March 2016

Considering a Change in Accounting Method? – Form 3115 Updates

Posted on March 28, 2016July 23, 2024 by Debra Barcuch

Form 3115 - Accounting Word Cloud

On March 24, 2016, The Internal Revenue Service (IRS) made an announcement regarding the revisions of Form 3115. This was the first update since 2009, and the changes are now required to be used, however the IRS will still accept the previous version of Form 3115 until April 19, 2016. We have summarized the major changes from the IRS below and answered some of the most common questions received by our tax professionals on this subject.

What is new about Form 3115-Application for Change in Accounting Method in 2016?

The new form updates the previous form with formatting changes, allows for multiple change numbers, and adds some new significant questions. Below, we have detailed some of the major changes; however, this is a summary of some of the major changes and should not be considered as an all-encompassing list.

Duplicate Copy: The IRS has always required a duplicate copy of the form to be filed along with the original. Under the old procedures this form was to be filed in Ogden, Utah. As of January 2016 this duplicate copy is to be filed in Covington, Kentucky.
Multiple Changes in Accounting: The IRS has added spacing to allow for multiple changes in accounting to be taken on one form.
Legal Basis: On Page 3, Part II, Lines 16a and 16b the IRS requires that the legal basis supporting the changes be provided. The IRS indicated that in many situations taxpayers had made automatic changes without providing enough legal information to confirm that the taxpayer qualified for the change. Previously this information was only required for non-automatic changes.

These are just three of the changes under this new form. Tax preparers that utilize a Form 3115 should make themselves aware of the modifications to this new form. Per the request of the IRS, if a taxpayer has had a form prepared for the 2015 tax year that has not yet been filed, the form should be updated to the new Form 3115 prior to filing.

In addition to a new Form 3115 and instructions, the IRS announced that the filing location for the duplicate form is changing. Previously under Rev Proc 2015-13, taxpayers were required to file a duplicate Form 3115 with the Ogden, Utah, service center. Effective Jan. 1, 2016, taxpayers should file the duplicate form at the Covington, Kentucky, service center. If prior to April 20, 2016, a taxpayer filed their duplicate Form 3115 with the IRS at either the Ogden, Utah, or Covington, Kentucky, locations using the 2009 Form 3115, the taxpayer may file the original Form 3115 with their return using either the 2009 Form 3115 or the 2015 version.

The filing address to be used for the Covington, Kentucky, center is:

Internal Revenue Service201 West Rivercenter Blvd.PIN Team Mail Stop 97Covington, KY 41011-1424

Click here for a link to the updated Form 3115 – Application for Change in Accounting Method.

Types of Accounting Methods Available

What are the different types of accounting methods available?Cash basis and accrual basis are accounting methods that determine when and how you report income and expenses for tax purposes. In the U.S., the IRS wants you to use the same method each year when reporting income. Depending on your specific situation, there may be additional rules around when to use cash or accrual basis.

What is cash basis?When cash basis is used as the accounting method, income is reported as payments are received, instead of invoices are issued. Expenses are reported when you pay bills. If invoices are used and bills are received to pay later, then this report method will affect the amount reflected in your A/R and A/P accounts.

What is accrual basis?With accrual basis as the accounting method, income is reported as soon as invoices are sent to a client (instead of when money is received) and expenses are reported when bills are received.Accrual basis is more accurate than cash basis reporting. It also allows for better business management by revealing trends in income and expenses well in advance of the actual payments being made or received.

Considering a change in accounting method for your business?

If you are considering a change in accounting method for your business, be sure to ask the right questions before making a move.

How often can a company change its accounting method?
What straight-line method changes require IRS approval?
How does the Tax Year and Accounting Method Impact the Tax Picture for my business?
If the total amount of the change is less than $25,000, can I spread the adjustment out over several years?

For guidance on this issue, talk to one of our tax professionals today. We’re here to help. Gary Jackson, CPA is the tax and consulting partner and can help determine if a change in accounting method would benefit your business.

Could Your Business Benefit from the Work Opportunity Tax Credit?

Posted on March 18, 2016July 22, 2024 by Debra Barcuch

If you plan to hire new employees this year, you’re not alone. Plus, you may qualify to receive the Work Opportunity Tax Credit.

Employment statistics ended 2015 on a positive note. In addition, roughly 242,000 new jobs were added in February and the unemployment rate fell to 4.9%, its lowest level in eight years. Several recent studies indicate that the hiring momentum will continue in 2016. Hiring new employees could also earn you a credit on your tax return, if you meet certain requirements. The Work Opportunity tax credit is a tax break for qualified wages paid to new employees from certain targeted groups. This credit has undergone several changes since it was introduced nearly 40 years ago. The most recent extension of this credit — under the Protecting Americans from Tax Hikes (PATH) Act of 2015 — retroactively renews the credit for 2015 and extends it through 2019.

Understand the Mechanics of the Work Opportunity Tax Credit

The Work Opportunity tax credit applies to wages paid to a new hire from a targeted group who works for your business at least 120 hours during the first year. If a new employee works at least 400 hours during the first year, the credit equals 25% of his or her qualified wages, up to the applicable limit. The percentage rises to 40% if the new employee works more than 400 hours.

In general, the credit applies to only the first $6,000 of wages. But there are a number of exceptions, which we’ll discuss a little later. In addition, you may qualify for a credit of 50% of qualified second-year wages (in addition to first-year wages) if you hire someone who’s certified as a long-term family assistance recipient.

Here’s an example illustrating how this credit works: Suppose you hire Fred, a qualified veteran who was unemployed for six months before you hired him. He works for you for nine months and earns $500 per week, which equates to $19,000 in the first year. An added bonus is that Fred falls into a special targeted group of veterans and, based on his circumstances, he qualifies you for a credit on his first $14,000 of wages.

Because Fred worked more than 400 hours at your business, you earn a credit equal to 40% of his wages up to $14,000. In other words, your Work Opportunity credit is $5,600. However, you also must reduce your deduction for wages by the amount of the credit. So, your wage deduction for paying Fred is $13,400, and your credit is $5,600.

Important note. Typically, a credit will provide greater tax savings than a deduction of an equal dollar amount, because a credit reduces taxes dollar for dollar. A deduction reduces only the amount of income that’s subject to tax.

There’s no limit on the number of eligible individuals your business can hire. In other words, if you hire 10 people exactly like Fred, your credit would be $56,000.

Work Opportunity credits generated by pass-through entities, such as S corporations, partnerships and limited liability companies, pass through to the owners’ personal tax returns. If this credit exceeds your tax liability, it may be carried back or forward.

Know the Targeted Groups and Qualified Wage Limits

To determine whether you qualify for this tax break, first determine if a new hire belongs to one of these targeted groups:

Long-term family assistance recipients,
Qualified recipients of Temporary Assistance for Needy Families (TANF),
Qualified veterans,
Qualified ex-felons,
Designated community residents who live in empowerment zones or rural renewal counties,
Vocational rehabilitation referrals for individuals who suffer from an employment handicap resulting from a physical or mental handicap,
Summer youth employees,
Supplemental Nutrition Assistance Program benefits recipients, or
Supplemental Security Income benefits recipients.

Starting in 2016, the list of targeted groups has been expanded to include qualified long-term unemployment recipients, which is defined as people who have been unemployed for at least 27 weeks, including a period (which may be less than 27 weeks) in which the individual received state or federal unemployment compensation.

Special rules apply to summer youth employees, and the first-year qualified wage limit for them is only $3,000. In addition, there are four categories of veterans with qualified wage limits of $6,000, $12,000, $14,000 or $24,000, depending on his or her circumstances. The highest qualified wage limit for veterans ($24,000) goes to those who are entitled to compensation for a service-connected disability and unemployed for a period or periods totaling at least six months in the one-year period ending on the hiring date.

The next step is to evaluate whether a new hire meets the other requirements of the credit. You won’t be eligible for any credit if a new employee:

Worked for you fewer than 120 hours during the year,
Previously worked for you, or
Is your dependent or relative.

You also can’t claim a credit on wages paid while you received payment for the employee from a federally funded on-the-job training program. And you can take the credit only if more than 50% of the wages you paid an employee were attributable to working in your trade or business.

Obtain State Certification

Last but not least, to take this credit, you must be able to show proof from your state’s employment security agency that the employee is a member of a targeted group. In order to do this, you must either:

Receive the certification from the state agency by the day the individual begins work, or
Complete IRS Form 8850 on or before the day you offer the individual a job and receive the certification before you claim the credit.

If you use Form 8850, it must be submitted by the 28th calendar day after the individual begins work. On March 7, the IRS extended the deadline until June 29, 2016, for employers to apply for certification for members of targeted groups (other than qualified long-term unemployment recipients) hired (or to be hired) between January 1, 2015, and May 31, 2016. Qualifying new hires must start work for that employer on or after January 1, 2015, and on or before May 31, 2016.

June 29 is also the extended deadline for employers that hired (or hire) long-term unemployment recipients between January 1, 2016, and May 31, 2016, as long as the individuals start work for that employer on or after January 1, 2016, and on or before May 31, 2016. For long-term unemployment recipients hired on or after June 1, Form 8850 must be submitted by the 28th calendar day after the individual begins work.

The IRS is currently modifying the forms and instructions for employers that apply for certifications for hiring long-term unemployment recipients. But it’s expected that the modified forms will require new hires to attest that they meet the requirements to qualify them as long-term unemployment recipients. Guidance from the U.S. Department of Labor states, “In the interim, employers and their representatives are encouraged to postpone certification requests for the New Target Group until the revised forms are available.”

Timing Is Critical

If you’re planning to hire new employees in 2016, the Work Opportunity credit offers a simple way to lower your tax liability. It doesn’t require much red tape, except for obtaining a timely certification of the employee from your state employment security agency. Your tax adviser can help you determine whether an employee qualifies, calculate the applicable credit and answer other questions you might have. But, if you postpone applying for certification, you could lose out.

If you have questions about the Work Opportunity Tax Credit, ask Gary Jackson, tax partner at Cornwell Jackson. We’re here to help.

Get More Bang for Your Buck with Tax-Favored Employee Benefits

Posted on March 17, 2016July 22, 2024 by Debra Barcuch

2016 ushers in a few changes to the tax laws that govern benefits, as the IRS recently laid out in its annual “Tax Guide to Fringe Benefits.” The document features important clarifications, not just identifying which benefits are and aren’t tax-exempt to employees, but also the fine points of tests that tax-exempt employee benefits must satisfy to maintain that status.

Here are some of the changes and reminders for 2016 from the Tax Guide to Employee Benefits.

Mileage. The deduction for the business use of a personal vehicle dipped from 57.5 cents per mile last year, to 54 cents per mile currently. When employers reimburse workers for using their own cars for business (such as for traveling to a required out-of-town seminar or delivering documents for the boss), mileage pay might be considered a benefit to the extent it exceeds the actual cost to the employee of operating the vehicle. In spite of the roughly 6% decrease in the 2016 mileage rate and in light of the slide in gas prices during the past year, this benefit could add up nicely for employees.

Public transit. At the end of 2015, the dollar limit on monthly excludable public transit benefits nearly doubled, from $130 previously to $250 for all of 2015 (retroactive to January 1, 2015). The purpose of the retroactive increase was to have the limit match the benefit available in 2015 for employees who carpooled in a “commuter highway vehicle.” (The IRS is issuing guidance on how employers can address the impact of the retroactive 2015 increase on payroll taxes already withheld.)

For 2016, the public transit benefit rose again, to $255, the same as the 2016 limits for employees that carpool in commuter highway vehicles and for qualified parking. Qualified parking includes parking near your place of work as well as using parking lots next to mass transit stops.

Taxable or Not

In its overall guidance on employee benefits, the IRS reminds employers that its default position is that the value of benefits is taxable to the employee — unless the benefit is one specifically identified as excludable. In other words, you can be as creative as you want in providing benefits, but you need to inform your employees that they might be taxed on the value of anything which isn’t on the IRS approved list.

An exception is made for “de minimis” benefits. Such a benefit, according to the IRS, is “any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable.”

Examples include the personal use of a cell phone provided for business use, “low market value” holiday gifts, parties, and meals or cash to pay for them “provided to enable an employee to work overtime,” and life insurance worth no more than $2,000.

Excludable Employee Benefits

Here’s a list of other excludable benefits beyond the most familiar categories, like health and retirement plans, subject to clearly defined limits:

Achievement awards. The exclusion doesn’t apply to cash and cash-equivalent (for example, vacations, lodging) awards.

Adoption assistance. The plan must be clearly documented. Limits apply to highly compensated employees.

Athletic facilities. The exclusion applies only to on-premises facilities (or other locations that your company owns) if “substantially all” of the use is by employees, their spouses and dependents. Company-owned resort locations are excluded.

Dependent care assistance. The rules governing these programs are essentially the same as those which employees must satisfy to take a dependent care tax credit. Generally, an employee can exclude from gross income up to $5,000 of benefits received under a dependent care assistance program. IRS Publication 503 provides more details.

Educational assistance. These benefits, which can’t cover graduate education, must have “a reasonable relationship to your business,” and be part of a degree program.

Employee discounts. Among other limits, the discount can’t be more than 20% or the percentage of profit built into the price you charge regular customers.

Group term-life insurance. A variety of rules limit this benefit, including a $50,000 ceiling on the death benefit.

Health savings accounts. Employer contributions cannot be used to fund medical expenses that will be “reimbursable by insurance or other sources … and won’t give rise to medical expense reductions” on employee tax returns.

Lodging on your business premises. The basic requirements are that the lodging is furnished for the employer’s convenience and that the employee must accept it as a condition of employment.

Moving expense reimbursements. If you reimburse an employee for moving expenses, those expenses must be such that the employee could deduct them if he or she had paid or incurred them without reimbursement.

Stock options. Many rules apply here for all three categories: incentive stock options, employee stock purchase plan options, and nonqualified stock options.

No-additional-cost services. An example is an airline giving an employee a free seat on a flight if the flight had empty seats.

Working condition benefits. This applies to property and services provided to an employee, such as a company car, “to the extent the employee could deduct the cost of the property or services as a business expense or depreciation expense if he or she had paid for it.”

Some things that didn’t change.

Finally, the annual limit on untaxed employee salary reduction contributions to flexible spending accounts remains capped at $2,550. Also, the 0.9% Medicare payroll surtax still kicks in when an employee’s cumulative salary for the year exceeds $200,000.

This simplified overview might provide a catalyst to review your entire menu of tax-favored employee benefits. While the availability of a tax exclusion can deliver higher value benefits for employees than straight compensation, the benefits must still make sense in light of your employees’ needs and your own human resource strategies.

A Brave New World in Lease Accounting

Posted on March 14, 2016July 23, 2024 by Debra Barcuch

New retail space available for rent

Many companies choose to lease certain assets, rather than buy them outright. Leasing arrangements are especially common among construction contractors, manufacturers, retailers, health care providers, airlines and trucking companies that rely on expensive equipment or real estate in their day-to-day operations.

FASB Chair Golden Speaks Out

Here’s what Financial Accounting Standards Board (FASB) Chair Russell Golden has to say about the new standard on accounting for leases, according to a FASB News Release on February 25:

“The new guidance responds to requests from investors and other financial statement users for a more faithful representation of an organization’s leasing activities. It ends what the U.S. Securities and Exchange Commission and other stakeholders have identified as one of the largest forms of off-balance sheet accounting, while requiring more disclosures related to leasing transactions. The guidance also reflects the input we received during our extensive outreach with preparers, auditors, and other practitioners, whose feedback was instrumental in helping us develop a cost-effective, operational standard.”

Financial Reporting Incentive to LeaseRoughly 85% of these leases aren’t reported on company balance sheets, according to estimates made by the Financial Accounting Standards Board (FASB). But that’s going to change under a new accounting standard — Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) — that was issued on February 25.

Management may decide to lease assets for a variety of reasons. For example, they may not have enough cash for downpayments or access to financing — or they may not want to bear the risk that equipment will become technologically obsolete or property values will nosedive. In essence, leasing can allow companies to be more flexible, lower risk and adapt to changing market conditions.

From a financial reporting perspective, leasing offers an added bonus: Under the existing rules, a lease obligation is reported on the balance sheet of the company that leases the asset (the lessee) only if the arrangement is similar to a financing arrangement — then it’s considered a capital (or finance) lease. Otherwise, it’s an operating lease, which is expensed as lease payments are incurred and the terms are disclosed in the footnotes.

For example, if you lease a computer for most of its useful life and can purchase it for $1 at the end of the lease term, the arrangement would likely qualify as a capital lease. But it you sign a five-year lease on office space, it would probably be classified as an operating lease under current practice.

Globally, this treatment has allowed companies to hide trillions of dollars of operating leasing obligations in their footnote disclosures, rather than report them on their balance sheets.

The FASB Finalizes Long-Awaited Leasing Standard

The lease accounting project has been on the FASB’s agenda for more than a decade. In 2013, the FASB proposed the latest round of changes to lease accounting, which were largely aligned with an international accounting proposal on leasing. But these proposals were met with significant opposition across the world. So, the FASB and the International Accounting Standards Board subsequently abandoned their effort to create a converged lease accounting standard and separately went back to their own drawing boards.

The finalized standard on lease accounting under U.S. Generally Accepted Accounting Principles is a watered down version of the FASB’s 2013 proposal. It still allows for a distinction between how capital and operating leases are reported on the income statement and statement of cash flows.

Under the new standard, on income statements, capital leases will continue to be treated as financing transactions, meaning interest and amortization will be calculated with rent expense. Because interest is calculated on a declining balance over time, the cost of capital leases will look more expensive at the beginning of a lease. Leases that qualify as operating leases will be treated as simple rentals on the income statement. So, companies with rental-type contracts would report lease payments evenly over time.

The big difference under the updated guidance is that all leases with terms of more than 12 months will be reported on the balance sheet. In other words, lessees will report a liability to make lease payments, initially based on the net present value of those payments, and a right-to-use asset for the term of the lease. Companies can also elect to capitalize leases with terms of 12 months or less under the new standard.

In addition, lessees will need to expand disclosures about the terms and assumptions used to estimate their lease obligations, including information about variable lease payments, options to renew and terminate leases, and options to purchase leased assets. As a practical expedient, the new standard allows private companies and not-for-profit organizations to use risk-free rates to measure lease liabilities.

The new standard also provides guidance on how to determine whether a contract includes a leasing arrangement and, therefore, must be reported on the face of the balance sheet. For example, some “combined” contracts include lease and service provisions. These components generally need to be valued separately, because ASU 2016-02 requires companies to report only lease provisions on the balance sheet. For simplicity, however, the FASB allows companies with combined contracts to elect to also account for nonlease provisions under this guidance, if they prefer.

The FASB defines a lease as, “A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. Control over the use of the identified asset means that the customer has both (1) the right to obtain substantially all of the economic benefits from the use of the asset and (2) the right to direct the use of the asset.”

Updated International Rules Issued in January Regarding Lease Accounting

On January 13, 2016, the International Accounting Standards Board issued its updated guidance on accounting for leases. The FASB and IASB agree on how to report leases on balance sheets. The main difference between the two standards is how expenses are reported on the income statement.

In general, all lease expenses will be treated as financing transactions and capitalized under the international standard. For companies that follow the international accounting standards, the effects will spill over to their income statements and statements of cash flows, not just their balance sheets.

The international rules also permit exemptions for certain small ticket items, such as copiers and coffeemakers. But there’s no specific threshold for which assets are considered “small ticket,” requiring companies to exercise judgment.

Effective Dates of New Lease Accounting Regulations

Fortunately, you still have time to get your accounting systems and lease agreements in order. The new standard goes into effect for fiscal years beginning after December 14, 2018 (in other words, in 2019 for calendar-year public companies). Private companies have an additional year to implement the changes.

This doesn’t mean you should put this standard on the back burner for long. The changes could be significant from current accounting practices if you rely heavily on leased assets. And public companies will need to start collecting comparative data in 2017 to meet the regulatory requirements of the Securities and Exchange Commission.

For more specific information about how this new standard will affect your financial statements, contact our in-house expert, Mike Rizkal, CPA.

PATH Act Combines Three Tax Breaks on Manufacturing Equipment

Posted on March 10, 2016July 22, 2024 by Debra Barcuch

The shackles are off. The expanded Section 179 deduction and first-year bonus depreciation deductions are restored, with certain modifications, retroactive to the beginning of 2015. You can combine these two tax breaks with your company’s regular depreciation for a generous write-off of business assets.

The Protecting Americans from Tax Hikes- PATH Act which was signed into law on December 18, 2015, allows your business recover the cost of qualified business assets placed in service during the tax year within generous limits. These are the three main types of write-offs now available.

Section 179 deduction. Your business can expense the cost of new or used business property up to the maximum threshold for the tax year (see the article in the box below). The expanded limits provide a near-instant tax break for most small and midsize manufacturers. But the property must be placed into service during the year, not just purchased by year end. The PATH Act retained and made permanent the 2014 maximum $500,000 allowance for qualified property. This limit will be indexed for inflation beginning in 2016.

Bonus depreciation. The PATH Act restores the 50% first-year bonus depreciation retroactive to the beginning of 2015. It also extends the tax break for several years, along with a few technical modifications, under this schedule:

50% through 2017

40% for 2018

30% for 2019

Bonus depreciation applies to only new assets, not used ones. The bonus depreciation program is set to expire in 2019, unless Congress reinstates it.

Regular depreciation. For federal tax purposes, depreciation deductions for business assets placed in service are typically calculated under the Modified Accelerated Cost Recovery System (MACRS). That method uses a graduated percentage based on the useful life of the property that lets you write off the cost earlier than the straightline method. Most types of business equipment are considered to have a seven-year useful life. Computers are classified as five-year property.

MACRS treats property placed in service at any point during the year as being placed in service on July 1 under a “midyear convention.” This allows your business to benefit from a half-year’s deduction even on property placed in service late in the year.

Important note. Deductions may be reduced if more than 40% of the cost of the property (excluding real estate) is placed in service in the final quarter.

Three PATH Act Breaks in Action

This is how you can combine the three tax breaks:

Claim the Section 179 allowance,
Take first-year bonus depreciation on any purchases that haven’t been written off, and
Depreciate the remainder using traditional MACRS tables.

For example, an auto parts manufacturer placed $1 million of new machinery in service in 2015. The machinery has a seven-year useful life. Assuming the company didn’t make any other qualified purchases, it can maximize the combined deductions in 2015:

Section 179 deduction. It would first claim an immediate Section179 deduction of $500,000, or half of the cost, leaving a balance of $500,000.

Bonus depreciation. Then, it would take a bonus depreciation deduction equal to 50% of the remaining balance, or $250,000.

MACRS deduction. Finally, using the table for seven-year property, it could write off 14.29% of the remaining $250,000 cost of the property, or $35,725.

The total deduction for all three tax breaks is $785,725. Only $214,275 of the $1 million cost remains to be depreciated over the next six years.

Also, note that the MACRS percentage for seven-year property jumps to 24.9% of the cost in the second year. In the example provided, the company would be able to deduct another $62,250 in the second year. In other words, you can essentially depreciate almost 40% of the remaining cost (14.29% plus 24.9%) in the first two years.

Two Key Limits under Section 179

While the PATH Act permanently preserves the generous $500,000 Section 179 allowance, it encompasses two other important provisions:

Income limit. The Section 179 deduction can’t exceed your net taxable income from business activities. For example, if your business generates $400,000 a year in net taxable income and it places $450,000 of business property in service, the deduction is limited to $400,000. Bonus depreciation can be used to reduce your taxable income below zero, however.

Spending threshold. If the cost of assets exceeds an annual threshold, the maximum Section 179 deduction is reduced on a dollar-for-dollar basis. This threshold was moved in lockstep with the allowance, but now the PATH Act retains a $2 million limit, retroactive to 2015 (subject to indexing starting in 2016). If you placed in service $2.1 million of assets last year, for example, the Section 179 deduction is reduced to $400,000. The bonus depreciation program isn’t subject to a spending limit, however.

Professional Advice

Factor these enhanced tax breaks into your plans for purchasing equipment and you likely can substantially reduce your company’s tax liability. Contact your Cornwell Jackson tax adviser for more details on these tax-saving opportunities, including any rules and restrictions.

Strategic Planning for Manufacturing Tomorrow

Posted on March 4, 2016July 23, 2024 by Debra Barcuch

In the past year, manufacturing employment in the Dallas/Fort Worth area has dropped by 2 percent. This statistic alone seems negative, but the overall outlook for manufacturing is trending positive with increased focus on innovation, simplified supply chains, diversification into customer-focused services and creativity with materials performance and fuel sourcing. It’s still a challenging industry, but this real or perceived lull in growth is the perfect time to assess the structure and vision of your company. Strengthen the basics with strategic planning to be ready for what’s next.

Strategic Planning

A slower year or two for revenue may be the opportune time to pursue a transfer of assets to the next generation. If earnings are down 15-20 percent, for example, savings on the transfer and estate tax can be significant if owners act now.

Also, if year-to-year revenue continues to be flat or even less than the previous year, your CPA can help you consider reporting an operating loss and cleaning up the books through carrybacks and refunds from years when revenue was higher.

Even if the company is in good financial health and sustaining a moderate profit, now may be a good time to revisit the company vision, your business model, your KPIs and your tools for tracking them. There are many more integrated solutions that tie the sales side of the house to supply chain, to production and all the way through to realization. Leaders should take time now to explore and demo these various management tools.

Manufacturing Tomorrow

Significant global growth in manufacturing is forecast mainly in Southeast Asia, India, the Middle East and Eastern Europe. By 2025, it is expected that a new global consuming class will have emerged in these developing economies as wages rise and demands for more goods and services increase.

As these manufacturers mature, they will have to focus on reducing costs, appealing to a broader base of customers and finding more skilled workers. In the end, all manufacturers will have to respond faster to market shifts based more on a global pulse than what is happening in their backyards.

In established markets, customers are already dictating variation in products, after-sales customer care and advanced or more environmentally friendly materials. These buyers are doing the majority of research on their own, interacting with the producer only briefly, then hitting the submit button. If they have a bad experience, they report it on social media. Producers are serving increasingly knowledgeable customers who want it their way…or they will go somewhere else.

On the supply side, manufacturers will continue to deal with volatile resource prices and a shortage of highly skilled talent. Difficulty obtaining supplies, regulatory and labor risks and lack of public infrastructure will influence the location and relocation of production facilities.

All of these predictions point to the need for manufacturers to be tech-savvy and globally aware. Even if home base is Dallas/Fort Worth, the market is the world. Work with advisors who recognize this shift. Get your financial and strategic house in order to invest in tomorrow’s opportunities.

If you have any questions about how to add operational efficiencies, reduce taxes or plan for transfer of ownership in your manufacturing operation this year, talk to the manufacturing team at Cornwell Jackson.

Gary Jackson, CPA, is the lead tax partner in the Cornwell Jackson’s business succession practice. Gary has built businesses, managed them, developed leadership teams and sold divisions of his business, and he utilizes this real world practical experience in both managing Cornwell Jackson and in providing consulting services to management teams and business leaders across North Texas.

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Month: March 2016