A trained and certified accountant can tap into the various capabilities of the software, which include the reconciliation process, accounts receivable tracking and accounts payable, etc. When your bottom line is at stake, you owe it to yourself and to your business to minimize problems that may occur. You can avoid any hiccups with the help of a CPA.

***

Issue: You don’t need all the capabilities an accounting firm offers and you don’t want to pay for a service you may never use.

Solution: Your CPA will work with you to make sure all of your accounting needs are met and that the services that are provided only address the needs of your business. Services that can be outsourced include full accounting services, oversight work and everything in between. You also have the option of expanding services if and when you need them. Outsourcing options available to you include:

  • Working with an accountant several times throughout the year to clean up your accounting and ensure a smoother year-end tax process.
  • Tasking an accountant with filing certain commercial activities and taxes on time to insure accuracy and to avoid overpaying.
  • Hiring an accountant to provide periodic financial statements to banks.
  • Utilizing an accountant as an extra set of eyes on all manner of documents. This provides you with a great system of control when ensuring the accuracy of your books.

Speak to a Rea & Associates CPA to find out how an accounting firm can address your unique accounting and bookkeeping challenges while allowing you to make the best use of your time. Learn more about the services our business accounting professionals offers.

Article: Clayton W. Rose III, CPA (Dublin office)

 

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